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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1998
Commission file number: 0-18108
FINET HOLDINGS CORPORATION
(Name of small business issuer in its charter)
DELAWARE
94-3115180
(State or other jurisdiction of incorporation or organization) (IRS
Employer Identification No.)
3021 CITRUS CIRCLE, WALNUT CREEK, CA 94598
(Address of principal executive offices)
Issuer's telephone number: (925) 988-6550
(Former name, former address and former fiscal year, if changed since last
report)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: $.01 PAR
VALUE COMMON STOCK
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes.... No..X..
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended April 30, 1998 were
$12,561,000.
The aggregate market value of voting common stock held by non-affiliates of
the registrant as of July 27, 1998 was $99.1 million.
The number of shares outstanding of the issuer's common stock, as of July
27, 1998 was 32,475,867.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (check one): Yes...
No....X.....
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FINET HOLDINGS CORPORATION
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This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Readers are cautioned that actual results could
differ materially from those indicated in such statements as a result of
certain factors, including those set forth under "Certain Business
Considerations" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in, or incorporated by
reference into, this report.
TABLE OF CONTENTS
<TABLE>
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Item Description Page
- - ---- ---------------------------------------------------------- ----
<S> <C> <C>
PART I
1 Description of Business...................................... 3
2 Description of Property...................................... 24
3 Legal Proceedings............................................ 25
4 Submission of Matters to a Vote of Security Holders.......... 25
PART II
5 Market for Registrant's Common Equity
and Related Stockholder Matters............................ 26
6 Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 28
7 Financial Statements......................................... 34
8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 34
PART III
9 Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.......... 35
10 Executive Compensation....................................... 36
11 Security Ownership of Certain Beneficial Owners
and Management............................................. 39
12 Certain Relationships and Related Transactions............... 40
13 Exhibits and Reports on Form 8-K............................. 41
Signatures................................................... 45
APPENDIX
Independent Auditors' Reports................................ 46
Consolidated Balance Sheet at April 30, 1998................. 48
Consolidated Statements of Operations for the years ended
April 30, 1998 and 1997.................................... 49
Consolidated Statements of Stockholders' Equity
for the years ended April 30, 1998 and 1997 ............... 50
Consolidated Statements of Cash Flows for the years ended
April 30, 1998 and 1997.................................... 51
Notes to Consolidated Financial Statements................... 53
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Finet Holdings Corporation (the "Company" or "Finet") is a leader in
delivering homeownership-related solutions to consumers and real estate
services providers through electronic commerce. Finet is focused on
developing and providing connectivity solutions that will enable a seamless
electronic real estate transaction, producing a faster, easier, lower cost,
pleasurable experience, in sharp contrast to the current process.
The Company's proprietary technology solutions include iQualify, a
unique award-winning Internet service enabling consumers to obtain a
financing decision directly from Fannie Mae's Automated Underwriting System
("AUS") in under ten minutes, and Agent Connector, a unique Internet
productivity tool enabling Realtors to manage their business
electronically. Additionally, to broaden the Company's revenue base and
develop and demonstrate its concepts and products in an applied
environment, Finet's Homeowner Services Group also provides highly
automated mortgage financing and transaction settlement services and
operates retail service centers where salaried counselors assist consumers
in selecting appropriate solutions to their homeownership-related needs.
INDUSTRY BACKGROUND
Growth of the Internet and Electronic Commerce
The Internet has emerged as a significant global communications
medium, enabling millions of people to share information and conduct
business electronically. A number of factors have contributed to the
growth of the Internet and its commercial use, including (i) the large and
growing installed base of personal computers in homes and businesses; (ii)
improvements in network infrastructure and bandwidth; (iii) easier and
cheaper access to the Internet; (iv) increased awareness of the Internet
among consumer and business users; and (v) rapidly expanding availability
of online content and commerce which increases the value to users of being
connected to the Internet. According to International Data Corporation
("IDC"), the number of Internet users worldwide will grow from an estimated
69 million at the end of 1997 to an estimated 320 million by 2002.
The increasing functionality, accessibility and overall usage of the
Internet have made it an attractive commercial medium. Online businesses
can interact directly with consumers, and can frequently adjust features,
interfaces and pricing in response to competition. The ability to reach
and serve a large and widespread group of consumers electronically from a
central location and the potential for low-cost customized customer
interactions and solutions provide additional economic benefits for online
businesses. Because of these advantages, online businesses have the
potential to build large, widespread customer bases quickly and to achieve
superior economic returns over the long term. An increasingly broad
selection of products and services is being sold successfully online,
including travel services, brokerage services, software products and
computers. IDC estimates that the total value of goods and services
purchased over the Web worldwide will increase from an estimated $12.4
billion in 1997 to an estimated $133.0 billion in 2000.
The Homeownership Market
According to the Mortgage Bankers Association 67.1 million, or 65.7%
of the 102 million U.S. households, own their home. Many more desire to be
homeowners. The homeownership rate is expected to rise above 70% within the
next several years. According to the National Association of Realtors,
sales of existing homes reached a record 4.31 million in 1997, while the
Department of Commerce says new home sales in 1997 of over 800,000 was the
third best year ever. According to Chicago Title and Trust Co., the average
U.S. home is sold to a new owner every 11.9 years. Turnover rates vary
across the nation, with New York having the lowest rate at 18.7 years and
Arizona having the highest turnover rate
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at 6.4 years. With the working age population increasing about 1% per year
and the percentage of homeownership on the rise, barring a severe economic
downturn, home transactions should steadily increase throughout the next
decade.
There is an array of services connected with the sale and purchase of
a home including inspections, warranties, furnishings and fixtures,
landscaping, mortgage financing, escrow, title search, title as well as
flood, earthquake, wind and general homeowners insurance, moving and
storage, temporary housing, and relocation assistance. These annual sales,
financing and related services activities generate revenues exceeding $50
billion. The primary functional sectors are sales, financing and settlement
services.
Sales.
Licensed real estate brokers and agents represent home sellers by
listing properties for sale and performing marketing services. According to
Internet World magazine, realtors as a whole are older, less educated and
less familiar with the Internet than the average consumer. The same study
indicates that the average age of realtors in the United States is 51,
while the average homebuyer age is 35. Finet believes that as realtors
leave the business or retire, they are increasingly being replaced by
younger, technology-savvy individuals professionally educated in real
estate. According to Real Estate Confronts Reality, 50% of real estate
practitioners in five years are not in the industry today.
When addressing significant, complex financial decisions, such as
personal financial, investment, tax and estate planning issues, most
consumers turn to a trained and trusted expert for advice and guidance. The
Company believes that this is and will remain no less true for
homeownership decisions and that personal service and a human interface
will remain important to real estate consumers. No matter how paperless
and swift the process of homeownership becomes, there will remain a need
for qualified professionals to explain and facilitate the transaction.
Accordingly, Finet has developed electronic commerce enabling products and
services for real estate sales professionals as part of its overall
strategy.
Financing.
The combination of new home sales, turnover of existing housing and
the refinancing of existing residential loans requires a large annual flow
of funds. According to the Mortgage Bankers Association, in the 1990's new
mortgage loans in the United States have ranged from $700 billion to $1.1
trillion annually, with loans for home purchases averaging in the $4-500
billion range annually. During the same period, the average annual volume
of refinancing loans has been similar, but with significantly greater
volatility, as refinancings varied from a low of $90 billion in 1994 to a
high of $770 billion in 1993, as interest rates rose and fell,
respectively. The deductibility of home mortgage interest from taxable
income encourages owners to leverage home purchases with high loan-to-value
financing. According to Fannie Mae, residential loan originations will top
$875 billion in 1998, of which $550 billion will be purchase money loans.
Some mortgage financing is provided directly to buyers by retail
lenders, many of which also function as wholesale lenders funding loans
originated by independent mortgage brokers, who typically represent a
number of wholesale lenders. According to the National Association of
Mortgage Brokers, mortgage brokers and retail lender agents each originate
approximately half the annual volume of new mortgage loans. Historically,
in addition to the costs of other transaction related services, loan
origination fees average one to two percent of the loan amount.
Mortgage lenders generally fall into two categories: depository
institutions, such as banks and savings and loans, and independent mortgage
bankers. Mortgage bankers provide a large share of residential mortgage
funds, primarily through mortgage warehouse lines of credit, provided by
financial institutions and investment banks. Mortgage bankers use these
funds to provide loans to borrowers through their own retail loan officers
and/or by wholesaling through independent mortgage brokers. After funding a
loan, the mortgage banks typically sell the loan in the secondary market
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and reduce their line of credit balance. Depending on their objectives,
they may retain the servicing rights and service those loans or sell the
servicing rights to others.
Over the past several decades, the supply of mortgage funds has moved
from deposit-based local sources to investment-based national sources. Many
local and regional banks and savings and loans have transitioned from
"portfolio lenders" to "pass-through lenders," selling a high percentage of
their residential loans in the secondary market to Fannie Mae, Freddie Mac,
Ginnie Mae and others, who then securitize and sell loan portfolios to
pension plans, insurance companies and investors in national funds markets.
In another trend, the mortgage banking industry has experienced in the
1990's a period of widespread consolidation as many mortgage banks and
mortgage brokers have closed, merged, or been acquired. The Company
estimates that the number of mortgage brokers has declined from over
200,000 agents and 40,000 offices nationwide in 1993 to nearly half that
number today.
Settlement Services.
In addition to sales and financing services, completion of a real
estate transaction typically requires a number of additional services prior
to the closing of the sale, collectively referred to as "settlement
services." Historically these services, which include credit, appraisal,
title, escrow, inspection, engineering, warranty and insurance services,
are provided by independent specialists, most of whom are small local
businesses. Until recently, there has been limited ability for settlement
service firms to communicate and document their services other than through
traditional, costly, paper-intensive processes. Because each real estate
transaction involves many service providers, the fees of each include the
cost of duplicate marketing to the same customer. These inefficiencies
create an opportunity for an organization that can bundle and deliver these
services electronically at lower cost from a central point-of-sale.
Buyers and Sellers.
From a buyer's perspective, acquiring and financing a home can be a
daunting and complex process. Few, if any, buyers are aware of the full
range of homes, loan products and services available to them. Due to the
complexity of choices and the difficulty of comparing loan products, it is
difficult even for analytically inclined borrowers to determine the most
suitable product. The true cost of seemingly similar loans can vary by
hundreds of thousands of dollars over the term of the loan.
The traditional home sale process also involves difficulties for home
sellers. The presentation of a home to prospective buyers traditionally
involves a grainy black and white photo and specifications on a listing
sheet. Few prospective buyers who wander through a seller's home have been
fully pre-approved for a loan to assure they are financially capable of
purchasing that home. Not until after the seller accepts an offer and takes
the home off the market have buyers traditionally initiated the financing
process.
Recent Trends
For years, real estate agents and mortgage brokers have acted as
"information gatekeepers" in the home sale process. Sales agents have
carefully controlled information about homes for sale, the foundation on
which a purchase transaction occurs. Subscription-based multiple listing
services ("MLS") and local Boards of Realty have maintained a system that
puts the sales agent at the center of the transaction. This control over
the data has allowed sales commissions to become fixed at six to seven
percent of the purchase price. Similarly, mortgage brokers have controlled
a significant portion of the home financing process, in part as a result of
the myriad of choices confronting consumers and the difficulty of selecting
among those choices.
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The Internet is pulling down the barriers surrounding information
about thousands of loan programs and an average of 1.4 million homes for
sale. Today, consumers are increasingly able to bypass information
gatekeepers and go directly to the data they want. This loss of control has
become a significant threat to these organizations, leaving gatekeepers
looking to define a new role.
Fannie Mae and Freddie Mac, the two largest purchasers of loans in the
secondary market, have led the industry in improving and automating the
financing process, principally by developing and improving effective AUS
that automate the process of determining which loans will be approved for
subsequent purchase by Fannie Mae and Freddie Mac. Fannie Mae's "Desktop
Underwriter" is a comprehensive, sophisticated $100 million AUS with
impressive capabilities. Freddie Mac's "Loan Prospector" is an effective,
but less widely used competitor.
Access to an AUS is available only to approved lenders and the
mortgage brokers they sponsor. Fannie Mae's AUS makes a decision in
minutes, allows a simple and streamlined data verification and closing
process, assures that Fannie Mae will buy the loan after funding, and
eliminates certain lender underwriting risks. A growing number of lenders
use its AUS to quickly assess the suitability of a borrower, but
unfortunately, the vast majority of those lenders continue to rely on their
traditional "fat-file" full-documentation loan underwriting process, which
requires the borrower to submit a significant amount of unnecessary paper
documentation, including tax returns, account verifications and other
financial information.
In part, this reluctance to use these new streamlined processes
relates to many lenders' perceived need to continue with proprietary
methods and documentation. According to National Mortgage News, publicly
many lenders claim not to be frightened of the Internet, but privately they
often tell a different story. The Internet, they say, "is the place to be,
the opportunities are enormous," but, they add, "our company's identity is
aligned with the 3,000 loan officers we employ. Our corporate image is tied
up with maintaining a large staff of originators." Thus, while lenders
using an AUS can claim to be "automated" and are assured of having a
saleable loan, their underwriting and processing staff costs are not
reduced and borrowers do not benefit from the speed and simplicity that AUS
offer.
The ability of computers to access and process data and apply
sophisticated risk analysis algorithms enables them to make better, faster,
less expensive underwriting decisions than humans. The ability to view home
listings, make virtual home tours, compare financing alternatives and
obtain loan approvals on the Internet is changing consumer expectations.
Finet believes that a trend toward integration and simplification of the
real estate transaction process exists and is continuing. Technological
advances now offer the opportunity to provide integrated, rapid, cost
effective homeownership solutions to consumers.
However, despite increasing acceptance of electronic commerce in the
real estate industry, Finet believes that personal service and a human
interface will remain important to real estate consumers. When facing
large, complex personal financial decisions such as home purchases, most
consumers prefer to turn to a trusted expert for advice and guidance. No
matter how paperless and swift the process of homeownership becomes, there
will remain a need for qualified professionals to explain and facilitate
the transaction.
THE FINET SOLUTION
The Company is a leading provider of electronic commerce products and
services for real estate services providers and consumers in the
homeownership industry. The Company has designed its portfolio of products
and services, including iQualify, Agent Connector, and the Property
Transaction Network (the "PTN"), to provide rapid approval of mortgages and
simplified, integrated, technology-driven real estate transactions. The
Company's products and services allow consumers to determine the vendors,
products, services and level of assistance utilized in the home acquisition
process. In addition, the Finet approach enables the Company to leverage
its access to consumer information and data and its relationships with
other real estate services providers to promote its mortgage financing
business, which
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includes Finet Lending, which focuses on conforming and government loans,
and Finet Acceptance, which focuses on sub prime mortgage loans.
Proprietary Electronic Homeownership Services Network. The Company's
solution links the principal participants in a real estate transaction
through an electronic commerce network. Home buyers, realtors, lenders,
mortgage brokers and secondary market investors such as Fannie Mae and
Freddie Mac can communicate and exchange information electronically
directly and over the Internet, providing the opportunity to reduce costs
and increase the efficiency of the entire transaction process.
Benefits to Consumers. Consumers have several faster, easier, more
cost-effective ways to meet their home acquisition needs. Consumers can:
(i) use iQualify to obtain an unassisted loan decision directly from Fannie
Mae's Desktop Underwriter AUS in as little as four minutes, twenty-four
hours a day, seven days a week and select a lender (including Finet Lending
and Finet Acceptance); (ii) contact a Finet Service Center at
www.interloan.com, www.finet.com or other Finet Web sites, as well as by
phone and fax, for access to a customer service representative or a Fannie
Mae or Freddie Mac certified lender or a mortgage broker; (iii) contact a
realtor through Finet's PTN; (iv) review homes for sale at various Internet
real estate listing Web sites providing iQualify functionality; (v)
contact a Finet-sponsored mortgage broker; and (vi) access required
settlement services.
Because real estate transactions have traditionally required many
service providers, there are inefficiencies and duplicative costs and fees.
Finet believes that, by eliminating unnecessary requirements, simplifying
the business process and reducing costs, consumers will be able to realize
significant time and cost savings.
Benefits to Realtors. Realtors can use the Company's PTN to
communicate over the Internet and complete real estate transactions
electronically through the Company's Connector series of products. This is
particularly beneficial for realtors who are required to spend a
significant amount of time in the field since the PTN and Agent Connector
provide the ability to conduct business in the field via laptop computer
and wireless modem or phone line.
Benefits to Other Service Providers. Through the use of AUS, the
Company has been able to establish special benefits for other real estate
industry participants. During fiscal 1997, the Company sponsored and
trained more mortgage brokers to use Fannie Mae's AUS than any other
company. In addition, Finet was the first lender to open the AUS
gatekeeper controls for selected brokers, giving them unimpeded, direct
access to AUS. As a result, these brokers can receive the fastest possible
response time and a preferred lending rate. Construction companies,
relocation firms and credit unions can also use Finet's solution to connect
to iQualify and Finet service centers in order to enable sales personnel to
quickly identify qualified homebuyers and arrange required financing.
Strategic Relationships. A key element of the Finet solution is the
concept of "coopetition". By supporting a "vendor-neutral" approach that
empowers consumers to choose the products, services and vendors that best
meet their requirements, would be competitors can become cooperative
partners. The Company has entered into a number of business-to-business
strategic vendor relationships and technology development relationships
that enhance its ability to distribute its connectivity products and
services and create value-added customers for its partners through its
electronic network.
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The following illustrates the process through which the Company uses
its technology, products and services and the Internet to facilitate
electronic real estate transactions:
STRATEGY
The Company's objective is to leverage the Internet infrastructure and
other connectivity and process technologies to become the leading provider
of electronic commerce enabling solutions for real estate services
providers and consumers in the homeownership industry. The Company intends
to achieve this objective through the following strategies:
Build Strong Brand Recognition. The Company's marketing strategy is
to promote, advertise and increase its brand equity and visibility through
comprehensive service and a variety of marketing and promotional
techniques, including advertising on leading Web sites and other media and
developing business alliances and strategic partnerships. The Company also
intends to build brand recognition by fully exploiting its first-to-market
advantage with iQualify and its Connector products in the online real
estate market.
Maintain Technology Leadership. The Company has played a leading role
in creating and defining the market for electronic commerce based real
estate transactions and intends to continue to develop and distribute
software and services that electronically link businesses to their
customers and other businesses. The Company believes that its innovative
technology and its technology development relationships with Fannie Mae and
Freddie Mac have given the Company a competitive advantage. The Company's
internal development group has expanded and the Company will continue to
invest in and enhance its technology in order to further simplify and
automate the process of applying for and acquiring mortgage financing and
related transaction services.
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Promote Strategic Relationships. Finet intends to continue to
leverage its strategic relationships with Stewart Title ("Stewart"),
Brightware, Fannie Mae, Freddie Mac and others to enhance brand recognition
and increase revenues resulting from all types of real estate transactions
involving the Company's electronic commerce solution. The Company will also
selectively pursue strategic alliances and business partnerships in order
to leverage the Company's current market position, increase its online
visibility and accelerate distribution of its products. The Company
believes that opportunities also exist for it to further broaden its
product and services offerings through strategic alliances.
Expand Product and Service Offerings. The Company intends to broaden
its product offerings into related homeownership areas, including bundled
settlement services, insurance and other complementary services. The
Company also intends to continue to connect homeownership industry
participants on an open platform and to accelerate the enabling of fully
electronic homeownership transactions. The Company believes that the
centralized call center currently under development will further enhance
the level of service the Company is able to provide as the Company's
skilled customer service representatives cultivate ongoing relationships
with homebuyers.
Expand Distribution. Finet intends to aggressively develop
distribution channels for its iQualify service. The Company will promote
products and services for real estate professionals, such as its Agent
Connector for realtors, which will leverage these professionals' access to
potential homebuyers. The Company also intends to expand distribution of
its services by strengthening its existing strategic relationships and
forming additional relationships with key industry participants, such as
Internet home listing sites, title companies and other settlement services
providers, and major insurers. Through these relationships, the Company
seeks to increase access to the Company's services through traditional and
Web-based distribution channels.
Pursue Strategic Acquisitions. The Company believes that there
continues to be a significant opportunity for it to expand its products and
services through acquisitions of complementary businesses. The Company
believes that the completion of additional acquisitions that enhance the
Company's technology portfolio and the development of new products and
services will enhance the Company's ability to make homeownership
transactions faster, easier and less expensive for industry participants
and consumers.
PRODUCTS AND SERVICES
The Company provides a broad range of products and services to
consumers and real estate service providers in the homeownership industry.
iQualify
iQualify is Finet's proprietary, Internet-based software system that
provides a simple, fast decision for consumers seeking to finance the
purchase of a home. Through iQualify and the Company's status as an
approved lender, Finet has provided a way for consumers to receive from
Fannie Mae's AUS a loan approval decision in as little as four minutes.
Prior to the development of iQualify, only Fannie Mae approved lenders and
the mortgage brokers they sponsor could access its AUS. With iQualify, the
prospective homebuyer completes a simple data form, authorizes credit card
payment of Finet's $39 processing fee and submits the loan application via
a computer with Internet access. iQualify automatically merges the
consumer's credit information from three national credit repositories,
merges and formats the data and transmits it over a dedicated high speed
line to the AUS in Washington, D.C. In as little as four minutes,
consumers are notified by email that their application has been processed
and a credit decision is available. If the application is approved, Fannie
Mae agrees, subject to verification of the consumer's application
information, to buy the loan from any approved Fannie Mae lender the
consumer selects to fund the loan.
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iQualify provides significant advantages for the parties involved in a
real estate transaction. iQualify empowers consumers by allowing them to
(i) assess their buying power and determine the amount they can afford to
spend on a home before they go shopping; (ii) obtain an answer
confidentially and without any sales pressure; (iii) obtain an approval
that will be honored by any of the hundreds of Fannie Mae approved
lenders; and (iv) shop for the best loan terms. In addition, sellers are
assured that the buyer can afford a selected home before they take the
property off the market. The AUS decision also permits a very simple
streamlined verification and closing process and eliminates certain
traditional lender underwriting risks.
The Property Transaction Network.
The PTN is an Internet-based network of realtors and other home
acquisition service providers. Internet connectivity as well as other
specialized realtor services are provided by Finet's Connector products.
Realtors pay a nominal monthly fee to maintain access to all the
Connector's Internet features. Also available to PTN realtor members are
customized marketing services provided by Mortgage Marketing Concepts
("MMC"), a specialized, fee-for-services marketing division of the PTN.
MMC also develops and sells mortgage leads to Finet service centers and
independent mortgage brokers. Leads are developed through a variety of
methods, including direct mail, list purchases and telemarketing.
The Connector Series of Products.
In November 1997, Finet introduced Agent Connector, an integrated
business management and Internet application designed and customized
specifically for realtors. Agent Connector is a technologically innovative
real estate application that has been nominated for several industry
awards. It provides, among other things, a personal e-mail address,
Internet templates for creating and posting personal Web pages and home
listings on the Internet, an electronic contact manager, connectivity to
AUS for fast loan approvals and to counselors at a Finet Service Center,
and the ability to download leads from Finet. Because of the nature of
their business, realtors seek to maximize their direct contact with
customers. Agent Connector enables realtors to conduct business in the
field with a laptop computer and wireless modem or phone line. In
addition, realtors may use Agent Connector to facilitate electronically
completed real estate transactions.
Finet is developing a non-contact manager version for realtors who
have and prefer to keep any of several widely marketed realtor-oriented
contact managers. The Internet Connector will interface with other vendors'
contact manager applications. In addition, private label versions of both
Connector products are being developed for Stewart Title Company, one of
the Company's strategic partners and a leader in digitizing the nation's
property records and facilitating electronic settlement services. These
versions, which will be distributed by Stewart's 3,900 office, 10,000
person national distribution system, will also provide electronic access to
an extensive array of settlement services in which Stewart is an automation
leader.
Finet Lending.
Finet Lending, formerly Monument Mortgage, Inc. ("MMI") and Mical
Mortgage, Inc. ("Mical"), is the Company's mortgage banking unit, which
offers prime mortgage loans for borrowers with good credit. Finet Lending
develops competitive loan programs, underwrites loans, funds those loans
using its mortgage lines of credit and sells those loans in the secondary
market. Finet Lending's primary sources of loans are wholesale mortgage
brokerage firms, its retail offices and the Finet service centers. Finet
Lending has been a technology leader and active participant in the Fannie
Mae and Freddie Mac's AUS development programs throughout the 1990's. In
June 1998, Finet Lending was recognized as one of the most technologically
advanced mortgage bankers, both in using technology and in adapting its
business processes to benefit consumers when it and Fannie Mae became joint
recipients of the Computerworld / Smithsonian Award.
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Finet Acceptance.
Finet Acceptance, formerly Monument Acceptance Corporation and Coastal
Federal Mortgage Company ("Coastal"), is the Company's alternative lending
unit which offers sub-prime mortgage loans to the one out of every seven
borrowers who has some type of credit impairment, such as a less than
perfect payment history, recent loss of employment or a recent personal
bankruptcy. This unit is one of the Company's fastest growing and most
profitable areas of business.
Finet Service Centers.
Through its integrated retail service centers, the Company offers a
comprehensive and competitive array of loan products, including those of
its own and other lenders, in order to meet the home financing needs of
consumers. The service centers function as mortgage brokers. Licensed
counselors assist consumers to select the most appropriate financing
solution and settlement services to meet their needs. These counselors are
equipped to communicate via phone, fax, e-mail or Internet conferencing.
Finet Loan Servicing.
Finet is certified to provide servicing for mortgages. Servicing
entails collecting and disbursing monthly mortgage payments. When a loan
is sold, the servicing rights may be retained by the seller or released to
the purchaser for a fee. From time to time, Finet retains servicing rights
on the most desirable loans and releases the servicing rights when it sells
loans of relatively less desirable loans.
As an approved servicer of loans, Finet can buy and sell servicing
portfolios. This capability in combination with the Service Center's loan
origination capability creates the opportunity to acquire discounted, early
maturity servicing portfolios whose loans can then be reset or refinanced
into a more valuable servicing portfolio. Although servicing fees are a
small percentage of the monthly mortgage payments received from borrowers,
they provide a steady source of revenue. Since the value of servicing
rights is generally a function of interest rates and expected average time
to loan maturity or payoff, the bulk sale of loan servicing rights can
provide significant revenues to the Company.
Bundled Settlement Services.
In addition to sales and financing services, completion of a real
estate transaction requires a number of settlement services prior to its
closing. Historically, small, independent companies that specialize in
providing such services have provided real estate transaction settlement
services. Due to varying circumstances and risks in different parts of the
country (such as flood, tornado & earthquake risks) and the increasing
automation of property title and valuation information, transactions
require differing levels and combinations of settlement services.
In concert with its strategic partners, the Company is developing the
ability to coordinate the single point delivery of required services as a
bundled package with attendant marketing cost savings which can be shared
with consumers. For example, Stewart Title, the nation's fourth largest
settlement services firm, a technology leader and one of the Company's
strategic partners, has developed SureClose, a suite of electronic commerce
products that enable lenders to order and check the status over the
Internet of all the services necessary to close a real estate transaction.
Access to this type of service is being incorporated into the co-branded
Finet Connector products to be distributed by Stewart's sales force.
<PAGE> 12
TECHNOLOGY AND THE INTERNET
Personal computers and the Internet are changing the way business is
conducted in nearly all business sectors. As a result, Internet-related
businesses are growing rapidly. According to a 1998 Bessemer Trust e-
commerce report, during the last three quarterly periods of 1997, airline
ticket reservations rose 300%, stock and mutual fund purchases jumped 291%,
computer hardware sales were up 111% and car rental reservations doubled,
while the seven million households making an online purchase were more than
double the 3.2 million households making online purchases during the
corresponding periods of 1996.
Yet, in spite of this explosive growth more than half of the homes in
the United States do not have personal computers and less than 25% of
computer owners nationwide have Internet access. Continuing rapid Internet
growth is expected. Market researchers expect that by the year 2000, 46.0
million consumers will be making on-line purchases in the aggregate of
approximately $6.0 billion per year primarily for services and commodity
types of products. This consumer activity number is small compared to the
$2.5 trillion total retail sales in the United States in 1997.
Of greater importance to the Company's strategy, business-to-business
electronic commerce transactions are generating nearly ten times as much
revenues as consumer sales. Bessemer Trust estimated that in 1997 over
$8.0 billion of trade was done over the Internet, compared to $1.0 billion
of retail sales. In addition, it also indicated that Internet trade
projections are $105.0 billion for the year 2000 and $325.0 billion by
2002.
Business managers can no longer think of their companies as discrete
entities performing the traditional functions of purchasing, producing and
selling in semi-isolation from those with whom they do business. The
Company believes that additional productivity gains will come from
repositioning business practices away from companies as stand-alone
entities toward the activities that bind multiple organizations together
across the spectrum of suppliers, producers and customers. As a result, the
optimum business strategy will be to manage an individual business as one
link in the entire supply chain system. The Internet provides the link that
enables businesses to share information and computing power.
The Company focuses on connectivity and solutions that enable
electronic homeownership transactions between businesses and between
businesses and consumers. Finet's proprietary technology products and
strategic distribution partnerships are designed to link real estate
participants and facilitate electronic commerce in this market segment.
The Company recognizes that it can not disregard those individuals and
businesses which have not yet become Internet enabled. Accordingly,
Finet's multiple distribution channels are intended to support an orderly
transition from the old ways of doing business to the new.
To that end Finet is undertaking a significant internal transformation
in the way its various divisions, products, Internet technologies - and
eventually its customers - communicate. The Company expended over $1.6
million in technology research and development costs during fiscal 1998.
Following an enterprise strategy that focuses on leveraging the Internet as
a mass communications medium, Finet is implementing a nationwide Citrix
Winframe-based wide area network; is preparing to deploy an Internet-based
telephony solution; is designing a Virtual Private Network (VPN) that will
provide remote access capability to its data, products, and services for
staff and customers; and has arranged with Frontier Global Center to
provide nationwide co-location and disaster recovery services for its
Internet web serving technologies.
<PAGE> 13
STRATEGIC RELATIONSHIPS
Home Listing Web Sites
iQualify empowers consumers to get a faster, easier and lower cost
mortgage on their own. It is the only open, vendor-neutral Web site that
delivers Fannie Mae's technology solely for the benefit of consumers. One
of the most appropriate times for consumers to determine their financing
capability is when they are reviewing homes for sale. The Company has been
approached by several of the leading home listing Web site operators who
are interested in making iQualify functionality available to their viewers.
The Company has entered into such agreements with the operators of
homeseekers.com and citynet.com and is in discussions with several others.
Citynet.com is a private Intranet site that combines the over 600,000
home listings of NDS Software, Inc.'s ("NDS") www.homeseekers.com Internet
site with an end user interface for AUS. This site was customized for
agents who specialize in representing buyers rather than sellers. These
agents are reluctant to refer their buyers to public home search sites and
expose them to hundreds of ads from competing agents. With CityNet, a buyer
client receives an access code that lets them view all listings, but the
only agent ad they see is that of the referring buyer agent.
Stewart Title Company
Stewart is the nation's fourth largest title company and a leader in
assisting governmental property recording agencies across the nation to
digitize their information so that it can be utilized in electronic
databases. Its corporate focus is on facilitating paperless electronic
delivery of transaction settlement services. Stewart is an active
development partner with the Company in pursuing its complementary
objectives. The Company and Stewart have entered into an agreement for
Stewart to distribute private label versions of the Company's Connector
products to realtors through Stewart's national distribution system, which
consists of approximately 10,000 salespersons at 3,900 Stewart offices.
Fannie Mae / Freddie Mac
Fannie Mae and Freddie Mac are the major purchasers of conforming
loans in the secondary market and have played leading roles in the
development of highly sophisticated, large scale automated underwriting
systems. Finet is an active participant on Fannie Mae's technology
development committee and is pioneering several projects under Fannie Mae's
auspices to provide and advance new improvements in the real estate
transaction process. The unique combination of Fannie Mae's Desktop
Underwriter AUS and Finet's innovative iQualify service were jointly
awarded the 1998 Smithsonian Award. Since inception of the project, the
Company also has played an active role in assisting Freddie Mac in
development of its AUS, called Loan Prospector.
Performance Advantage Technologies
Performance Advantage Technologies ("PAT") has developed a highly
effective sales communication system called Predictive Decision Patterns
("PDP") and has expertise in call center management. PDP training has
resulted in substantial increases in sales closing percentages in similar
sales environments and is being customized for use throughout the Company.
PAT is working with the Company to design a fully integrated call center
system using these advanced techniques. Additionally, PAT is assisting in
developing PDP based responses for the Company's customized Brightware
automated communication system applications.
Brightware
Brightware, a software developer, has created a sophisticated
automated response system designed to answer customer inquiries in real
time with human-like characteristics. In similar applications, the system
has performed better
<PAGE> 14
than live customer service personnel, answering 80% of inquiries in real
time with 98% accuracy while appropriately referring the remainder for more
expert human response. The Company is customizing its response rule base
and vocabulary in conjunction with Brightware for use in several of its
distribution channels and expects this system to substantially improve the
responsiveness of iQualify's automated service.
Additionally, Brightware has entered into a joint development
agreement with the Company to develop a companion product to perform
automated outbound sales agent functions. These applications are expected
to also incorporate the use of PAT's PDP technology.
iMall
iMall is an Internet-based virtual shopping mall. iMall provides a
way for the Company to supply various tangible products and post-
transaction service needs to homeowners. iMall consists of several retail
sites, including PTN Direct, through which computers and related equipment
are sold at competitive prices. The Company believes that iMall can serve
as a model for the vast array of diversified products and services that can
be offered and distributed to the homeownership industry by the Company.
Additional Technology Resources
The Company has key technology resources in place to assist with
various technology and infrastructure issues, including Gartner Group for
Y2K compliance, Ryno Technologies for national Citrix wide area networking,
Gensler Associates for service center design, and Frontier Global Center
for Internet web server co-location services.
COMPETITION
The electronic commerce market is new, rapidly evolving and intensely
competitive, and the Company expects competition to intensify in the
future. Barriers to entry are minimal, and current and new competitors can
launch new sites on the Internet at relatively low cost. In addition, the
residential mortgage loan business is intensely competitive. The Company
currently competes with a variety of other companies including (i) various
online mortgage brokers, including E-Loan Inc., HomeShark and AllTell
Information Services; (ii) a number of indirect competitors that specialize
in online commerce or derive a substantial portion of their revenues from
online commerce, including Yahoo! and Microsoft Corporation, through which
other online mortgage companies may offer products; (iii) mortgage banking
companies, commercial banks, savings associations, credit unions and other
financial institutions which originate mortgage loans; and (iv) mortgage
brokers.
Most of these competitor financial institutions have greater financial
strength, larger organizations, more experience and larger, more
established market share than the Company. Competition for borrowers and
loan personnel is intense, especially in California. In addition, the
barriers to entry in the mortgage brokerage industry are relatively few;
thus, there can be no assurance that the Company will not face increased
competition from new entrants to this industry. Many of the Company's
mortgage banking and mortgage brokerage competitors have longer operating
histories and significantly greater financial, technical, marketing and
other resources than the Company. In addition, many of these competitors
offer a wider range of services and financial products than the Company,
and thus may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Many current and
potential competitors also have greater name recognition and more extensive
customer bases that can be leveraged, thereby gaining market share to the
Company's detriment. Such competitors may be able to undertake more
extensive promotional activities, offer more attractive terms to customers
and adopt more aggressive pricing policies than the Company, possibly even
sparking a price war in the electronic mortgage business. Moreover,
current and potential competitors have established, or could in the future
establish cooperative relationships with each other or with third parties
to enhance their services and products. For example, E-Loan has formed a
joint venture with the Internet browser
<PAGE> 15
Yahoo! that gives E-Loan a presence on a highly visited site on the World
Wide Web. Accordingly, it is possible that new competitors or alliances
among competitors may emerge and rapidly acquire significant market share.
There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and any inability to
do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
GOVERNMENT REGULATION
The Company's mortgage broker/banker operations are subject to
extensive regulation by federal and state authorities. The United States
Department of Housing and Urban Development ("HUD") regulates certain
aspects of the mortgage lending business. The Real Estate Settlement
Procedures Act of 1974 ("RESPA"), a Federal statute, requires that certain
disclosures, such as a Truth-in-Lending Statement, be made to borrowers and
that certain information, such as the HUD Settlement Costs booklet, be
provided to borrowers. The Fair Housing Act prohibits among other
practices, discrimination, unfair and deceptive trade practices, and
requires disclosure of certain basic information to mortgagors concerning
credit terms. If the Company fails to comply with such regulations,
possible consequences could include loss of approved status, demands for
indemnification, class action lawsuits, and administrative enforcement
actions.
Additionally, RESPA contains certain prohibitions regarding the giving
or taking of a fee, kickback, or anything of value for the referral of
business to any specific person or organization. However, there is no
prohibition regarding the payment of reasonable compensation for the
provision of goods, services and facilities.
From time to time in its debate over tax reform, Congress has
discussed eliminating deductibility of mortgage interest. Should this
occur, it will reduce the number of those who can afford homeownership,
which would reduce potential demand for the Company's products and
services. Additionally, several large law firms have promoted class action
claims alleging that certain industry fee practices violate RESPA. While
the industry has responded vigorously to these activities, no assurances
can be given as to their outcome and the impact on the industry.
In California, regulation and licensing of mortgage brokers falls
under the California Department of Real Estate ("DRE"). Other than banking
industry employees, who are exempt from DRE licensing requirements,
individuals engaged directly in the origination of loans or the
dissemination of certain information are required to be licensed by the
DRE. Accordingly, the Company and some of its affiliates will be required
to be licensed in accordance with the differing requirements of the various
states in which offices and operations are established. Failure by the
Company to comply with the multitude of government regulations and
licensing requirements to which it is subject could have a material adverse
effect on the Company's business, financial condition and results of
operations.
EMPLOYEES
As of April 30, 1998, the Company employed 207 people in various
capacities: 16 executive and administrative personnel, 27 technology
development and services personnel, and 164 homeowner services personnel,
of which 178 were full-time and 29 were part-time.
None of the Company's employees is represented by a union. The Company
believes its relations with its employees and affiliates are good.
<PAGE> 16
BUSINESS RISKS
In addition to the other information included or incorporated by
reference in this Annual Report on Form 10-KSB, the following business risk
factors should be considered carefully in evaluating the Company and its
business. This Annual Report on Form 10-KSB contains forward-looking
statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in the forward-
looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in here and elsewhere in this
Annual Report on Form 10-KSB.
History of Operating Losses and Anticipated Future Losses. As a
result of its acquisition by Finet, the Company's historical financial
statements became those of MMI, an independent mortgage banker that was
profitable from inception through its fiscal year ended April 30, 1996.
Finet has incurred net operating losses in each fiscal year since its
inception in 1989, including from its former business discontinued in 1991
and subsequent to its acquisition of MMI in December 1996. As of April 30,
1998, the Company had an accumulated deficit of $10,637,000. There can be
no assurance that the Company's revenues will remain at current levels or
increase, and the Company's ability to generate significant future revenues
is subject to uncertainty. In addition, as a result of the anticipated
significant investment that the Company plans to make in connection with
its systems, sales, marketing, research and development, recruitment and
training of personnel, customer support and administrative infrastructure
and possible business acquisitions over the near term, the Company may
continue to incur significant operating losses on both a quarterly and an
annual basis. While there can be no assurance that the Company will
achieve or be able to sustain profitability, the Company has, as of April
30, 1998, sufficient resources and sources of financing to sustain
operations through the coming fiscal year end.
The Company's continuing operations in the real estate industry
commenced in December 1991. It began providing services electronically in
the mid-1990's as Fannie Mae's and Freddie Mac's AUS became operational.
Its iQualify and Agent Connector Internet products were introduced in
October 1997. Through the period ended December 31, 1996, the Company's
revenues were insufficient to cover its operating expenses, at which time
the Company acquired MMI. The acquisition of MMI, a mortgage banker, was a
reverse acquisition whereby MMI's historical financial statements became
the Company's financial statements for accounting purposes. MMI was
profitable from inception through the fiscal year ended April 30, 1996, but
when combined with the Company's operations after consummation of the
acquisition, MMI posted a loss of approximately $2.8 million for the fiscal
year ended April 30, 1997 (as restated for the Coastal acquisition). Prior
to its acquisition by Finet, MMI's profitability fluctuated in part as a
result of interest rate changes and attendant variations in the number of
loans originated. MMI is being merged into Finet Homeowner Services, a new
subsidiary, and will do business as Finet Lending.
Limited Operating History. While the Company's mortgage banking
operations have operated for a decade and its AUS development activities
began in the mid 1990's, The Company is in an early stage of operation as
an electronic commerce focused organization. As a result of the rapid
growth of the Internet, the Company's structural changes that occurred in
1996 and the corporate acquisitions consummated in the last 20 months, it
has a limited operating history upon which to base an evaluation of its
business and prospects. The Company and its business prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the new and rapidly evolving market for
Internet products and services. To address these risks, the Company must,
among other things, successfully respond to competitive developments,
market additional Internet and other electronic commerce services, upgrade
its technologies and commercialize products and services incorporating such
technologies, and attract, retain and motivate qualified personnel. There
can be no assurance that the Company will succeed in addressing any or all
of these risks, and the failure to do so would have a material adverse
effect on the Company's business, financial condition and results of
operations. Furthermore, there can be no assurance that the Company's
services will be rendered successfully or on a timely basis, or that the
Company will be successful in obtaining market acceptance of its products
or services. Accordingly, the Company believes that period-to-period
comparisons of its operating results are not meaningful and that the
results for any period should not be relied upon as an indication of future
performance.
<PAGE> 17
Anticipated Fluctuations in Quarterly Operating Results. As a result
of the early stage of development of Internet commerce and the Company's
limited online operating history, the Company's revenue expectations are
based significantly on its current combined mortgage banking operations and
internal estimates of future demand for its electronic commerce services
and not on actual experience. Moreover, the Company has only limited
historical financial data for quarterly or annual periods on which to base
planned operating expenses. The Company's expense levels have been
established in large part due to its current expectations for future
revenues and its expected development and marketing requirements. In the
event market demand and revenues do not meet expectations, the Company may
be unable to adjust its spending levels on a timely basis to compensate for
unexpected revenue shortfalls. In addition, the Company's operating
expenses have increased substantially in recent periods, and the Company
currently anticipates that its operating expenses will continue to increase
substantially for the foreseeable future as the Company continues to
develop and market its initial products and services, increases its
marketing and sales activities, creates and expands the distribution
channels for its services, and broadens its customer support capabilities.
There can be no assurance that revenues associated with use of the
Company's online homeownership-related services will be increased
significantly as required for the Company to attain profitability, or at
all. Any material shortfall of demand for the Company's products and
services in relation to the Company's expectations would have a material
adverse effect on the Company's business and financial condition and could
cause significant fluctuations in the Company's results of operations.
The Company expects its future operating results over both the short
and the long term will be subject to annual and quarterly fluctuations due
to several factors, many of which are beyond the control of the Company,
including, among others, (i) market acceptance of Internet commerce in
general and the concept of conducting real estate transactions
electronically in particular, (ii) fluctuating market demand for the
Company's products and services including the rate of sales and refinancing
of residential real estate, (iii) fluctuations of mortgage loan interest
rates, (iv) the degree of acceptance of the Internet as a provider of
homeownership related-services, (v) the timing and effectiveness of
collaborative marketing efforts initiated by the Company's strategic
partners, (vi) the timing of the introduction of new products and services
offered by the Company, (vii) the timing of the release of enhancements to
the Company's products and services, (viii) product introductions and
service offerings by the Company's competitors, (ix) termination of any
strategic alliances on agreements with key service providers, such as
Fannie Mae or Freddie Mae, (x) the timing and rate at which the Company
increases its expenses to support projected growth, (xi) the cost of
compliance with applicable federal and state government regulations, (xii)
competitive conditions in the Company's marketplace, and (xiii) general
economic conditions. Due to the foregoing factors, among others, it is
possible that the Company's future quarterly or annual operating results
from time to time will not meet the expectations of market analysts or
investors, which may have a material adverse effect on the price of the
Company's Common Stock.
Going Concern Qualification. From inception in 1989 through December
31, 1995, the Report of Independent Public Accountants on the Company's
year-end financial statements contained a qualification regarding the
uncertainty of the Company's ability to continue as a going concern. The
Company changed its fiscal year end from December 31, to April 30
immediately following its acquisition of MMI on December 31, 1996. The
Company's accountants have not included a going concern qualification in
the Company's annual reports on Form 10-KSB for the fiscal years ended
April 30, 1997 and April 30, 1998.
Dependence on the Internet, Growth in Electronic Commerce and Internet
Infrastructure Development. The market for electronic residential real
estate services, particularly over the Internet, is at an early stage of
development and is evolving rapidly. The Company's future sales and any
future profits are substantially dependent upon the widespread acceptance
and use of the Internet as an effective medium of commerce and
communication by end-users. Rapid growth in the use of and interest in the
Internet and other online services is a recent development and there can be
no assurance
<PAGE> 18
that acceptance and use will continue to develop or that a sufficiently
broad base of consumers will adopt, and continue to use, the Internet and
other online services as a medium by which to communicate and obtain
services traditionally provided in person to person and paper transactions.
The Company relies on realtors, mortgage brokers and lenders, homebuyers
and homeowners who have historically used traditional means to sell,
purchase and refinance residential real estate. For the Company to be
successful, these end-users must accept and utilize new ways of conducting
business and exchanging information.
In addition, the Internet may not be accepted as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development
of enabling technologies and performance improvements. To the extent that
the Internet continues to experience significant growth in the number of
users, their frequency of use or an increase in their bandwidth resources,
there can be no assurance that the infrastructure for the Internet will be
able to support the demands placed upon it. In addition, the Internet
could lose its viability due to delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in or
insufficient availability of communications services to support the
Internet also could result in slower response times and adversely affect
usage of the Internet. If use of the Internet does not continue to grow or
grows more slowly than expected, if the infrastructure for the Internet
does not effectively support growth that may occur, or if the Internet does
not become a viable commercial marketplace, the Company's business,
financial condition and results of operations would be materially adversely
affected.
Market Acceptance by Customers and Service Providers and Potential
Affiliates. The Company's revenues are, and will be, derived primarily
from fees for services related to the purchase and financing of homes. The
Company's revised business strategy is materially different than its
earlier operations. Therefore, the success and growth of the Company
cannot be forecast with confidence and will depend upon the acceptance of
the Company's approach by customers and service providers, including
realtors, mortgage lenders, mortgage brokers, settlement services providers
and homeowner services firms. While the initial acceptance of its new
approach appears favorable to date, there can be no assurance of such
acceptance generally and, therefore, no assurance that the Company will be
able to achieve its plans for growth. Although the Company has formed
strategic alliances with some national homeownership-related service
providers which provide services in many geographic regions through the
United States, to operate successfully in other geographic regions the
Company also will have to form strategic alliances with regional and local
homeownership-related service providers in such areas. While the Company
believes that it will be able to establish these relationships, there is no
assurance that a sufficient number of homeownership-related service
providers in any given area will be willing to cooperate with the Company
or its affiliates.
The Company's ability to operate profitably will also depend on its
ability to substantially increase loan originations, which, in turn, will
depend on the Company's ability to significantly expand the number of
realtors, mortgage brokers and loan agents who offer the Company's services
to home buyers and owners. The Company believes that it has developed
several profitable means of expanding the number of loan closings,
including systems and services provided through the PTN, the Company's
service centers, Finet Lending's mortgage banking and alternative lending
activities. While the Company believes it offers attractive advantages to
homebuyers and mortgage brokers, there can be no assurance that providers
of homeownership-related services will perceive such advantages to be
attractive and thereby offer them to homeowners and buyers. Failure by the
Company to substantially increase loan originations could have a material
adverse effect on the Company's business, financial condition and results
of operations.
Cyclical Industry. The residential real estate and mortgage business
is dependent upon the sale and refinancing of residential real estate as
well as on mortgage loan interest rates and is, therefore, a cyclical
industry. Shifts in the economy, as well as in residential real estate
values, generally affect the number of home sales and new housing starts.
The demand for mortgage loan financing increases as the frequency of home
sales increases. Declining interest rates generally increase mortgage loan
financing activity as homeowners refinance existing mortgage loans to
obtain more
<PAGE> 19
favorable interest rates. Rising interest rates, in contrast, discourage
refinancing activities and generally reduce the number of home sales that
occur. Any large fluctuation in interest rates or adverse change in
general economic conditions, both of which are outside the Company's
control, could have a material adverse impact upon the Company's business,
financial condition and results of operations.
The effect of interest rate changes tends to be greater on the market
for refinancing loans than they are on the market for purchase loans, since
refinancing a mortgage loan is voluntary and motivated primarily by a
homeowner's desire to lower its financing costs, whereas home purchasers
are motivated by a need or desire for a new home. Accordingly, the annual
volume of new home acquisition loans is relatively stable, whereas the
annual volume of new mortgage refinance loans is quite volatile. There can
be no assurance regarding future interest rate trends, their impact on the
Company's business, or the Company's ability to manage its business mix.
In addition, a major thrust of the Company's business strategy is
developing relationships with realtors, which is intended to provide a more
stable flow of purchase financings. The Company's failure to anticipate or
make timely adjustments in its business strategies to compensate for
fluctuations in interest rates in the future, or to establish strong
relationships with realtors could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Lenders as a Mortgage Broker. Lenders that the Company
represents as mortgage brokers are under no obligation to continue their
relationship with the Company or to make loans to any potential borrower
presented to them by the Company or its affiliates. While the Company
maintains relationships with over 100 lenders, most of the loans originated
by the Company have originated through a much smaller subset of these
lenders. This reliance on a small group of lenders has been the result of
favorable rates and other terms offered by such lenders. The Company
believes that if and when other lenders offer comparable terms, the sources
of loans will shift accordingly. If lenders with the most competitive
terms do not continue to accept loans originated by the Company or its
affiliates, the Company's business, financial condition and results of
operations could be materially adversely affected.
Some lenders have attempted to enter into agreements with the Company
that would require the Company to repurchase certain mortgage loans funded
by such lenders in the event of fraud by the Company or the discovery of
misrepresentations or inaccuracies in borrowers' loan applications. To
date, the Company has been successful in modifying such agreements to
eliminate such requirements and no lenders have requested that the Company
repurchase any of the mortgage loans originated by the Company. However,
Finet Lending has occasionally been required to repurchase loans from
institutional investors because of misrepresentations and inaccuracies
discovered in a borrower's loan application. In the past, Finet Lending has
been able to resell the loan to another investor or to otherwise resolve
the matter without material financial consequences. Although the Company
has errors and omissions liability insurance to partially protect itself
from this risk, there can be no assurance that the Company will not be
compelled to repurchase loans in the future, or that the repurchase of
loans by the Company in the future will not have material adverse effect on
the Company's business, financial condition or results of operations.
Potential Liabilities to Borrowers. Borrowers could claim to have
suffered adverse financial effects from utilization of the Company's
products and services. The most common instance of complaint in the
industry occurs when a borrower fails to lock in an interest rate and, at
the time of the closing of the transaction, the available rate has
increased from the rate available at the time of application. While
assessment of such claims is highly subjective, there have been a few
instances where it was considered possible that the borrower had not been
made sufficiently aware of the possibility of rate increases and the
protection afforded by a rate lock. In these instances, the Company
resolved the matter to the borrower's satisfaction by discounting its fees.
There can be no assurance that there will not be similar situations in the
future, or that the Company will be able to successfully resolve such
situations. Any failure by the Company in the future to successfully
resolve such situations could have a material adverse effect on the
Company's business, financial condition and results of operations.
<PAGE> 20
Mortgage Banking Risks. Through its subsidiary Finet Lending, the
Company also functions as a lender for some of the loans it originates.
The real estate financing sector is in a period of consolidation, with many
lenders closing or ceasing mortgage banking operations. As a non-
depository mortgage banker, Finet Lending is dependent upon a specialized
mortgage credit facility to finance its mortgage lending activities. Its
current mortgage banking lines of credit are provided by a single lender
with whom it has had a relationship since 1988. The warehouse facility
currently has an $104 million limit. The Company's loan volume has
increased to the point where, as is common in the industry, its increasing
credit facility needs are best provided by a group of such lenders sharing
the total credit risk. The Company is currently negotiating with its
current lenders and others who are interested in acting as the lead manager
of such group. There can be no assurance that the Company will be
successful in arranging such a syndicated credit facility or that the
Company's current relationship with its single lender can be sustained
until such time. Failure by the Company to do so could materially
adversely affect the Company's business, financial condition and results of
operations.
As interest rates rise and the economy declines, the rate of mortgage
loan foreclosures tends to rise accordingly. As a result, the Company
occasionally is required to hold foreclosed residential real estate in
inventory ("REO") until it can be resold. Depending on the circumstances
of the transaction, the Company may or may not be able to sell the property
for more than the outstanding loan balance. There can be no assurance that
such transactions will not have a material adverse effect on the Company's
business, financial condition or results of operations.
Electronic Commerce Security Risks. The secure transmission of
confidential information over public networks is critical to the acceptance
of electronic commerce. The Company relies on certain encryption and
authentication technology licensed from third parties to provide secure
transmission of confidential information, such as homebuyers' financial
statements. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events
or developments will not result in a compromise or breach of the algorithms
used by the Company to protect customer transaction data. If any such
compromise were to occur, it could have a material adverse effect on the
Company's business, financial condition and results of operations. A party
who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause disruptions in the
Company's operations. The Company may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
transactions conducted on the Internet and the privacy of users may also
inhibit the growth of the Internet generally, and electronic commerce in
particular. To the extent that activities of the Company involve the
storage and transmission of proprietary information, such as homebuyers'
financial statements and profile information, security breaches could
damage the Company's reputation and expose the Company to a risk of loss or
litigation and possible liability. There can be no assurance that the
Company's security measures will prevent security breaches or that a
failure to prevent such security breaches will not have a material adverse
effect on the Company's business, financial condition and results of
operations.
Competition. The electronic commerce market is new, rapidly evolving
and intensely competitive, and the Company expects competition to intensify
in the future. Barriers to entry are minimal, and current and new
competitors can launch new sites on the Internet at relatively low cost.
In addition, the residential mortgage loan business is intensely
competitive. The Company currently competes with a variety of other
companies including (i) various online mortgage brokers, including E-Loan
Inc., HomeShark and AllTell Information Services; (ii) a number of indirect
competitors that specialize in online commerce or derive a substantial
portion of their revenues from online commerce, including Yahoo! and
Microsoft Corporation, through which other online mortgage companies may
offer products; (iii) mortgage banking companies, commercial banks, savings
associations, credit unions and other financial institutions which
originate mortgage loans; and (iv) mortgage brokers.
<PAGE> 21
Most of these competitor financial institutions have greater financial
strength, larger organizations, more experience and larger, more
established market share than the Company. Competition for borrowers and
loan personnel is intense, especially in California. In addition, the
barriers to entry in the mortgage brokerage industry are relatively few;
thus, there can be no assurance that the Company will not face increased
competition from new entrants to this industry. Many of the Company's
mortgage banking and mortgage brokerage competitors have longer operating
histories and significantly greater financial, technical, marketing and
other resources than the Company. In addition, many of these competitors
offer a wider range of services and financial products than the Company,
and thus may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Many current and
potential competitors also have greater name recognition and more extensive
customer bases that can be leveraged, thereby gaining market share to the
Company's detriment. Such competitors may be able to undertake more
extensive promotional activities, offer more attractive terms to customers
and adopt more aggressive pricing policies than the Company, possibly even
sparking a price war in the electronic mortgage business. Moreover,
current and potential competitors have established, or could in the future
establish cooperative relationships with each other or with third parties
to enhance their services and products. For example, E-Loan has formed a
joint venture with the Internet browser Yahoo! that gives E-Loan a presence
on a highly visited site on the World Wide Web. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors, and any inability to do so could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Rapid Technological Change; Lack of Proprietary Technology. To remain
competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of its online services. The
Internet and the electronic commerce industry are characterized by rapid
technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render the Company's existing technology and systems obsolete.
While the Company believes it currently offers capabilities and
services that would be difficult for independent mortgage brokers to
duplicate, little of its computer software, information databases or
applications is proprietary. Consequently, it may be possible for
competitors to develop programs similar or even superior to that currently
marketed by the Company. Additionally, although the connectivity features
offered by PTN and iQualify are currently unique, proprietary and
operational, there can be no assurance that others will not develop and
offer competitive services, or, if so offered, that they will not gain
greater acceptance among potential customers. The Company's success will
depend, in part, on its ability to both license and internally develop
leading technologies useful in its business, enhance its existing services,
develop new services and technology that address the increasingly
sophisticated and varied needs of its clients, and respond to technological
advances and emerging industry standards and practices on a cost-effective
and timely basis. The development of Web sites and other proprietary
technology entails significant technical and business risks. There can be
no assurance that the Company will successfully use new technologies
effectively or adapt its Web site, technology and transaction-processing
systems to customer requirements or emerging industry standards. If the
Company is unable, for technical, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions, customer
requirements or emerging industry standards, its business, financial
condition and results of operations could be materially adversely affected.
Risks of Systems Failures. A key element of the Company's strategy is
to generate a high volume of traffic on, and use of, its Web sites.
Accordingly, the satisfactory performance, reliability and availability of
the Company's Web sites, transaction-processing systems and network
infrastructure are critical to the Company's reputation and its ability to
attract and retain customers and maintain adequate customer service levels.
The Company's revenues depend in part on the number of customers who visit
its Web sites and the volume of transactions processed via the sites. Any
system interruptions that result in the unavailability of the Company's Web
sites or reduced transaction performance would
<PAGE> 22
reduce the volume of services provided and the attractiveness of the
Company's product and service offerings. In the past, the Company has
experienced periodic system interruptions, which it believes will continue
to occur from time to time. Any substantial increase in the volume of
traffic on the Company's Web sites may require the Company to expand and
upgrade further its technology, transaction-processing systems and network
infrastructure. There can be no assurance that the Company will be able to
accurately project the rate or timing of increases, if any, in the use of
its Web sites or expand and upgrade its systems and infrastructure to
accommodate such increases in a timely manner, and failure to do so would
have a material adverse effect on the Company's business, financial
condition and results of operations.
Risks Associated with Sales of Mortgage Loans, Federal Programs and
Related Agreements. The Company funds its mortgage loan production
operations by selling or exchanging the mortgage loans that it originates
in the secondary markets to entities such as Fannie Mae, Freddie Mac and
Ginnie Mae. The Company's ability to sell mortgage loans is largely
dependent upon the continuation of programs administered by these entities,
which facilitate the pooling of those mortgage loans into mortgage-backed
securities, as well as the Company's continued eligibility to participate
in such programs. The discontinuation of, or a significant reduction in,
the operation of such programs would have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company expects that it will continue to remain eligible to participate in
these programs, but any significant impairment of such eligibility would
also materially adversely affect the Company's business, financial
condition and results of operations. In addition, the products offered
under these programs may be changed from time to time by the sponsor. The
profitability of specific products may vary depending on a number of
factors, including the administrative costs to the Company of originating
these products.
The Company is also dependent upon private investors other than
Freddie Mac, Fannie Mae and Ginnie Mae to purchase the mortgage loans that
the Company originates which do not qualify for programs conducted by these
agencies (primarily as a result of limitations as to maximum loan size).
To the extent that private investors reduce their purchases, the price and
level of the market for those mortgage loans will be negatively affected,
which would adversely impact the Company's mortgage loan production volume,
potentially its profitability, and, in turn, the Company's business,
financial condition and results of operations.
Nasdaq Maintenance Requirements; Possible Delisting from the Nasdaq
National Market and Market Illiquidity. The Company' Common Stock is
included in The Nasdaq SmallCap Market. For continued inclusion on The
Nasdaq SmallCap Market, (i) the Company will have to maintain at least
$2,000,000 in total assets and $1,000,000 in capital and surplus; (ii) the
minimum bid price of the Common Stock will have to be $1.00 per share;
(iii) there must be at least 500,000 shares in the public float valued at
$1,000,000 or more; (iv) the Common Stock must have at least two active
market makers; and (v) the Common Stock must be held by at least 300
holders. If the Company is unable to satisfy Nasdaq's requirements for
continued listing, such securities may be delisted from The Nasdaq SmallCap
Market. In such event, trading, if any, in such securities would
thereafter be conducted in the over-the-counter market in the "pink sheets"
or the Nasdaq's "Electronic Bulletin Board." Consequently, the liquidity
of the Company's securities could be impaired, not only in the number of
securities which could be bought and sold, but also through delays in the
timing of transactions, reduction in security analysts' and the news
media's coverage of the Company, and lower prices for the Company's
securities than might otherwise be attained, all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Risks of Low-Priced Stock; Penny Stock Regulations. If the Company's
Common Stock is delisted from the Nasdaq SmallCap Market the Company may
become subject to Rule 15(g)-9 under the Securities Exchange Act of 1934,
as amended, which imposes additional sales practice requirements on broker-
dealers which sell such securities to persons other than established
customers and institutional accredited investors. For transactions covered
by this rule, a broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the rule may affect the ability
of broker-dealers to sell the Company's
<PAGE> 23
Common Stock and Warrants and may affect the ability of future purchasers
of the Company's securities to sell such securities in the secondary
market.
The Securities Exchange Commission's regulations define a "penny
stock" to be any equity security that has a market price (as therein
defined) less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. The penny stock
restrictions will not apply to the Company's Common Stock, Units, Preferred
Stock and Warrants if the Common Stock remains listed on The Nasdaq
SmallCap Market and certain price and volume information is provided on a
current and continuing basis and the Company meets certain minimum net
tangible assets or average revenue criteria. There can be no assurance
that the Company's securities will continue to qualify for exemption from
these restrictions. If the Company's securities were subject to the rules
on penny stocks, the market liquidity for the Common Stock or Warrants
could be materially adversely affected.
No Dividends on Common Stock. To date, the Company has not paid any
dividends on its Common Stock, and the Company anticipates that no
dividends will be paid on the Common Stock in the foreseeable future.
Dependence on Key Personnel; Need for Additional Personnel. The
Company's ability to grow and its future success depend on its ability to
identify, attract, hire, train, retain and motivate other highly skilled
technical, managerial, sales and marketing, customer service and
professional personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to successfully
attract, assimilate or retain sufficiently qualified personnel. The
failure to retain and attract the necessary technical, managerial, sales
and marketing, customer service personnel and experienced professionals
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Possible Need for Additional Financing. To achieve the sustained
growth envisioned, the Company will require significant capital and other
resources that the Company does not currently possess. The Company
anticipates that it may continue to incur operating losses for the
remainder of fiscal 1999, and until such time, if ever, as the Company's
operations generate sufficient revenue to offset its costs. The Company
expects to incur substantial expenses principally as the result of the
various costs associated with corporate acquisitions, implementation of a
sales and marketing program and distribution channels, recruitment and
training of personnel and other operating activities. The Company issued
equity and/or debt securities in fiscal years 1993 through 1998 to finance
its operations, and is exploring the possibility of additional equity
issuances in the second quarter of fiscal 1999. The Company has no
commitments from others to provide such additional financing and there can
be no assurance that any such additional financing will be available if
needed or, if available, will be on terms acceptable to the Company.
Year 2000 Compliance. The Company uses a significant number of
computer software programs and operating systems in its internal
operations. The use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
computer systems to malfunction in the year 2000 and lead to significant
business delays and disruptions. While the Company believes that the
software applications that it uses or has developed are year 2000
compliant, to the extent that any of these software applications contain
source code that is unable to appropriately interpret the upcoming calendar
year 2000, some level of modification or possible replacement of such
source code or applications will be necessary. The Company, together with
outside consultants it has engaged, has analyzed the software applications
that it uses or has developed and, as a result, the Company at this time
does not anticipate any significant expense in ensuring that they are year
2000 compliant. However, until the year 2000 arrives, the Company cannot be
absolutely certain that its analysis is correct. The Company is currently
unable to predict the extent to which the year 2000 issue will affect its
customers or strategic partners, or the extent to which it would be
vulnerable to any failure by the customers or strategic partners to remedy
any year 2000 issues on a timely basis. The failure of a customer or
strategic partner subject to the year 2000 to convert its systems on a
timely basis or a conversion that is incompatible with the Company's
systems could have a material adverse effect on the Company's business,
financial condition and results of operations.
<PAGE> 24
COMPANY HISTORIES
Finet Holdings Corporation was founded in 1989 as William and
Clarissa, Inc. In 1991, the Company was reorganized, its unrelated prior
business was discontinued and a private mortgage brokerage business was
acquired. In l992, its name was changed to Finet Holdings Corporation and a
strategy was implemented to develop a franchised national loan distribution
network by converting existing mortgage brokers to Finet franchisees.
However, no franchises were licensed, the Company remained unprofitable
and, in 1995, the Company's founder/Chairman and the CEO both resigned. In
1996, the Company was operationally dormant and active trading of its
common shares ceased while new management initiated a successful
recapitalization that included negotiated settlements with trade creditors,
conversion of certain liabilities to equity, a series of equity private
placements and several acquisitions. On December 31, 1996, the Company
acquired Monument Mortgage, Inc. ("MMI"), a private mortgage banking
company. This report includes historical financial information about
Finet, the Registrant, and MMI since, as a result of the form of its
acquisition, MMI is deemed to be the reporting entity for accounting
purposes and MMI's historical financial results became Finet's. Other than
retaining the name and logo, the Company has no material connection to its
strategies, activities or personnel prior to 1996.
MMI, a California corporation, was founded in 1987 as an independent
mortgage banker. Beginning with a single retail office, by 1993 MMI's
business activity and profits had increased to annual loan fundings of $844
million and profits of $2.8 million. Since the peak of the mortgage loan
refinance market in 1993, MMI's operating results declined to a $1.9
million loss for the fiscal year ended April 30, 1997. Business development
focus shifted from retail to wholesale lending operations and retained loan
servicing rights grew to $660 million. The ability to retain servicing
created an annuity and an off balance sheet asset which sustained
operations during the period of rising interest rates and declining loan
originations that followed through 1996. Loan products offered were
limited to a few popular Freddie Mac programs while conservative
underwriting ensured a low risk, high quality portfolio of loans. This
strategy resulted in a loan servicing portfolio with historical delinquency
ratios less than half industry averages. Beginning in fiscal 1995, an
aggressive effort was begun to leverage MMI's technology expertise to
reduce the cost of originating loans and support expansion of the Company's
products and market presence. Recognized as a mortgage industry technology
leader, the Company was invited to participate in the development of Fannie
Mae and Freddie Mac automated underwriting systems and is now one of the
most active users of these systems.
The genesis of the Company in its present form and breadth of its
activity essentially began in early 1997, with completion of the
recapitalization plan. The Company changed significantly, with new
capabilities, a new electronic commerce business strategy, as well as a new
management team and Board of Directors. Since then, Coastal was acquired
in a pooling of interests transaction and the assets of Real Estate Office
Software, Inc., a software developer, Mical, a retail and wholesale
mortgage banker specializing in FHA and VA loans, and Interloan, a popular
Internet Web site have been acquired. Two unique first to market Internet
products have been developed and introduced, iQualify, the Connector Series
and a number of key strategic distribution relationships have been
established.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's leases the following offices: its 17,042 square foot
headquarters in Walnut Creek, California, a 2,918 square foot office in San
Ramon, California, a 1,400 square foot telemarketing office in Modesto,
California, a 3,492 square foot PTN office in Incline Village, Nevada and,
as a result of its acquisition of Coastal, a 1,446 square foot branch
office in Jamison, Pennsylvania, a 400 square foot office in Bridgeville,
Pennsylvania, a 1,354 square foot office in Tampa, FL and a 8,860 square
foot main office in Manalapan, NJ. The Company believes these facilities
are adequate for its current level of operations.
<PAGE> 25
ITEM 3. LEGAL PROCEEDINGS
The Company and certain subsidiaries are defendants in various legal
proceedings. After reviewing with counsel all such proceedings pending
against or involving the Company and its subsidiaries, management does not
expect the aggregate liability or loss, if any, resulting therefrom will
have a material adverse effect on the Company's results of operations or
consolidated financial position.
On May 19, 1998, the Company acquired 100% of the issued and
outstanding stock of Mical from its shareholders. Prior to said
acquisition, on January 14, 1998, a lawsuit was filed against Mical in the
United States District Court for the Middle District of Georgia (the
"Action"). The complaint alleges, among other things, that in connection
with residential mortgage loan closings, Mical made certain payments to
mortgage brokers in violation of the Real Estate Settlement Procedures Act
and induced mortgage brokers to breach their alleged fiduciary duties to
their customers. The plaintiffs seek unspecified compensatory and punitive
damages as to certain claims.
Mical's management believes that its compensation programs to mortgage
brokers comply with applicable laws and with long standing industry
practices, and that it has meritorious defenses to the Action. Management
has been advised by counsel, that the facts of the underlying transaction
are not supportive of a court order granting class certification. The
Company intends to defend vigorously against the Action and believes that
the ultimate resolution will not have a material adverse effect on the
Company's results of operations or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE> 26
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON EQUITY
Since November 11, 1997, the Company's Common Stock has traded on the
Nasdaq SmallCap Market under the Nasdaq symbol "FNHC." Prior to that date
the Common Stock was quoted over-the-counter on the NASD's Electronic
Bulletin Board (the "Pink Sheets"). Prior to a one-for-two reverse stock
split on October 24, 1996, the Company's common stock traded under the
symbol "FTHC".
The following table sets forth, for the periods indicated, the range
of high and low sales prices, all as reported by Nasdaq. These prices
reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
YEARS ENDED APRIL 30: HIGH BID LOW BID
- - ----------------------------------------- -------- -------
<S> <C> <C>
First Quarter through July 31, 1998 $ 4.17 $ 2.13
YEAR ENDED APRIL 30, 1998:
Fourth Quarter 4.25 2.88
Third Quarter 7.63 3.50
Second Quarter 8.00 2.56
First Quarter 6.38 2.19
YEAR ENDED APRIL 30, 1997:
Fourth Quarter 2.63 0.88
Third Quarter 2.88 0.75
October 25 to 31, 1996 <F1> 1.75 0.75
Second Quarter thru October 24, 1996 2.63 0.25
First Quarter 1.25 0.25
<FN>
<F1>
On October 25, 1996 the Company's trading symbol changed from FTHC to FNHC.
</FN>
</TABLE>
Common stock issued and outstanding as of April 30, 1998 was
32,052,000 shares, held by approximately 1,100 stockholders, not including
10,596,000 warrants and 738,000 options. During the fiscal year ended April
30, 1998, average monthly trading volume was 895,000 shares. The closing
price of the Company's Common Stock on Nasdaq on July 27, 1998 was $3.05.
RECENT SALES OF UNREGISTERED SECURITIES
On December 16, 1996 the Company sold 1,000,000 Common shares and a
Common Stock purchase warrant for a further 1,000,000 Common shares to a
single investor, pursuant to the federal exemption from registration
provided by Section 4(2) of the Securities Act. The aggregate purchase
price of $500,000 included conversion of $270,000 of debt into Common
Stock. The warrant granted has a five-year term and an exercise price of
$1.00 per Common share.
<PAGE> 27
On December 31, 1996 the Company sold 6,000,000 Common shares to a
group of non-U.S. investors for an aggregate purchase price of $3,000,000.
The offering was effected pursuant to the registration exemption provided
by Regulation S under the Securities Act. Placement agent warrants to
purchase 600,000 Common shares were granted in connection with the
offering. In addition, a warrant for 2,500,000 Common shares was granted
to an individual who was instrumental in assisting the Company to sell
5,000,000 of the shares in the offering. such warrant affords the holder
exercise prices varying from $0.50 to $3.00 per share and has a five-year
term.
On March 21, 1997 the Company sold 1,000,000 Common shares and a
warrant to purchase 600,000 Common shares to a single non-U.S. investor in
reliance on the federal exemption provided by Section 4(2) of the
Securities Act. The aggregate purchase price was $600,000. The five year
warrant contains varying exercise prices from $1.50 to $2.50 per share.
Placement agent warrants for 50,000 Common shares were issued in connection
with the offering, such warrants having a four-year term and an exercise
price of $1.50 per share.
In April, 1997 the Company effected a private placement of 3,991,250
Common shares and 743,125 warrants pursuant to the registration exemption
provided by Rule 506 of Regulation D of the Securities Act. Total offering
price of the Common shares was $3,991,250. The warrants exhibit varying
exercise prices from $1.50 to $3.50 per Common share and expire between
2001 and 2002. In addition, the Company issued warrants for 399,125 Common
shares to a placement agent in connection with the offering. The placement
agent warrants have a five-year term and an exercise price of $1.50 per
share.
In October, 1997 a group of eleven individuals purchased 1,300,000
Common shares for an aggregate purchase price of $3,500,000 and were
granted 1,300,000 five-year warrants having an exercise price of $5.00 per
share. The offering was made in reliance on the registration exemption
provided by Section 4(2) of the Securities Act.
On March 18, 1998 the Company entered into a stock purchase agreement
with three non-U.S. investors for the sale of $7,000,000 principal amount
of the Company's 3% Subordinated Convertible Debentures. The offering was
held in three traunches and effected in reliance on the exemption from
registration afforded by Rule 506 of Regulation D of the Securities Act.
The first traunch closed on March 18, 1998 and resulted in the sale of
$4,000,000 debentures and the issuance of 3-year warrants to purchase up to
100,000 Common shares at an exercise price of $5.71 per share. The Company
also issued 5-year warrants to purchase 80,000 Common shares at an exercise
price of $5.71 per share to a placement agent in connection with the first
traunch. An additional $1,500,000 face amount of debentures were sold in a
second traunch 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. The placement agent
was issued 30,000 5-year warrants at the same exercise price. On May 26,
1998 the third and final traunch of the debenture offering was closed, for
an additional $1,500,000 principal amount of Debentures, an additional
37,500 3-year warrants at an exercise price of $5.25 per share, and 30,000
5-year warrants issued to the placement agent at an exercise price of $5.25
per share.
The number of shares of the Company's Common Stock issuable to the
debenture holders upon conversion is determined by dividing the aggregate
principal amount, plus any accrued interest at 3% per annum, 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 and immediately preceding the conversion date. The
first traunch debentures are convertible commencing on September 18, 1998,
the second traunch beginning on October 20, 1998, and the third traunch
beginning on November 26, 1998.
<PAGE> 28
DIVIDENDS
The Company has not paid, and the Company does not currently intend to
pay, cash dividends on its common stock. The current policy of the
Company's Board of Directors is to retain earnings, if any, to provide
funds for operation and expansion of the Company's business. The payment
of cash dividends in the future will be at the discretion of the Board of
Directors and will depend upon, among other things, the Company's earnings,
capital requirements and financial position. In addition, the Company's
ability to pay dividends may be limited under future loan agreements of the
Company which restrict or prohibit the payment of dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company facilitates homeownership through electronic commerce by
providing a variety of technology-based products and services to consumers
and other real estate service vendors, including realtors, mortgage
brokers, home listing aggregators, title companies and other settlement
service providers. The Company's current Internet products are iQualify and
its Connector series of transaction management software for realtors. Its
primary services are the fulfillment of consumer homeownership needs by its
call center counselors, the offering of automated mortgage financing
solutions to consumers, directly and through mortgage brokers, and the sale
of customer leads to other industry vendors.
On April 30, 1998 the Company acquired Coastal Federal Mortgage
Company ("Coastal"), a New Jersey-based mortgage banker specializing in
providing sub prime mortgage financing, i.e., to consumers with impaired
credit. The acquisition is accounted for as a pooling of interests.
Accordingly, the financial statements of the Company as of and for the year
ended April 30, 1997 have been restated. The Company is in the process of
renaming Coastal and integrating it into the Finet Acceptance lending unit.
On December 31, 1996, Finet acquired Monument Mortgage, Inc. ("MMI"),
a highly automated mortgage banker specializing in prime conforming
mortgage loans, in a reverse acquisition accounted for as a
recapitalization of MMI. Due to the requirements of such accounting, MMI is
deemed to be the reporting entity, although Finet is the Registrant.
Accordingly, the financial statements presented for the 1997 fiscal year
include 12 months of operations of MMI, combined with 4 months of Finet
operations (from the acquisition date through April 30, 1997) and the
results of Coastal.
Prior to December 31, 1996, the reported operations of the Company
involve only MMI's wholesale mortgage banking activities and the
development of its automated loan origination technology. The operations of
the Company after January 1, 1997 have been and will continue to be
materially different than prior periods. Thus, the meaningfulness of
comparisons below between the fiscal years ended April 30, 1998 and 1997
may be limited and may not be representative of future events.
The Company's revenues for the fiscal year ended April 30, 1998
increased 24% to $12.6 million from $10.1 million in 1997. These operating
results are attributable primarily to revenue increases from increases in
core financing and loan servicing activities and revenue growth in several
new distribution channels, including iQualify, the Property Transaction
Network ("PTN") and Finet's service center. The Company's loss from
operations before income taxes and extraordinary items increased 217% to
$9.2 million from $2.9 million in 1997. Expenses increased 67% to $21.7
million in 1998 as a result of higher technology costs, new product
introduction expense and business unit start up costs, acquisition costs
and related professional fees, the write-off of intangible assets, and
staff increases in anticipation of future growth.
<PAGE> 29
REVENUES
The Company has a growing base of electronic commerce revenues,
including: (a) from mortgage financing and settlement services provided
directly to consumers by the Company's retail activities (including both
loans funded by the Company's lending unit as well as loans funded by other
lenders); (b) from loans funded for mortgage brokers by the Company's
wholesale lending activities; (c) from loan servicing fees; (d) from the
sale of customer leads to other real estate service providers; and (e) from
providing Internet products and services to PTN realtors, loan brokers and
consumers.
While the Company provides certain services that are comparable to
those provided by more traditional manual means within the industry, the
methods by which the Company earns revenues from delivering them are
increasingly electronic and non-traditional. The Company policy is to use
the most automated processes currently available and to fully implement the
business process simplifications that electronic commerce enables. For
example, the Company is the most active sponsor of mortgage brokers to use
Fannie Mae's Automated Underwriting System and is one of only a few lenders
to allow borrowers to fully use the simplified loan documentation that this
streamlined process provides.
Of the Company's 1998 24% revenue increase to $12.6 million, Coastal's
revenue increased 16% to $6.7 million while the remainder of Finet's
revenues increased 34% to $5.9 million.
Retail and wholesale electronic commerce mortgage banking revenues
represented the Company's largest revenue source in fiscal 1998. However,
consistent with the Company's focus on developing a diversified group of
electronic commerce revenues, mortgage banking revenues now represent a
smaller percentage of total revenues. The Company's wholesale mortgage
banking revenues, excluding Coastal, which were 78% and 70% of total
revenue in fiscal 1996 and 1997, respectively, represented only 50% of
total revenues for the year ended April 30, 1998.
In fiscal 1998, mortgage financing revenues were affected favorably by
a broad advance in mortgage loan volume, as a result of industry wide
stimulation of refinancing from lower mortgage interest rates and the
increased contributions of the Company's newer business units. Total loan
volume increased 36% to $613 million from $453 million in 1997. This
increase was comprised of a 10% increase in sub prime loans to $113
million, a 40% increase to $472 million in wholesale loans originated by
mortgage brokers, and a 115% increase to $29 million in financing solutions
provided directly to consumers through the Company's retail channels.
After a mortgage loan is funded, there are two primary revenue
components for the Company: (a) the amount received for the loan itself
when sold in the secondary market, less the amount actually funded, and (b)
the amount received for the right to service that loan, if and when that
right is sold. Under current industry pricing practices, the loan itself is
typically sold for a loss of approximately 75 basis points less than the
amount actually funded. Depending on the specific loan product, the right
to service that loan is typically sold for 125 basis points of the loan
amount or more. The combination of the two revenue components is included
in the net Gain on Sale of Mortgage Loans and Servicing Rights. The Company
normally sells loans with the servicing rights released, but occasionally
retains some servicing rights as a revenue producing asset until the loan
either pays off or until the servicing right is later sold as part of a
bulk sales transaction. The servicing right owner earns a monthly servicing
fee for collecting and disbursing loan payments.
The gain on sale of mortgage loans of $3.2 million and the gain on
sale of servicing rights of $4.3 million for 1998 total $7.5 million, $0.7
million (11%) higher than 1997's $6.8 million. This improvement resulted
from increased loan volume and proportionately lower loan origination costs
assessed against these gains in 1998 as the proportion of loans processed
electronically increased over 1997.
<PAGE> 30
Interest income is earned primarily from funded loans in inventory
awaiting sale. Due to increased loan activity, interest income increased
33% to $3.2 million from $2.4 million in 1997.
Loan servicing fees increased 47% to $868,000 from $589,000 in 1997.
This fee revenue is derived from the servicing rights retained on loans
originated and from purchased servicing rights. The Company purchased $4.5
million of servicing rights during the fiscal year, retained $1.2 million
of originated loan servicing rights and sold $583,000 of servicing rights
in bulk sales, resulting in a net increase in the value of the Company's
servicing portfolio of $4.9 million or 745%. The principal balance of the
servicing portfolio increased to $673 million at the end of fiscal 1998
from $168 million at the end of 1997.
Retail brokerage fees from the retail delivery of financing and
transaction services to consumers from the Company's service center
increased 345% to $418,000 in 1998 from its start up activity of $94,000 in
1997.
The Property Transaction Network ("PTN") provides fee-based Internet
and marketing services, primarily to realtors and mortgage brokers. PTN
revenue increased 512% to $367,000 in 1998 from its start up activity of
$60,000 in 1997 as its Agent Connector series of products were introduced
in November 1997.
EXPENSES
Primarily as a result of the one-time costs associated with funding of
start up operations, the write-off of intangibles, and the costs associated
with acquisitions and real estate foreclosures, expenses increased 65% from
$13.0 million in 1997 to $21.7 million in 1998.
Compensation and employee benefits expense increased 55% to $9.4
million in 1998 from $6.1 million in 1997, as a result of competitive merit
increases, severance benefits and increases in the number of employees to
207 as of April 30, 1998 from 185 as of April 30, 1997. The increase of 22
employees was attributable primarily to technical and customer support
staff additions. Automated processes enabled the Company to meet increased
1998 business activity levels with minimal increases in production staff.
Interest expense is comprised of interest on the Company's borrowings
against its warehouse lines of credit (which finance funded loans in
inventory awaiting sale) and interest on the Company's non-mortgage related
borrowings. Warehouse interest expense is offset by mortgage interest
income from mortgages in inventory awaiting sale and delivery to secondary
market investors. In 1998 interest expense was $3.2 million compared to
$2.0 million in 1997, resulting in net interest income of $72,000 in 1998
compared to $441,000 in 1997. The decline in net interest income is
primarily attributable to the discount amortization associated with the
issuance of debentures, increased credit line borrowing, the margin
compression effect of increasing loan volume while long term mortgage
interest rates declined faster than short term borrowing costs, and accrued
debenture interest.
Office expense increased 40% to $1.8 million in 1998 from $1.3 million
in 1997, primarily as a result of increased business activity and staff
expansion.
Marketing expense increased $997,000 in 1998 from $667,000 in 1997,
primarily as a result of the marketing costs of new product releases.
Professional fees increased 90% to $1.6 million in 1998 from $856,000
in 1997. The increase is due primarily to a full year of consulting fees
related to the acquisition of MMI in December 1996, expenses related to the
acquisitions of Coastal and, in May 1998, of Mical Mortgage, Inc.,
including due diligence, legal, accounting, auditing and consulting
expenses.
<PAGE> 31
In 1998, the Company wrote down $1.0 million of intangibles and $0.7
million in accounts receivable related to foreclosed real estate.
Occupancy expense increased 57% to $667,000 in 1998 from $425,000 in
1997, primarily as a result of leasing additional space.
CAPITAL EXPENDITURES, LIQUIDITY, AND CAPITAL RESOURCES
OPERATING ACTIVITIES
The Company's operating activity cash requirements are to fund ongoing
expenses, including sales and marketing and geographic and product line
expansion, and to satisfy obligations as they become due. Historically,
these cash requirements have been satisfied through cash receipts from
mortgage lending and servicing activities and the proceeds from the bulk
sale of servicing rights.
During fiscal year 1997 and 1998, additional revenue sources were
developed. However, to date the cash consumed from the commencement of
these activities exceeded total cash generated. Accordingly, cash from
financing activities was used to offset the operating cash shortfall. The
Company experienced a slight improvement in negative quarterly cash flows
during fiscal 1998.
The Company believes that its cash resources, including unused
borrowing capacity and other sources of liquidity, are sufficient to
finance the Company's operations through April 30, 1999.
INVESTING ACTIVITIES
The Company's investing activities included the purchase of loan
servicing rights, business acquisitions, purchase of capital assets to
support the expanded business development strategy, and expenses related to
capital raising. Investing activities were funded primarily from the
proceeds of the sale of common stock.
During fiscal year 1998, one private placement resulted in stock
subscriptions totaling $3.9 million to acquire 1,300,000 shares of the
Company's common stock. In addition to the capital raised from this sale of
the Company's common stock, warrants to purchase additional shares were
issued to purchasers of the above described shares. These warrants were
issued at exercise prices ranging from $1.50 per share to $5.00 per share
for a total of 105,000 shares.
FINANCING ACTIVITIES
On March 18, 1998 the Company issued 3% Subordinated Convertible
Debentures in a private placement with interest payable in common stock of
the Company when converted or in cash at maturity, redemption or
retirement. These debentures have been issued in three separate traunches
together with 175,000 detachable warrants for purchase of the Company's
common stock. The debentures and accrued interest are convertible into the
Company's common stock at the lesser of $5.00 per common share or 78% of
the determined market price prior to conversion. The Company has recorded
$1,551,000 as additional paid in capital for the discount deemed related to
the imputed interest in the debenture. The discount is being amortized to
interest expense over the period from the date of issuance to the earliest
date of conversion. Among other things the debenture agreement provides for
redemption of the debentures by the Company at 115% of the principal amount
plus any unpaid interest accrued at the time of redemption. As of April 30,
1998 the
<PAGE> 32
Company had received $5.5 million with completion of the first two
traunches. On May 26, 1998, the Company received payment for the third
traunch of $1.5 million.
The Company's primary 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 warehouse and
gestation borrowing facilities function as short term (less than 45 days)
borrowing sources. RFC will advance up to 98% of the face amount of the
loans being funded by the Company with the remaining 2% "haircut" funded by
the Company. One warehouse and the gestation lines bear interest at LIBOR
plus a variable margin; a second warehouse line bears interest at LIBOR
plus 2.5%. When loans are funded, the borrowings are drawn from the
warehouse line. When the loans are sold and shipped to a secondary market
investor, the borrowings are transferred to the gestation line awaiting for
receipt of the sale proceeds from the investor. The borrowing is secured
by the underlying mortgage loans and is repaid with the proceeds from the
sale of loans to secondary market investors. The warehouse and gestation
borrowing arrangements were increased during the fiscal year to support
increased monthly loan originations.
RFC also provides the Company with a $1 million working capital
facility. The working capital facility is a revolving line of credit that
the Company can draw upon for intermediate term (3 months) cash needs. RFC
requires that the Company pay this line off entirely for at least 5
calendar days each quarter. The working capital facility bears interest at
Prime plus 0.625% and is secured by the Company's loan servicing rights and
certain other assets of the Company. RFC will advance up to 70% of the
value of the Company's loan servicing portfolio to the maximum amount of
the working capital line.
In addition, the Company has a $1.9 million long term (5 years) loan
agreement with RFC. This loan also carries an interest rate of Prime plus
0.625% and is repaid on a fully amortizing basis over the remaining term.
As with the working capital facility, the term loan is secured by the
Company's loan servicing portfolio and certain other assets. Typically,
this term loan is used to fund longer term investments such as PMSRs.
The Company has had a mortgage warehouse borrowing relationship with
RFC for nearly nine years, and has never experienced a disruption in
borrowing capability. In view of the Company's increased mortgage funding
levels as a result of focused business development and acquisitions, the
Company is reviewing its borrowing facilities and anticipated future needs,
including proposals received from other lenders. With a single lender
relationship, sudden termination or suspension of a borrowing agreements
could result in a major disruption and the Company's business relationships
with its brokers, investors and borrowers could be seriously damaged.
Multiple lending relationships could provide the Company with contingency
options should one lender curtail, cancel or fail to renew its borrowing
agreement with the Company. However, multiple relationships can be more
expensive in terms of commitment fees and administrative overhead.
Management believes that it is unlikely that RFC would terminate the
existing borrowing agreements with less than a 30 day notice unless the
Company was to experience a sudden and severe degradation in its financial
position.
YEAR 2000 COMPLIANCE
The Company has and will continue to make investments to ensure
compliance with issues associated with the change of the millennium. These
costs are being expensed by the Company during the period in which they are
incurred. The financial impact to the Company of implementing the systems
changes necessary to become Year 2000 compliant has not been and is not
anticipated to be material to its financial position or results of
operations in any given year. However, the Company's expectations about
future costs associated with the Year 2000 are subject to uncertainties
that could cause the actual results to differ materially from the Company's
expectations. Factors that could influence the
<PAGE> 33
amount and timing of future costs include the success of the Company in
identifying systems and programs that are not Year 2000 compliant, the
nature and amount of programming required to upgrade or replace each of the
affected programs, the availability, rate and magnitude of related labor
and consulting costs and the success of the Company's business partners,
vendors and clients in addressing the Year 2000 issue.
MATERIAL SUBSEQUENT EVENTS
MICAL MORTGAGE, INC.
On May 19, 1998 the Company acquired all the issued and outstanding
shares of Mical Mortgage, Inc. ("Mical"), a non-public mortgage banker with
offices in San Diego, California and Las Vegas, Nevada, in exchange for
552,430 shares of the Company's common stock. Since this transaction
occurred after April 30, 1998, no consideration for this transaction has
been given in the Company's financial statements. However, due to the
financial requirements of Mical, certain transactions and advances were
made in anticipation of the acquisition.
RECEIPT OF ADDITIONAL CAPITAL
At May 22, 1998, the third and final traunch of the Company's 3%
Convertible Debenture offering was completed when an additional $1,500,000
of the Convertible Debentures were purchased. As part of the agreement
37,500 and 30,000 five year warrants to purchase shares of the Company's
common stock at an exercise price of $5.25 were issued to the investors and
to J. P. Carey, the placement agent, respectively.
INTERLOAN ACQUISTION
On June 23, 1998 the Company acquired, from an individual, certain
assets which include an internet site, "interloan. com", in exchange for
100,000 shares of the Company's common stock. The Company also entered
into a three year employment agreement with the individual.
CONTINGENT OBLIGATION
Under the terms of a services purchase agreement with NDS in which the
consideration paid to NDS included 202,000 shares of the Company's common
stock, the Company had a contingent obligation to adjust the share
consideration if the market price of the Company's common shares was not at
or above $4.00 per share upon the earlier of the Company's registration of
NDS's shares or June 3, 1998, to maintain a value equal to $808,000 at that
time, to a maximum additional shares issuable of 1,414,000 shares. With the
Company's consent, the shares and the contingent obligation were purchased
by an institutional shareholder. The closing price of the Company's shares
on June 3, 1998 was $2.9375. Accordingly, the Company will issue 73,063
shares to the purchaser to satisfy this obligation.
STOCK OPTIONS AND WARRANTS GRANTED
The Company has prepared a new 1998 Stock Option Plan (2,000,000
common stock share reserve), a 1998 Stock Bonus Plan (875,000 common stock
share reserve) and a 1998 Non-Employee Directors Option Plan (500,000
common stock share reserve). In June 1998, option awards to acquire
1,200,000 common shares were approved by the Board of Directors at an
exercise price of $2.75 per share.
In June 1998, the Board of Directors authorized the sale of warrants
to purchase 700,000 common shares at $2.75 per share for a consideration of
$7,000 to two officers of the Company, and warrants to purchase 1,000,000
common shares at $2.75 per share to a director of the Company for a
consideration of $10,000.
<PAGE> 34
ITEM 7. FINANCIAL STATEMENTS
The following are filed in an Appendix as part of this report:
<TABLE>
<CAPTION>
Page
- - ---------------------------------------------------------------- ----
<S> <C>
(a) Financial Statements
Independent Auditors' Reports..................................... 46
Consolidated Balance Sheet at April 30, 1998...................... 48
Consolidated Statements of Operations for the years ended
April 30, 1998 and 1997..... ................................... 49
Consolidated Statements of Stockholders' Equity for the years ended
April 30, 1998 and 1997 ......................................... 50
Consolidated Statements of Cash Flows for the years ended
April 30, 1998 and 1997 ......................................... 51
Notes to Consolidated Financial Statements........................ 53
</TABLE>
ITEM 8. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE> 35
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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.
<TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
<CAPTION>
NAME AGE POSITION SINCE
- - ------------------------ --- ------------- ----------------------------
<S> <C> <C> <C>
Jose Salema Garcao 51 Chairman October, 1997
Stephen J. Sogin, Ph.D.. 55 Director March, 1990
L. Daniel Rawitch....... 39 Director September, 1994
CEO May, 1995
Jan C. Hoeffel.......... 62 Director November, 1995
President November, 1995
James W. Noack.......... 45 Pres, MMI 1987 to May, 1998
Director January, 1997
Vice Chairman May, 1998
Jose Philipe Guedes..... 51 Director January, 1997
S. Lewis Meyer.......... 53 Director January, 1997
George P. Winkel 56 CFO September, 1997
</TABLE>
Jose Salema Garcao, 51, became a Director and Chairman of the Company in
October 1997. Mr. Salema is an independent investor and, since 1987, has
also been President and CEO of Gigeste, S.A., a real estate development
company headquartered in Lisbon, Portugal. Mr. Salema earned a mechanical
engineering degree from the Instituto Superior Technico-Lisbon and has
extensive business experience in real estate and investments.
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, has served as Chief Executive Officer since May,
1995 and as a Director since September, 1994. He acquired the operating
rights to Residential Pacific Mortgage, Inc. (RPM) 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. 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.
<PAGE> 36
James W. Noack, 45, was a founder and President of Monument Mortgage, Inc.
until becoming Vice Chairmen in May 1998. He became a Director in January,
1997 when MMI was acquired by the Company. Mr. Noack received a B.A. from
the University of California at Fullerton, is a member of Fannie Mae's
technical advisory committee, a frequent author and speaker to the industry
and is widely recognized as an innovative leader in the application of
technology to the real estate financing industry.
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., 53, became a Director in January, 1997. He is
President and CEO of Imatron Inc., a public, technology-based company
engaged principally in Electron Beam Computed Tomography scanning, both in
Imatron's Coronary Artery Scanning clinics and in Research & Development
work for other firms. 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 Company.
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.
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 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 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.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information 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 with
respect to the fiscal years ended April 30, 1998, 1997, and 1996,
respectively.
<PAGE> 37
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Awards Other
------------------- ---------------------- ------
Name and Other Restricted Securities All
Principal Fiscal Annual Stock Underlying Other
Position Year Salary Comp Awards Options Comp <F1>
- - --------- ------ -------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
L. Daniel 1998 $150,000 - - - -
Rawitch 1997 150,000 58,341 - - 35,000
CEO 1996 150,000 38,789 - 100,000 -
Jan C. 1998 111,818 - - - -
Hoeffel, 1997 150,000 53,762 - - 18,000
President 1996 107,000 1,500 - 100,000 -
James W. 1998 150,000 - - - -
Noack, MMI 1997 150,000 8,735 - - -
President,
Director
<FN>
<F1>
During fiscal year 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.
</FN>
</TABLE>
On June 2, 1998, the Company hired Mr. S. Lewis Meyer, a director of the
Company, to serve as Vice Chairman.
DIRECTOR COMPENSATION
The Company pays outside Directors $15,000 annually for their services and
attendance at all regular quarterly Board meetings and $1,000 for each
additional Board or committee meeting. Outside directors are also
reimbursed for expenses actually incurred in attending meetings of the
Board and its committees. Additionally, members of the Board of Directors
are eligible to participate under the Company's Stock Option Plan.
The 1989 Option Plan and the 1998 Non-Employee Directors Option Plan each
provide for automatic grants of non-qualified options to outside Directors
(Directors who are not full-time employees). Upon becoming a Director,
each outside Director is granted a five-year, currently exercisable option
for 40,000 shares at the then current fair market value and, for each of
the next three years on each anniversary date of becoming a Director, is
granted an additional five-year option for an additional 25,000 shares
which vest at the rate of 6,250 shares per quarter, subject to continuing
service as a Director. Directors may also be granted additional options at
the discretion of the Board.
EMPLOYMENT AGREEMENTS
Members of the Company's executive management, including certain executives
of subsidiaries, have entered into employment agreements with the Company.
Except for certain base salary and performance compensation differences,
the agreements are standard and contain specific confidentiality and non-
competitive language.
<PAGE> 38
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
% Total
Options Options Exercise Expiration
Name Granted Granted Price($/sh) Date
- - ----------------------- ------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Stapleton Communication 9,000 4.7% $ 3.00 Expired
David Purvis 40,000 21.3% 3.25 10/1998
Lionel Pober 24,000 12.7% 3.00 8/2002
Jose 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%
======= ======
</TABLE>
STOCK OPTION PLANS
On February 18, 1998, the Company's Board of Directors authorized the
adoption of a new 1998 Stock Option Plan (2,000,000 common stock share
reserve), a 1998 Stock Bonus Plan (875,000 common stock share reserve) and
a 1998 Non-Employee Directors Option Plan (500,000 common stock share
reserve). In June 1998, option awards to acquire 1,200,000 common shares
were approved by the Board of Directors at an exercise price of $2.75 per
share.
The Company's 1989 Stock Option Plan will remain in effect until all
options have expired or have been exercised.
The provisions of both the 1989 and 1998 Employee Stock Option Plans are
similar. They provide for grants to employees, which are intended to
qualify as "incentive stock options" under Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"), as well as non-qualifying
options for employees, consultants and Directors of the Company. The
purpose of all Plans is to encourage stock ownership by certain officers,
Directors, consultants and full-time employees of the Company by giving
them a greater personal interest in the success of the Company's business.
The Option Plans are administered by the Board of Directors or by a Stock
Option Committee appointed by the Board. The exercise price for all
options must be at least equal to the fair market value of the shares on
the date of grant. Payment may be made in cash or with the Company's
approval, in common stock or a combination of cash and common stock. The
exercise of incentive stock options granted to any participant who owns
stock possessing more than 10% of the voting rights of the Company's
outstanding common stock must be at least equal to 110% of fair market
value on the date of grant. The Option Plans limit the amount of incentive
stock options that any one employee may be granted in any calendar year in
accordance with the Code's limitations. The maximum option term is ten
years. The 1989 Plan authorizes the granting of stock appreciation rights
in connection with the exercise of an option.
The 1989 Option Plan and the 1998 Non-Employee Directors Option Plan
provide for automatic grants of non-qualified options to outside Directors
(Directors who are not full-time employees). Upon becoming a Director,
each outside Director is granted a five-year, currently exercisable option
for 40,000 shares at the then current fair market value and, for each of
the next three years on each anniversary date of becoming a Director, is
granted an additional five-year option for an additional 25,000 shares
which vest at the rate of 6,250 shares per quarter, subject to continuing
service as a Director. Directors may also be granted additional options at
the discretion of the Board.
<PAGE> 39
As of April 30, 1998, there were 738,000 options outstanding under the 1989
Stock Option Plan, of which 674,000 were vested. During the fiscal year,
approximately 10,000 options expired unexercised and no options were
exercised.
ITEM 11. 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 July 14, 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 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>
Beneficial Ownership
-----------------------------------------------
Name and Address of ----Common Stock----
Beneficial Owner # Owned % Owned
- - ------------ ---------------------- ---------- -------
<S> <C> <C> <C>
Beneficial Cumberland Associates 2,612,281 <F1> 8.1%
Owners of 1114 Ave of Americas
more than 5% New York, NY 10036
of shares
outstanding Fondation Pamalu 2,500,000 <F2> 7.8%
4536 Mozelos VFR
Portugal
Americo Ferreira Amorim 2,000,000 6.2%
Estefania 163
Porto, Portugal
Directors Jose Salema Garcao 12,263,900 <F3> 31.5%
And Officers James W. Noack 4,404,238 <F4> 13.8%
Jan C. Hoeffel 1,264,075 <F5> 3.9%
L. Daniel Rawitch 946,973 <F6> 2.9%
Jose Philipe Guedes 385,000 <F7> 1.2%
Stephen J. Sogin 180,633 <F8> 0.6%
S. Lewis Meyer 65,000 <F9> 0.1%
George P. Winkel 50 0.0%
8 Directors
and Officers
as a group 19,509,869 49.3%
The percent of class calculation is based on 32,051,684 shares of Common
Stock outstanding as of April 30, 1998
<FN>
<F1>
Reflects 2,350,000 shares beneficially owned and currently exercisable
warrants to acquire 262,281 shares.
<PAGE> 40
<F2>
Reflects 1,500,000 shares beneficially owned and currently exercisable
warrants to acquire 1,000,000 shares.
<F3>
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.
<F4>
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.
<F5>
Reflects 1,037,917 shares beneficially owned by him, 917 shares
beneficially owned by his spouse and currently exercisable options to
acquire 225,241 shares.
<F6>
Reflects 798,973 shares beneficially owned by him and currently exercisable
options to acquire 148,000 shares.
<F7>
Reflects 320,000 shares beneficially owned by him and currently exercisable
options to purchase 65,000 shares.
<F8>
Reflects 50,000 shares beneficially owned by him and currently exercisable
options to purchase 130,633 shares.
<F9>
Reflects currently exercisable options to purchase 65,000 shares.
</FN
</TABLE>
ITEM 12. 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 a 3 year consulting agreement with James Umphryes, a shareholder and
former 50% owner of MMI. The agreement calls for payments of $15,000 per
month through December, 2000.
Pending completion of the April, 1997 offering and an increase in the
Company's working capital, James Noack, an officer and 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.
<PAGE> 41
On December 16, 1996, Jose Maria Salema Garcao 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.
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 5
executive officers.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The exhibits listed in the accompanying Index to Exhibits, below and on
page 71, are filed as part hereof and are incorporated herein by reference.
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Foot
Exhibit Note Description Page
- - ------- ---- --------------------------------------------------- ----
<S> <C> <C> <C>
3.1 <F1> Certificate of Amendment of the Restated Certificate
of Incorporation of the Company, as of October 9,
1996 and incorporated herein by reference
3.2 Certificate of Amendment of the Restated Certificate
of Incorporation of the Company, dated as of October
29, 1997............................................ 74
3.3 <F2> Bylaws, as amended, as of July 14, 1993 and
incorporated herein by reference
4.1 Form of Common Stock Purchase Agreement between the
Company and Jose Maria Salema Garcao dated
December 16, 1996................................... 76
4.2 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao dated
December 16, 1996................................... 87
4.3 Form of Warrant issued to Jose Maria Salema Garcao
dated December 16, 1996............................. 96
<PAGE> 42
4.4 Common Stock Purchase Agreement between the Company
and investors in the Private Offering concluded
December 31, 1996................................... 101
4.5 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao dated
December 30, 1996................................... 117
4.6 Form of Warrant issued to Jose Maria Salema Garcao
dated December 30, 1996............................. 127
4.7 Form of Common Stock Purchase Agreement between the
Company and Jose Maria Salema Garcao
dated March 21, 1997................................ 132
4.8 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao
dated March 21, 1997............................... 142
4.9 Form of Warrant issued to Jose Maria Salema Garcao
dated March 21, 1997................................ 151
4.10 Form of Stock Purchase Agreement between the Company
and investors in the Private Offering concluded
April 30, 1997...................................... 156
4.11 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao
dated April 30, 1997................................ 166
4.12 Form of Warrant Issued to investors in the Private
Offering concluded April 30, 1997................... 177
4.13 Form of Common Stock Purchase Agreement between the
Company and investors in the Private Offering
concluded October 31, 1997.......................... 184
4.14 Form of Common Stock Purchase Warrant issued to
investors in the Private Offering concluded
October 31, 1997.................................... 192
4.15 <F3> Form of Securities Purchase Agreement between the
Company and investors in the Debenture Offering
concluded May 26, 1998 and incorporated herein by
reference
4.16 <F3> Filed as an Exhibit to the Company's Current Report
on Form 8-K filed with the Commission on
April 6, 1998 and incorporated herein by reference
4.17 <F3> Form of Registration Rights Agreement between the
Company and investors in the Debenture Offering
concluded May 26, 1998 and incorporated herein by
reference
<PAGE> 43
4.18 <F3> Form of 3% Subordinated Convertible Debenture issued
to investors in the Debenture Offering concluded
May 26, 1998 and incorporated herein by reference
4.19 <F3> Form of Warrant Purchase Agreement between the
Company and Investors in the Debenture Offering
concluded May 26, 1998 and incorporated herein by
reference
4.20 <F3> Form of Warrant Issued to Investors in the Debenture
Offering concluded May 26, 1998 and incorporated
herein by reference
10.1 <F1> Merger Agreement and Plan of Reorganization between
the Company and Monument Mortgage, Inc., dated
December 20, 1996 and incorporated herein by
reference
10.2 <F1> Consulting Agreement between the Company and James
Umphryes, dated January 1, 1997 and incorporated
herein by reference
10.3 <F4> 1998 Stock Option Plan incorporated herein by
reference
10.4 Asset Purchase Agreement between Finet and Real
Estate Office Software, Inc. dated August 30, 1997.. 198
10.5 Stock Purchase Agreement between the Company and
Coastal Federal Mortgage Company,
dated April 30, 1998................................ 209
10.6 Stock Purchase Agreement between Finet and MICAL
Mortgage, Inc., dated May 19, 1998.................. 229
21.1 Subsidiaries of Finet Holdings Corporation.......... 249
23.1 Consent of Independent Auditors..................... 250
27.1 <F1> Financial Data Schedule, 1997 incorporated herein
by reference
27.2 Financial Data Schedule, 1998....................... 251
<FN>
<F1>
Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended April 30, 1997 and incorporated herein by reference.
<F2>
Filed as an Exhibit to the Company's Registration Statement on Form SB-2
filed with the Commission on March 18, 1994 and incorporated herein by
reference.
<PAGE> 44
<F3>
Filed as an Exhibit to the Company's Current Report on Form 8-K filed with
the Commission on April 6, 1998 and incorporated herein by reference.
<F4>
Filed as an Exhibit to the Company's Registration Statement on Form S-8
filed with the Commission on June 19, 1998 (Registration No. 333-57287) and
incorporated herein by reference.
</FN>
</TABLE>
<TABLE>
<CAPTION>
REPORTS ON FORM 8-K
Date Item Description
- - -------- ---- -----------------------------------------------------
<S> <C> <C>
5/12/97 4 Concurrence of MMI's former independent accountant with
4/10/97
Form 8-K and 4/24/97 Form 8-K/A
1/6/98 5 Announcement of purchase of residential mortgage loan
servicing
rights with a current outstanding loan balances of $427
million.
1/15/98 2 Announcement of a Letter of Intent to acquire 100% of the
issued
and outstanding stock of Coastal Federal Mortgage Company.
3/4/98 2 Announcement of a Letter of Intent to acquire 100% of the
issued
and outstanding stock of Mical Mortgage Inc.
4/6/98 5 Announcement of the sale of a 3 % Convertible Debenture for
an
aggregate principal amount of $7,000,000.
5/18/98 2 Announcement of the acquisition of 100% of the issued and
outstanding stock of Coastal Federal Mortgage Company
5/28/98 2 Announcement of the acquisition of 100% of the issued and
outstanding stock of Mical Mortgage, Inc.
<PAGE> 45
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FINET HOLDINGS CORPORATION
</TABLE>
<TABLE>
<S> <C>
Date: August 12, 1998 /S/ L. DANIEL RAWITCH
------------------------------------
L. DANIEL RAWITCH
(CEO, PRINCIPAL EXECUTIVE OFFICER
AND DIRECTOR)
Date: August 12, 1998 /S/ GEORGE P. WINKEL
------------------------------------
GEORGE P. WINKEL
(PRINCIPAL FINANCIAL OFFICER)
Date: August 12, 1998 /S/ JAN HOEFFEL
------------------------------------
JAN C. HOEFFEL
(PRESIDENT AND DIRECTOR)
Date: August 12, 1998 /S/ JOSE SALEMA GARCAO
------------------------------------
JOSE SALEMA GARCAO
(DIRECTOR)
Date: August 12, 1998 /S/ S. LEWIS MEYER
------------------------------------
S. LEWIS MEYER
(DIRECTOR)
</TABLE>
<PAGE> 46
APPENDIX
REUBEN E. PRICE & CO.
PUBLIC ACCOUNTANCY CORPORATION
703 MARKET STREET
SAN FRANCISCO, CA 94103
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Finet Holdings Corporation
Walnut Creek, CA
We have audited the accompanying consolidated balance sheet of Finet
Holdings Corporation and Subsidiaries as of April 30, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the years ended April 30, 1998 and 1997. The consolidated financial
statements give retroactive effect to the merger of Finet Holdings
Corporation and Coastal Federal Mortgage Company on April 30, 1998, which
has been accounted for using the pooling of interests method as described
in the notes to the consolidated financial statements. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We did not audit the 1998 and 1997 financial
statements of Coastal Federal Mortgage Company, which statements reflect
total assets and revenues of approximately 10 percent and 53 percent,
respectively, of the related consolidated totals as of April 30, 1998.
Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included
for Coastal Federal Mortgage Company, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated statements referred to above present fairly, in all material
respects, the financial position of Finet Holdings Corporation and
Subsidiaries as of April 30, 1998, the consolidated results of their
operations and their cash flows for the years ended April 30, 1998 and 1997
in conformity with generally accepted accounting principles.
/s/ REUBEN E. PRICE & CO.
San Francisco, CA
August 12, 1998
<PAGE> 47
Richard A. Eisner & Company, LLP
Accountants and Consultants
100 Campus Drive
Florham Park, New Jersey 07932
973-593-7000
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Coastal Federal Mortgage Company
We have audited the accompanying balance sheet of Coastal Federal Mortgage
Company as of April 30, 1998, and the related statements of income,
stockholders' equity and cash flows for each of the years in the two year
period then ending (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated statements enumerated above present
fairly, in all material respects, the financial position of Coastal Federal
Mortgage Company as of April 30, 1998, the results of its operations and
its cash flows for each of the years in the two year period then ended, in
conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Florham Park, New Jersey
July 9, 1998
With respect to Note C
July 31, 1998
<PAGE> 48
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
(In thousands, except per share data)
<CAPTION>
<S> <C>
ASSETS
Cash and cash equivalents...................................... $ 1,993
Accounts receivable from sales of mortgage loans............... 23,008
Mortgage loan servicing advances and
other receivables............................................ 1,248
Notes and advances receivable from Mical Mortgage, Inc.
("Mical") (Note 14).......................................... 1,930
Notes receivable from officers (Note 14)....................... 59
Mortgages held for sale, net of allowance for losses of $396... 20,226
Mortgages held for sale on behalf of Mical (Note 14)........... 42,808
Mortgage servicing rights (Note 3)............................. 5,478
Furniture, fixtures and equipment, net of
accumulated depreciation of $1,854 (Note 4).................. 1,441
Other assets (Note 5).......................................... 3,277
---------
Total assets............................................... $ 101,468
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse line of credit (Note 6).............................. $ 42,851
Warehouse line of credit on behalf of Mical (Notes 6 & 14)..... 42,808
Accounts payable............................................... 2,951
Revolving line of credit (Note 6).............................. 1,000
Note payable and capitalized leases (Note 6)................... 860
3% Convertible subordinated debentures (Note 6)................ 5,500
Accrued expenses and other liabilities......................... 1,701
Liabilities subject to compromise (Note 7)..................... 438
---------
Total liabilities.......................................... 98,109
---------
Commitments and contingencies (Note 8)
Stockholders' equity: (Notes 10 and 16)
Preferred stock: $.01 par value (100 shares
authorized, no shares outstanding)........................... -
Common stock: $.01 par value, (60,000 shares
authorized, 32,052 shares issued and outstanding)............ 386
Paid in capital................................................ 13,610
Accumulated deficit............................................ (10,637)
----------
Total stockholders' equity................................. 3,359
----------
Total liabilities and stockholders' equity................. $ 101,468
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 49
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1997
(In thousands, except for per share data)
1998 1997
----------- ----------
<S> <C> <C>
REVENUE
Gain on sale of mortgage loans and servicing
rights, net of loan origination costs......... $ 7,543 $ 6,827
Interest income................................ 3,247 2,433
Loan servicing fees............................ 868 589
Retail broker fees............................. 418 94
Marketing services............................. 367 60
Other.......................................... 118 146
----------- ----------
Total revenue.................................. 12,561 10,149
----------- ----------
EXPENSES
Compensation and employee benefits............. 9,403 6,083
Interest expense............................... 3,175 1,992
Office......................................... 1,808 1,289
Marketing...................................... 997 667
Professional fees.............................. 1,629 856
Write down of intangibles and other assets..... 1,728 164
Depreciation and amortization.................. 953 543
Occupancy...................................... 667 425
Insurance...................................... 125 87
Data processing services....................... 174 111
Other.......................................... 1,055 797
----------- ----------
Total expenses................................. 21,714 13,014
----------- ----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN............................ (9,153) (2,865)
INCOME TAX (Note 12)........................... (226) (225)
----------- ----------
LOSS BEFORE EXTRORDINARY GAIN.................. (9,379) (3,090)
EXTRORDINARY GAIN ON LIABILITIES
SUBJECT TO COMPROMISE (Note 7) .............. - 312
----------- -----------
NET LOSS....................................... $ (9,379) $ (2,778)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE BEFORE
EXTRAORDINARY GAIN......................... $ (0.31) $ (0.21)
EXTRAORDINARY GAIN ON LIABILITIES
SUBJECT TO COMPROMISE......................... - 0.02
----------- ----------
BASIC AND DILUTED NET LOSS PER COMMON SHARE.... $ (0.31) $ (0.19)
=========== ==========
SHARES USED IN COMPUTING BASIC AND DILUTED
SHARE DATA.................................... 30,433 14,313
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 50
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1998 AND 1997
(In thousands)
<CAPTION>
Common
-----Common Stock----- Capital in
Stock Retained
Shares Amount Sub- Excess of Sub-
Earnings Total
scribed Par Value
scription (Deficit) Capital
------ ---- ------ --------- ----
- - --- --------- --------
<S> <C> <C> <C> <C> <C>
<C> <C>
Balance April 30, 1996 9,650 $162 $ 1,413
$ 2,261 $ 3,836
Issue of common shares:
(Notes 2,7 and 10)
Common stock
offerings 11,992 80 $ 40 7,233
$(2,693) 4,660
Reverse acquisition 6,412 64 (3,455)
(3,391)
Debt & note payable conversion 2,314 23 1,136
1,159
Liabilities subject to
compromise settlements 230 2 113
115
Common stock rights 2,403 24 (24)
Stock option exercise 3
Repurchase of common shares (3,000) (30) (150)
(180)
Distributions to shareholders
(741) (741)
Net loss
(2,778) (2,778)
-------- ----- ----- ------- -----
- - --- -------- --------
Balance April 30, 1997 30,004 325 40 6,266
(2,693) (1,258) 2,680
Proceeds of subscription
receivable 40 (40)
2,693 2,693
Issue of common shares:
(Notes 2,7 and 10)
In connection with acquisitions
Real Estate Office Software 150 2 373
375
iQualify, Inc. 50 1 180
181
Purchase of software from NDS 202 2 806
808
Private placement 1,300 13 3,887
3,900
Settlement of liabilities 232 2 355
357
Employee bonuses 9 - 35
35
Warrants exercised 105 1 157
158
Additional paid in capital related
to imputed interest on issue of
convertible subordinated
debentures (Note 6)
1,551
1,551
Net loss
(9,379) (9,379)
-------- ----- ----- ------- ----
- - ---- -------- --------
Balance April 30, 1998 32,052 $386 $ - $13,610 $
- - - $(10,637) $ 3,359
======== ===== ===== =======
======== ========= ========
</TABLE
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 51
</TABLE>
<TABLE>
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1997
(In thousands)
<CAPTION>
1998
1997
----------
- - - ---------
<S> <C>
<C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $ (9,379)
$ (2,778)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................................ 953
543
Amortization of mortgage servicing rights.................... 596
- - -
Amortization of imputed interest on convertible debt......... 287
- - -
Write down of intangibles and provision for losses........... 1,728
164
Extraordinary gain on liabilities subject to compromise...... -
(312)
Gain on sale of purchased mortgage servicing rights.......... (229)
- - -
Expenses paid through issuance of common stock............... 392
52
Changes in operating assets and liabilities:
(Increase) decrease in receivables from sales
of mortgage loans and loan servicing rights............... (19,554)
7,972
Decrease (increase) in mortgage loans held for sale.......... 4,246
(6,130)
Increase in mortgage loans funded on behalf of Mical......... (42,808)
- - -
Increase in originated mortgage servicing rights, net........ (1,248)
(876)
(Increase) decrease in mortgage loan servicing advances and
other receivables......................................... (942)
440
Net increase in other assets................................. 317
(498)
Net increase in other liabilities............................ 3,006
106
------------
- - - -------------
Net cash used by operating activities...................... (62,635)
(1,317)
------------
- - - -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage servicing rights........................ (4,515)
(287)
Proceeds from sale of mortgage servicing rights.............. 497
- - -
Acquisition of mortgage loans held for investment............ -
(87)
Principal payments on mortgage loans held for investment..... 110
68
Purchase of furniture, fixtures and equipment................ (647)
(265)
Acquisition of purchased technology.......................... (1,007)
(67)
Proceeds from sale of life insurance to officer.............. -
166
Pre-acquisition advances to affiliates....................... (1,930)
(1,377)
Repayment of pre-acquisition advances to affiliates.......... -
660
------------
- - - -------------
Net cash used by investing activities....................... (7,492)
(1,189)
------------
- - - -------------
<PAGE> 52
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock....................... 6,582
4,438
Proceeds from issuance of convertible debt................... 5,058
- - -
Repurchase of common stock................................... -
(180)
Proceeds from exercise of common stock warrants and other.... 219
- - -
Net increase (decrease) in warehouse borrowings.............. 58,357
(345)
Proceeds from advances on note payable and line of credit.... 2,550
1,950
Principal payments on note payable, capitalized leases
and line of credit.........................................
(1,665) (2,305)
Repayments of loans and distributions to former shareholders.
(129) (1,707)
Proceeds from notes payable to officers...................... -
625
------------
- - - -----------
Net cash provided (used) by financing activities............. 70,972
2,476
------------
- - - -----------
Net increase (decrease) in cash............................... 845
(30)
Cash at beginning of period................................... 1,148
1,178
------------
- - - -----------
Cash at end of period......................................... $ 1,993
$ 1,148
============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 53
FINET HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Finet Holdings Corporation ("Finet" or "Company") operates in one business
segment, homeownership services, and is primarily engaged in mortgage
lending, as both a wholesale mortgage banker and as a retail mortgage
broker, and the delivery of transaction settlement services. During the
past year the Company has continued to develop technology-based Internet
applications and business processes and is a leader in delivering
homeownership-related solutions to consumers and real estate services
providers through electronic commerce. The majority of its revenues,
including those related to mortgage lending, is derived from increasingly
automated electronic processes. The Company's principal operating
subsidiary is Monument Mortgage, Inc. ("MMI"), a California mortgage
banking company. The majority of the Company's business activity is carried
out in California, with lesser activity throughout the remainder of the 42
states in which the Company is currently licensed.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Finet and its
subsidiaries. All significant intercompany transactions have been
eliminated.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash balances and instruments with
maturities of three months or less at the time of purchase.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
market as determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis.
Mortgage loans sold to investors generally settle within fifteen to thirty
days of funding. Gains or losses on sales of mortgage loans are computed
as the difference between the selling price and the carrying value of the
related mortgage loans sold, net of applicable discounts. Loan origination
fees on mortgage loans held for sale, net of certain direct loan
origination costs, are deferred until the time of sale and are included in
the computation of the gain or loss on sale of the related loans. The sale
of mortgage loan inventory is recorded when the loans are shipped to the
investor.
MORTGAGE SERVICING RIGHTS
Mortgage servicing rights are carried at values based on the allocation of
the cost of originated or purchased mortgage loans to the mortgage
servicing rights and the loans based on their relative fair values at the
date of purchase or, for originated mortgage servicing rights, the date of
sale of the related mortgage loan. The fair values of the mortgage
servicing rights are based upon prices available in the secondary market
for servicing rights of mortgage loans with similar characteristics. When
material, capitalized mortgage servicing rights are amortized in proportion
to, and over the period of, estimated net servicing income. In evaluating
and measuring impairment, capitalized servicing rights are tested for
impairment based on the expected future net servicing revenue stream.
<PAGE> 54
LOAN SERVICING
The Company sells mortgages on both a servicing retained and servicing
released basis. Loan servicing fee income represents fees earned for
servicing real estate mortgages owned by institutional investors. The fees
are generally calculated on the outstanding principal balances of the loans
serviced and are recorded as income when earned. Servicing released
premiums are based on a contractual percentage of the outstanding principal
balance and credited to income when the loan servicing rights are sold.
HEDGE ACCOUNTING
The Company does not project interest rates but rather uses a hedging
strategy to determine the portion of the pipeline loans that are at risk
given the current interest rates. The Company's hedging activity consists
of mandatory forward commitments on mortgage-backed securities which are
usually paired-off to hedge the gain (loss) experience from whole loan
sales. Additionally, the Company enters into either optional or mandatory
forward commitments to sell mortgage loans when funded. The Company
assesses the pipeline interest rate risk based upon a number of factors,
including the remaining term of the rate locks, the interest rate at which
the locks are provided, current interest rates and interest rate
volatility. The Company controls the credit risk of the pipeline through
credit evaluations, limits, and monitoring procedures. Unrealized hedging
losses are recorded through a valuation allowance that is shown as a
reduction in the carrying value of the related loan sale. Fees paid to
investors are deferred and recognized as expense as loans are delivered to
the investor in proportion to the percentage relationship of loans
delivered to the total commitment amount. Any remaining fee is recognized
as a period expense at the expiration of the commitment period or earlier
if exercise of the commitment is deemed remote.
FURNITURE, FIXTURES AND EQUIPMENT
Depreciation and amortization, which includes the amortization of assets
recorded under capital leases, is computed over the estimated useful lives
of the furniture, fixtures and equipment of two to twelve years using both
straight-line and accelerated methods. The cost of repairs and maintenance
of furniture, fixtures and equipment is charged to operating expenses.
OTHER ASSETS
Purchased technology is stated at cost less accumulated amortization.
Amortization is provided over the estimated useful lives of the respective
assets. Purchased technology costs are amortized using the greater of the
ratio of current product revenue to the total current and anticipated
product revenue or the straight-line method over the software's estimated
useful economic life, generally 24 to 36 months.
INCOME TAXES
The Company and its consolidated subsidiaries file consolidated federal and
combined state income tax returns. Income taxes are accounted for by the
asset/liability approach in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. Under this pronouncement, deferred income taxes, if any, reflect the
estimated future tax consequences when reported amounts of assets and
liabilities are recovered or paid. They arise from differences between the
financial reporting and tax basis of assets and liabilities and are
adjusted for changes in tax laws and tax rates when those changes are
enacted. The provision for income taxes represents the total income taxes
paid or payable for the current year, plus the change in deferred taxes
during the year. The tax benefits related to operating loss carryforwards
are recognized if management believes, based on available evidence, that it
is more likely than not that they will be realized.
<PAGE> 55
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. SFAS No. 128 simplifies the standards for
computing earnings per share ("EPS") and makes them comparable to
international standards. SFAS No. 128 was effective for financial
statements issued for periods ending after December 15, 1997, with earlier
application not permitted. Upon adoption, all prior EPS data was restated.
Basic EPS is determined using net income divided by the weighted average
shares outstanding during the period. Diluted EPS is computed by dividing
net income by the weighted average shares outstanding, assuming all
dilutive potential common shares were issued.
Since the fully diluted loss per share for fiscal 1998 and 1997 was
antidilutive, basic and diluted earnings per share are the same.
Accordingly, options to purchase common stock in fiscal 1998 and 1997 of
738,000 shares and 559,000 shares, respectively, warrants to purchase
common stock in fiscal 1998 and 1997 of 10,596,000 and 6,907,000 shares,
respectively, and 2,659,000 common shares potentially issuable upon
conversion of convertible subordinated debentures existing at April 30,
1998 and issued in May 1998 were not included in the calculation of diluted
earnings per common share.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation. Under SFAS No. 123,
companies may elect to recognize stock-based compensation expense based on
the fair value of the awards or continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees
(APB No. 25). The Company has elected to continue to apply the provisions
of APB No. 25.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components in a
full set of general-purpose financial statements. This statement does not,
however, require a specific format for the disclosure but requires the
Company to display an amount representing total comprehensive income for
the period in its financial statements. The Company will be required to
implement SFAS No. 130 for its fiscal year 1999.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the manner in which public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. This Statement requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. The Company is currently evaluating the operating segment
information that it will be required to report. The Company will be
required to implement SFAS No. 131 for its fiscal year 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, Employers' Disclosure about Pensions and Other Postretirement
Benefits. SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefit plans; however, it does not change the
measurement or recognition of those plans. The Company will be required to
implement SFAS No. 132 for its fiscal year 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
is effective for fiscal quarters and years beginning after June 15, 1999.
Since the Company's mortgage banking operations involve taking interest
rate risk, the Company routinely attempts to mitigate such risk through
hedging. The Company considers its hedging to qualify as "fair value
hedging" as defined by SFAS No. 133. The Company will be required to
implement SFAS No. 133 for its fiscal quarter ending September 30, 1999.
<PAGE> 56
2. ACQUISITIONS
On May 19, 1998 the Company acquired all the issued and outstanding shares
of Mical Mortgage, Inc. ("Mical"), a non-public mortgage banker with
offices in San Diego, California and Las Vegas, Nevada, in exchange for
552,000 shares of the Company's common stock. Since this transaction
occurred after April 30, 1998, no consideration for this transaction has
been given in these financial statements. However, due to the financial
requirements of Mical, certain transactions and advances were made in
anticipation of the acquisition (See Note 14). The acquisition will be
accounted for as a purchase. As such, the excess of the purchase price over
the fair value of the acquired net assets, which approximates $3.3 million,
will be recorded as goodwill. The following condensed pro forma statement
of financial position of the Company as of April 30, 1998 and condensed pro
forma statement of operations of the Company for the fiscal year ended
April 30, 1998 give effect to the acquisition of Mical as though the
transaction had occurred at the beginning of fiscal 1998:
<TABLE>
(In thousands)
- - -----------------Condensed Unaudited Pro Forma----------------
Balance Sheet Statement of Operations
- - ----------------------- ---------- ------------ ---------
<S> <C> <C> <C>
Cash $ 2,344 Revenues $ 24,184
Mortgages held for sale 129,174 ==========
Other assets 18,202 Net loss (11,995)
-------- ==========
Total assets $149,720
========
Warehouse line of credit $126,262
Other liabilities 19,024
Stockholders' equity 4,434
--------
Liabilities & equity $149,720
========
</TABLE>
On April 30, 1998 the Company acquired all the issued and outstanding
common shares of Coastal Federal Mortgage Company ("Coastal"), a non-
public, sub prime mortgage banker with offices in New Jersey, Pennsylvania
and Florida, in exchange for 1,250,000 shares of the Company's common
stock. This transaction is accounted for as a pooling of interests and,
consequently, the consolidated financial statements of the Company have
been restated to include the balance sheet and statements of operations of
Coastal for all periods reported. The table below sets forth the condensed
balance sheet and condensed statements of operations for the periods
indicated:
<PAGE> 57
<TABLE>
(In thousands) 1998
---------------------------
Balance Sheet Finet Coastal Combined
- - ----------------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
<C>
Cash $ 1,144 $ 849 $ 1,993
Mortgages held for sale 55,074 7,960 63,034
Other assets 35,696 745 36,441
-------- ------- --------
Total assets $ 91,914 $ 9,554 $101,468
======== ======= ========
Warehouse line of credit $ 77,952 $ 7,707 $ 85,659
Other liabilities 11,554 896 12,450
Stockholders' equity 2,408 951 3,359
-------- ------- --------
Liabilities & equity $ 91,914 $ 9,554 $101,468
======== ======= ========
1998 1997
-------------------------- ---------------------
- - -----
Statement of Operations Finet Coastal Combined Finet Coastal
Combined
------- ------- -------- ------- ------- --
- - ------
Net revenues $ 5,862 $ 6,699 $ 12,561 $ 4,366 $ 5,783
$10,149
Net income (loss) (8,678) (701) (9,379) (3,168) 390
2,778)
</TABLE>
On February 9, 1998 the Company acquired all of the issued and outstanding
stock of iQualify, Inc., a software developer whose principal asset is the
iQualify software currently used by the Company, for a consideration of
50,000 shares of the Company's common stock valued at $180,000, plus
certain future usage-based payments. The acquisition was accounted for as a
purchase. As such, the excess of the purchase price over the estimated fair
value of the acquired net assets, which approximates $171,000, was recorded
as purchased technology.
In December 1997, the Company completed the purchase of substantially all
of the assets of Real Estate Office Software, Inc. ("REOS"), a Nevada
corporation. REOS is a software development and marketing company whose
primary product is a proprietary realtor productivity tool called the Real
Estate Office. The total price paid was $1,141,000 of which $641,000 was
paid in cash and assumption of liabilities. The remaining $500,000 is to be
paid with 200,000 shares of the Company's common stock valued at $2.50 per
share; 150,000 of these shares have been issued as of April 30, 1998. The
remaining 50,000 shares have been placed in an escrow account and will be
issued to the seller periodically as certain audits are performed. The net
issuance value of the stock will be adjusted downward for any adverse
changes in the value and content of the net assets purchased, as determined
by the audits. The acquisition cost was recorded as purchased technology.
On December 31, 1996, the Company acquired all of the outstanding common
stock of MMI in exchange for 8.4 million common shares of Finet and a cash
payment of $1 million. For accounting purposes, the cash payment was
deemed a dividend payment to MMI shareholders and the common shares issued
in the acquisition have been treated as a recapitalization of MMI, with MMI
as the reverse acquisition acquirer. The historical financial statements
prior to December 31, 1996 are those of MMI and are deemed to be those of
the reporting entity. Since the Company's operations were minimal or
dormant during the year ended December 31, 1996, the reverse acquisition
was considered a capital transaction rather than a business combination..
Following the reverse acquisition, the Company changed its fiscal year end
from December 31 to April 30 to conform to the fiscal year end of MMI.
<PAGE> 58
3. MORTGAGE SERVICING RIGHTS
During the year ended April 30, 1998, the changes in mortgage servicing
rights were as follows:
<TABLE>
(In thousands) 1998
- - ---------------------------- --------
<S> <C>
Beginning balance, May 1 $ 579
Acquisitions............ 5,763
Sales................... (268)
Amortization............ (596)
--------
Ending balance, April 30 $ 5,478
========
</TABLE>
The estimated fair value of mortgage servicing rights aggregated $5,478,000
at April 30, 1998. Fair value is determined by discounting estimated net
future cash flows from mortgage servicing activities using discount rates
that approximate current market rates and using current expected future
prepayment rates.
A provision for impairment was not required at April 30, 1998. In measuring
impairment the underlying financial assets were stratified primarily by
type and term of loan being serviced.
In connection with mortgage servicing activities, the Company segregates
escrow and custodial funds in a separate trust account and excludes this
balance of $16.0 million at April 30, 1998 from the accompanying balance
sheet.
4. FURNITURE, FIXTURES AND EQUIPMENT
The total net book value of furniture, fixtures and equipment at April 30,
1998 was comprised of the following:
<TABLE>
(In thousands)
<S> <C>
Furniture and fixtures................... $ 1,010
Computer equipment....................... 1,855
Office equipment......................... 225
Leasehold improvements................... 205
--------
Total cost........................... 3,295
Less: Accumulated depreciation............... (1,854)
--------
Furniture, fixtures and equipment, net....... $ 1,441
========
</TABLE>
<PAGE> 59
5. OTHER ASSETS
Other assets at April 30, 1998 are summarized as follows:
<TABLE>
(In thousands)
<S> <C>
Purchased technology ................... $ 1,358
Debt discount and issuance expenses...... 1,981
Other.................................... 641
--------
Total cost........................... 3,980
Less: Accumulated amortization....... (703)
--------
Other assets, net.................... $ 3,277
========
</TABLE>
In May 1997, the Company acquired from NDS Software, Inc. ("NDS") a
combination of Internet mortgage leads, software development services and
rights to access and market certain of the seller's customer base for
approximately $1 million (See Notes 10 and 16). Amortization expense,
related to other assets, was $379,000 and none in fiscal 1998 and 1997,
respectively. During the fourth quarter of fiscal 1998, the Company wrote-
down $1.0 million of intangible assets, $358,000 of other assets, provided
$342,000 of amortization of purchased technology and $287,000 amortization
of debt discount as interest expense (See Note 6).
6. DEBT
The Company's warehouse borrowings as of April 30, 1998 were approximately
$85,259,000, of which $77,552,000 was borrowed by the Company against its
$80,000,000 credit line. These borrowings include $42,808,000 borrowed in
anticipation of the Mical acquisition (See Notes 2 and 14). In addition,
Coastal had borrowed $7,707,000 against its credit line of $24,000,000.
These loans are collateralized by the mortgage loans held for sale,
servicing rights and other assets of the Company.
The following table and comments present summary information regarding the
Company's debt as of April 30, 1998:
<TABLE>
<CAPTION>
(In thousands)
Interest
Expires or
Facility Balance Rate Due
- - ---------------------------------- -------------- -------------- ------
- - -------------
<S> <C> <C> <C>
REVOLVING
Warehouse line of credit:
$55 million committed $ 55,000 LIBOR +
$25 million uncommitted gestation 22,552 variable spread August
31, 1998
---------
77,552
$24 million committed 7,707 LIBOR + 2.5% August
31, 1998
Servicing acquisition
$1,870 committed 400 Prime + 0.625% August
31, 1998
---------
$ 85,659
=========
<PAGE> 60
Revolving line of credit:
$1 million committed $ 1,000 Prime + 0.625%
Requires payment to
========== zero
balance 5 days
per
quarter
NOTES AND CAPITAL LEASES:
Note payable
$1 million original note $ 500 Prime + 0.625% Due in
2000
Capitalized leases 360 3.5% to 11.5% Varies
to 2002
---------
Total $ 860
=========
</TABLE>
On March 18, 1998 the Company issued 3% Subordinated Convertible Debentures
in a private placement with interest payable in common stock of the Company
when converted or in cash at maturity, redemption or retirement. These
debentures have been issued in three separate traunches together with
175,000 detachable warrants for purchase of the Company's common stock. The
debentures and accrued interest are convertible into the Company's common
stock at the lesser of $5.00 per common share or 78% of the determined
market price prior to conversion. The Company has recorded $1,551,000 as
additional paid in capital for the discount deemed related to the imputed
interest in the debentures. The discount is being amortized to interest
expense over the period from the date of issue to the date it first becomes
convertible. Among other things the debenture agreement provides for
redemption of the debentures by the Company at 115% of the principal amount
plus any unpaid interest accrued at the time of redemption. As of April 30,
1998 the Company had received $5.5 million with completion of the first two
traunches. On May 26, 1998, the Company received payment for the third
traunch of $1.5 million.
Principal payments on long-term debt outstanding at April 30, 1998 for the
five years ending April 30, 2003 are as follows:
<TABLE>
<CAPTION>
(In thousands)
Capitalized Total
Year Note Payable Leases Payments
- - ---- ------------ ----------- ---------
<S> <C> <C> <C>
1999 $250 $ 225 $ 475
2000 250 124 374
2001 - 42 42
2002 - 5 5
2003 - - -
----------- ----------- ----------
500 396 896
Amounts representing interest - (36) (36)
----------- ----------- ----------
$500 $ 360 $ 860
=========== =========== ===========
</TABLE>
COLLATERAL
The warehouse line of credit, the revolving line of credit and the note
payable are with the same lender. The collateral for these obligations is a
combination of mortgages held for sale, receivables from sales of mortgage
loans, servicing assets, other assets of the Company.
<PAGE> 61
The collateral for the capitalized leases is the equipment thereby
financed.
DEBT COVENANTS
The Borrowing Agreements ("Agreements") for the warehouse line of credit,
the revolving line of credit and the note payable contain various financial
covenants including net worth computed in accordance with generally
accepted accounting principles, current ratio and tangible net worth
leverage ratio requirements. Should an event of default occur, as defined
in the Agreements, outstanding principal and interest on all four of the
Company's credit facilities are due on demand.
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, the lender
issued a formal waiver of the breach.
The Company is in the process of negotiating new Borrowing Agreements with
the lender, and has no reason to believe that negotiations will not be
successful. However, no assurances can be given that the Agreements will be
renewed.
7. LIABILITIES SUBJECT TO COMPROMISE
Prior to the December 31, 1996 reverse acquisition, Finet had incurred
$969,000 of unsecured trade creditor accounts payable. The Company had
settled a majority of these claims by April 30, 1997. The creditors agreed
to accept, on average, 33.8% of what they were owed. The payments were
made in the form of cash and shares of the Company's common stock. The
reduction of this liability gave rise to extraordinary gain of $312,000 for
the year ended April 30, 1997. The balance of liabilities subject to
compromise was $438,000 at April 30, 1998.
8. COMMITMENTS AND CONTINGENCIES
DEBT COVENANTS
As discussed in Note 6, at April 30, 1998, the Company was in violation of
the tangible net worth requirement of its debt covenants. Subsequently, a
waiver for this violation was received from the lender.
LOAN SALE COMMITMENTS
The Company has entered into optional and mandatory forward commitments to
deliver mortgage loans of $46.4 million as of April 30, 1998.
MORTGAGE LOAN APPLICATIONS IN PROCESS
The Company has open short-term commitments to fund mortgage loan
applications in process subject to credit approval. Such commitments,
which had interest rates committed to the borrower, amounted to $87.3
million as of April 30, 1998. Commitments to fund loans are agreements to
lend to a customer as long as there is no violation of any condition
established in the contract. Interest rate risk is mitigated by the use of
forward contracts to sell loans to investors.
LEASES
The Company leases its facilities and certain equipment under non-
cancelable operating leases. As of April 30, 1998, future minimum annual
rental payments under these leases are as follows:
<PAGE>62
<TABLE>
<CAPTION>
(In thousands)
Lease
Fiscal Year ending Expense
- - --------------------- -------
<S> <C>
1999....................... $ 540
2000....................... 414
2001....................... 325
2002....................... 13
2003....................... 2
-------
$1,294
=======
</TABLE>
Rental expense amounted to $601,000 and $514,000 in fiscal year 1998 and
1997, respectively.
CONTINGENCIES
Prior to the Mical acquisition (See Note 2) a lawsuit was filed which
alleges, among other things, that Mical made certain payments in violation
of the Real Estate Settlement Procedures Act and induced mortgage brokers
to breach their alleged fiduciary duty. The plantiffs seek unspecified
compensatory and punitive damages. The Company believes its compensation
programs comply with applicable laws and long standing industry practices
and that it has meritorious defenses to the action. The Company intends to
defend vigorously against the action and believes the ultimate resolution
will not have a material adverse effect on the Company's results of
operations or financial position.
The Company and its subsidiaries are defendants in various legal
proceedings. Management does not expect the aggregate liability, if any,
resulting therefrom will have a material adverse effect on the Company's
results of operations or financial position.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair values of financial
instruments are made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate methodologies. However, considerable judgment
is necessarily required to interpret market data to develop the estimates
of fair value. Accordingly, the estimates presented herein may not be
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts disclosed in the following paragraph.
<PAGE> 63
The estimated fair values of the Company's financial instruments at April
30, 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands)
Carrying Estimated
Value Fair
Value
- - -------------------------------------------- ----------- ----------
- - -
<S> <C> <C>
Assets:
Cash $ 1,993 $ 1,993
Receivables from sales of mortgage loans
and loan servicing rights 23,008 23,008
Mortgage loan servicing advances and
other receivables 1,248 1,248
Mortgages held for sale 63,034 63,363
Mortgage loan servicing rights 5,478 5,478
Liabilities:
Warehouse borrowings 85,659 85,659
Revolving line of credit 1,000 1,000
Note payable and capitalized leases 860 860
3% Convertible subordinated debentures 5,500 5,500
Off Balance Sheet Cash 16,009 16,009
Contract Unrealized
Amount Gain (Loss)
---------- ----------
OFF BALANCE SHEET:
Loan commitments to fund $ 87,300 $ (34)
Loan commitments to sell 46,400 $ 43
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate such value:
For cash, receivables from sales of mortgage loans and loan servicing
rights, mortgage loans held for sale, mortgage loan servicing rights, other
accounts and notes receivable, warehouse line of credit, revolving line of
credit, note payable and capitalized leases and convertible subordinated
debentures, the carrying value is considered to be a reasonable estimate of
fair value based on interest rates of similar financial instruments in the
marketplace. The cash and receivables from sales of mortgage loans and loan
servicing rights are financial instruments which can potentially subject
the Company to concentrations of credit risk.
For mortgage servicing rights, the fair value is determined based on
projected net cash flows (including inflows from servicing offset by
estimated costs of servicing), using the consensus projected prepayment
levels published by several large securities dealers that approximate the
characteristics of the underlying portfolios and discounted using rates of
return required for financial assets with similar risk characteristics.
For loan commitments, the fair value is estimated using quoted prices at
April 30, 1998. The fair value of commitments to sell can be estimated by
the amount the Company would receive or pay to terminate the forward
delivery contract at the reporting date based upon market prices for
similar financial instruments. The fair value of commitments to fund can
<PAGE> 64
be estimated by comparing the Company's cost to acquire mortgages to the
current prices for similar mortgages, taking into account the terms of the
commitment and the creditworthiness of the counterparts.
The Company does not acquire or issue derivative financial instruments.
10. STOCKHOLDERS' EQUITY
The Company is authorized to issue 60,000,000 shares of common stock, par
value $.01 per share, and 100,000 shares of preferred stock, par value $.01
per share. An increase in the number of common shares authorized from
40,000,000 to 60,000,000 was approved by shareholders in October 1997.
COMMON STOCK
In October 1997, a total of 1,300,000 shares of the Company's common stock
were subscribed in a private placement under Regulation D for total
proceeds of $3.9 million, of which $1.4 million was received and 467,000
common shares and warrants to purchase 467,000 common shares at an exercise
price of $5.00 per share and expiring in 2002 were issued. Of these
proceeds, $1,175,000 was designated and used for investment purposes. The
Company received the final subscription proceeds of $2.5 million on
December 29, 1997 and issued 833,000 common shares and warrants to purchase
833,000 common shares under the same terms.
On May 29, 1997 the Company and NDS, a generic software development company
and operator of a nationwide homes for sale Web site, entered into an
agreement whereby the Company purchased certain rights to NDS' customer
lists, programming services and mortgage leads for $202,000 in cash and
202,000 shares of the Company's common stock (See Notes 5 and 6).
On April 30, 1997, the Company had subscriptions for 3,991,000 shares of
its common stock and subscriptions receivable of $2.7 million. All
subscriptions receivable were received in May, 1997.
In April, 1997, four private placements resulted in stock subscriptions
totaling $8.1 million to acquire 11.9 million shares of the Company's
common stock. Of these subscriptions, $4.2 million were received by April
30, 1997, with the remainder received shortly thereafter, for net cash
receipts of $7.35 million. As part of these offerings, a total of 5,243,000
investor warrants and 859,000 placement agent warrants were granted.
During fiscal 1998, a total of 232,000 shares and warrants expiring in 2002
to purchase 2,237,000 common shares at exercise prices of $1.50 to $4.00
per share were issued to fulfil the terms of various agreements. A further
9,000 common shares were issued to 133 employees and consultants as a year-
end bonus in amounts of 25, 50 and 100 shares, depending on their length of
service with the Company. At April 30, 1998 a total of 32,052,000 common
shares and 10,596,000 warrants were issued and outstanding.
In February and March 1997 the Company issued approximately 230,000 common
shares in settlement of certain creditors' claims recorded as liabilities
subject to compromise and assumed by the Company in connection with the
reverse acquisition with Finet.
Warrants to purchase 105,000 common shares were exercised during fiscal
1998 at prices averaging $1.50 per share. Options to purchase 3,000 common
shares were exercised during fiscal 1997 at an average price of $0.06 per
share.
In connection with the December 1996 reverse acquisition between MMI and
Finet (See Note 2), 6,412,000 outstanding common shares of Finet at the
date of the transaction were treated as shares issued for the acquisition
of Finet in fiscal 1997.
<PAGE> 65
Immediately following the reverse acquisition, 3.0 million common shares
were repurchased from a major shareholder at the shareholders' original
cost of $180,000. This shareholder also held an $800,000 convertible
debenture assumed by the Company in the reverse acquisition, which together
with accrued interest, was converted into 1,850,000 common shares. In
total, the Company issued 2,314,000 common shares for principal and
interest of Finet debt comprised of the $800,000 convertible debenture and
outstanding bridge loans totaling $370,000. The Company subsequently issued
2,403,000 common shares to officers and designated employees in
satisfaction of common stock rights outstanding at the date of the reverse
acquisition.
WARRANTS
Warrants for the purchase of common shares that were issued and outstanding
at April 30, 1998 are summarized below:
<TABLE>
(in thousands, except per share data)
Number of Exercise Year of
Warrants Price Expiration
- - --------- ---------- --------------
<S> <C> <C> <C>
4,011 $0.50-1.50 2001-2002
2,905 1.50-3.00 2001-2002
2,131 3.00-4.50 2001-2002
1,549 4.50+ 2001-2003
- - ---------
10,596
=========
</TABLE>
In June 1998, the Board of Directors authorized the sale of warrants to
purchase 700,000 common shares at $2.75 per share for a consideration of
$7,000 to two officers of the Company, and warrants to purchase 1,000,000
common shares at $2.75 per share to a director of the Company for a
consideration of $10,000.
11. STOCK OPTION PLAN
The Company maintains a stock option plan (the "1989 Stock Option Plan")
for key employees, non-employee Directors and others which permits grants
of stock options for the purchase of common stock with exercise prices
equal to the fair market value on the date of grant; or, in the case of any
participant who owns stock representing more than 10% of the voting rights
of the Company's outstanding common stock, the exercise price of the
options must be at least equal to 110% of the fair value on the date of
grant. The maximum option term is ten years. Employee options are
exercisable upon grant of the option and non-employee Director options vest
at a rate of 25% per year. The 1989 Plan also authorizes stock
appreciation rights to be issued in connection with the grant and exercise
of options. To date no stock appreciation rights have been awarded which
would require stock appreciation rights accounting treatment.
On February 18, 1998, the Company's Board of Directors unanimously resolved
to add a new ten year qualified incentive stock option plan to the
Company's 1989 Stock Option Plan which expires in 1999, and to form a
separate non-qualified stock option plan for non-employee directors, and to
form a stock bonus plan. The number of shares reserved for these three
plans was 2,000,000, 500,000 and 875,000, respectively. Currently granted
and unexercised options to acquire 748,249 shares under the 1989 plan are
unaffected by the new plan. The new plans will be submitted to shareholders
for approval later this calendar year.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plan. Accordingly, no
compensation expense has been recognized as the exercise price has equaled
the stock fair value on the date of grant. Had compensation expense been
determined for stock options granted in fiscal 1998 and 1997
<PAGE> 66
based on the fair value at grant dates consistent with SFAS No. 123 the
Company's condensed Pro Forma Statement of Operations for fiscal 1998 and
1997 would have been as follows:
<TABLE>
(In thousands, except for per share data)
1998 1997
-------- -------
<S> <C> <C>
Estimated stock-based compensation $ 200 $ 125
(Loss) as reported (9,379) (2,778)
Pro forma net (loss) (9,579) (2,903)
(Loss) per share as reported (.31) (.19)
Pro forma (loss) per share (.32) (.20)
</TABLE>
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for fiscal 1998 and 1997,
respectively: risk-free interest rate of 5.5% and 6.6% to 6.7%; volatility
factor of the expected market price of the Company's common stock of 50%
and 50%; no dividend growth rate since the Company does not intend to pay
dividends on its common stock; and expected lives equal to the remaining
option terms for both years.
The following table summarizes employee stock option plan activity for the
years ended April 30, 1998 and 1997:
<TABLE>
(Shares in thousands)
----------- 1998 ---------- --------
1997 --------
Weighted
Weighted
Average
Average
Exercise
Exercise
Options Price Options
Price
-------- -------- ------
- - ------------
<S> <C> <C> <C>
<C>
Outstanding, May 1 559 $ 0.15 468
$ 0.06
Granted during the year 188 4.18 120
0.50
Expired during the year (9) 2.81 (26)
0.06
Exercised during the year (3)
0.06
------- --------
Outstanding, April 30 738 1.15 559
0.15
Eligible for exercise, end of year 673 0.83 559
0.15
Weighted-average fair value of
options granted during the year 4.27
2.15
</TABLE>
<PAGE> 67
The following table summarizes information regarding stock options
outstanding at April 30, 1998:
<TABLE>
<CAPTION>
(Shares in thousands)
- - ----------Options Outstanding---------- --------Options Exercisable-------
- - -
Weighted Weighted
Range of Number Average Average Number Average
Exercise Outstanding Remaining Exercise Exercisable
Exercise
Prices 4/30/98 Contractual Life Price at 4/30/98 Price
- - -------- ----------- ---------------- ------------ ---------- -------
- - -
<C> <C> <C> <C> <C> <C>
$ 0.06 439 7.5 years $ 0.06 439 $ 0.06
0.50 120 3.5 years 0.50 120 0.50
3.00 24 4.3 years 3.00 16 3.00
3.25 40 4.2 years 3.25 40 3.25
4.50 75 4.8 years 4.50 18 4.50
5.50 40 4.5 years 5.50 40 5.50
----- -----
738 673
===== =====
</TABLE>
The Company has prepared a new 1998 Stock Option Plan (2,000,000 common
stock share reserve), a 1998 Stock Bonus Plan (875,000 common stock share
reserve) and a 1998 Non-Employee Directors Option Plan (500,000 common
stock share reserve). In June 1998, option awards to acquire 1,200,000
common shares were approved by the Board of Directors at an exercise price
of $2.75 per share.
12. INCOME TAXES
The provisions for income taxes for the years ended April 30, 1998 and
1997consist of the following:
<TABLE>
PROVISION FOR INCOME TAXES
(In thousands)
Federal State Total
------- ------ ------
<S> <C> <C> <C>
1998
------------------------
Current $ 236 $ 80 $ 316
Deferred (70) (20) (90)
------- ------ ------
$ 166 $ 60 $ 226
======= ====== ======
1997
------------------------
Current $ 219 $ 71 $ 290
Deferred (50) (15) (65)
------- ------ ------
$ 169 $ 56 $ 225
======= ====== ======
</TABLE>
<PAGE> 68
The differences between the statutory federal income tax rate on the
Company's income before provision for income taxes and the effective tax
rates for the years ended April 30, 1998 and 1997 primarily result from
changes in the deferred tax valuation allowance.
SFAS No. 109 requires an asset and liability approach for financial
accounting and reporting for income taxes. A valuation allowance for all
or a portion of deferred tax assets is established if it is more likely
than not that all or some of a deferred tax asset will not be realized.
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred
tax assets and liabilities at April 30, 1998 are comprised of the
following:
<TABLE>
(In thousands)
<S> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards(NOL's) $12,366
Goodwill 1,116
Other 432
-------
Total deferred tax assets 13,914
Valuation allowance, net (13,341)
-------
Net deferred tax assets 573
=======
DEFERRED TAX LIABILITIES:
Originated mortgage servicing rights 460
Property plant and equipment, net of
accumulated depreciation 113
-------
Total deferred tax liabilities 573
-------
Total net deferred tax assets and liabilities $ -
=======
</TABLE>
At April 30, 1998, the Company has U.S. federal and state NOL's of
approximately $31 million which will expire beginning in the fiscal year
2004. Due to ownership changes, approximately $24 million of the U.S.
federal and state NOL's are subject to restrictions. Such restrictions
generally limit the Company to using a portion of the NOL's existing at the
date of the ownership changes, based on the fair market values of the
Company's stock immediately before the ownership changes. A significant
portion of the NOL's subject to restriction, approximately $19 million,
will be limited to approximately $20,000 per year until they expire in the
year 2011. Accordingly, the Company has established a valuation allowance
against deferred tax assets, except to the extent that future years'
deductible items will offset future years' taxable items. During fiscal
1998, the valuation was increased by $3,560,000 to $13,341,000 from
$9,781,000.
<PAGE> 69
A summary of the NOL's and years of expiration follows:
<TABLE>
<CAPTION>
(In thousands)
Year
<S> <C>
2004 $2,210
2005 7,051
2006 -
2007 2,308
2008 1,600
2009-2013 17,746
------
Total $30,915
======
</TABLE>
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents additional cash flow information for the two
years ended April 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands)
1998
1997
-------- -----
- - ----
<S> <C> <C>
Interest paid $ 1,877 $
1,966
Income taxes paid 57
351
Distributions to prior shareholders:
Distributions declared or imputed -
741
Distributions paid -
1,040
Assets and lease obligations capitalized 59
260
Transfer of mortgage loans held for sale
to held for investment 89
23
Foreclosure of mortgage loan held for sale 374
- - -
Common stock issued for settlement of
liabilities subject to compromise 22
115
Common stock issued for expenses 158
260
Common stock issued for purchased intangibles 150
- - -
Common stock issued in exchange for debt 1,364
1,170
Acquired in acquisition:
Cash -
50
Furniture, fixtures & equipment -
246
Other assets -
280
Accounts payable and other accrued expenses -
(1,609)
Debt -
(1,389)
Liabilities subject to compromise -
(969)
Accumulated deficit -
3,391
</TABLE>
<PAGE> 70
14. RELATED PARTY TRANSACTIONS
MICAL MORTGAGE, INC.
During fiscal 1998 and in anticipation of the May 19, 1998 acquisition of
Mical (See Note 2), the Company advanced $1.9 million to Mical and utilized
the Company's available warehouse lines of credit to fund $42.8 million of
loans originated by Mical. Subsequently, these loans were sold and the
proceeds used to pay off the associated warehouse debt.
iQUALIFY
On February 9, 1998 the Company purchased the outstanding common stock of
iQualify, Inc., a software developer, from T. Lee Decker and James Noack,
employees and officers of the Company, for a consideration of 50,000 shares
of the Company's common stock (See Note 2).
LOANS TO OFFICERS
The Company has outstanding at April 30, 1998 loans to an officer of a
subsidiary and a former officer of a subsidiary, as follows:
<TABLE>
(Amounts in thousands) Loan Interest
Officer Title Amount Rate Term Collateral
- - ----------------- --------- ------ ------- ---- ---------------
- - --
<S> <C> <C> <C> <C> <C>
T. Lee Decker MMI SVP $ 53 5.27% 5 yrs 2nd Deed of
Trust
William Dullaghan 6 8.0% 2 yrs Securities
------
Total loans to officers $ 59
======
</TABLE
Pending completion of the April 1997 offering and an increase in the
Company's working capital, James Noack, an officer and director of the
Company, lent the Company $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.
CONSULTING AGREEMENTS
The Company entered into a consulting agreement with James Umphryes, a
greater than 5% shareholder and former MMI shareholder. The contract term
is 3 years beginning January 1, 1997 at a monthly fee of $15,000 for a
total contract cost of $540,000.
FACILITY LEASE
The Company leases a 3,500 square foot storage facility from James Noack,
President of MMI and a greater than 5% shareholder. The facility is
utilized by the Company to store excess office furniture. The monthly
lease payment is $600 and the term of the lease is on a month to month
basis.
15. EMPLOYEE BENEFIT PLAN
The Company adopted a contributory pension plan (the "Plan") which
qualifies under Section 401(K) of the Internal Revenue Code in 1993. The
Plan covers all employees meeting certain eligibility requirements and
provides for matching employer contributions. There were no contributions
for the years ended April 30, 1998 and 1997.
<PAGE> 71
16. MATERIAL SUBSEQUENT EVENTS
CONTINGENT OBLIGATION
Under the terms of a services purchase agreement with NDS in which the
consideration paid to NDS included 202,000 shares of the Company's common
stock, the Company had a contingent obligation to adjust the share
consideration if the market price of the Company's common shares was not at
or above $4.00 per share upon the earlier of the Company's registration of
NDS's shares or June 3, 1998, to maintain a value equal to $808,000 at that
time, to a maximum additional shares issuable of 1,414,000 shares. With the
Company's consent, the shares and the contingent obligation were purchased
by an institutional shareholder. The closing price of the Company's shares
on June 3, 1998 was $2.9375. Accordingly, the Company will issue 73,063
shares to the purchaser to satisfy this obligation (See Notes 5 and 10).
INTERLOAN ACQUISITION
On June 23, 1998 the Company acquired from an individual certain assets
which include an internet site, "interloan.com", in exchange for 100,000
shares of the Company's common stock. The Company also entered into a
three year employment agreement with the individual.
</TABLE>
<TABLE>
FINET HOLDINGS CORPORATION
EXHIBIT INDEX
Foot
Exhibit Note Description Page
- - ------- ---- ----------------------------------------------------- ----
<S> <C> <C> <C>
3.1 <F1> Certificate of Amendment of the Restated Certificate
of Incorporation of the Company, as of October 9,
1996 and incorporated herein by reference
3.2 Certificate of Amendment of the Restated Certificate
of Incorporation of the Company, dated as of October
29, 1997............................................. 74
3.3 <F2> Bylaws, as amended, as of July 14, 1993 and
incorporated herein by reference
4.1 Form of Common Stock Purchase Agreement between the
Company and Jose Maria Salema Garcao dated
December 16, 1996.................................... 76
4.2 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao dated
December 16, 1996.................................... 87
4.3 Form of Warrant issued to Jose Maria Salema Garcao
dated December 16, 1996.............................. 96
4.4 Common Stock Purchase Agreement between the Company
and investors in the Private Offering concluded
December 31, 1996.................................... 101
<PAGE> 72
4.5 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao dated
December 30, 1996.................................... 117
4.6 Form of Warrant issued to Jose Maria Salema Garcao
dated December 30, 1996.............................. 127
4.7 Form of Common Stock Purchase Agreement between the
Company and Jose Maria Salema Garcao
dated March 21, 1997................................. 132
4.8 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao
dated March 21, 1997................................ 142
4.9 Form of Warrant issued to Jose Maria Salema Garcao
dated March 21, 1997................................. 151
4.10 Form of Stock Purchase Agreement between the Company
and investors in the Private Offering concluded
April 30, 1997....................................... 156
4.11 Form of Warrant Purchase Agreement between the
Company and Jose Maria Salema Garcao
dated April 30, 1997................................. 166
4.12 Form of Warrant Issued to investors in the Private
Offering concluded April 30, 1997.................... 177
4.13 Form of Common Stock Purchase Agreement between the
Company and investors in the Private Offering
concluded October 31, 1997........................... 184
4.14 Form of Common Stock Purchase Warrant issued to
investors in the Private Offering concluded
October 31, 1997..................................... 192
4.15 <F3> Form of Securities Purchase Agreement between the
Company and investors in the Debenture Offering
concluded May 26, 1998 and incorporated herein by
reference
4.16 <F3> Filed as an Exhibit to the Company's Current Report
on Form 8-K filed with the Commission on
April 6, 1998 and incorporated herein by reference
4.17 <F3> Form of Registration Rights Agreement between the
Company and investors in the Debenture Offering
concluded May 26, 1998 and incorporated herein by
reference
4.18 <F3> Form of 3% Subordinated Convertible Debenture issued
to investors in the Debenture Offering concluded
May 26, 1998 and incorporated herein by reference
<PAGE> 73
4.19 <F3> Form of Warrant Purchase Agreement between the
Company and Investors in the Debenture Offering
concluded May 26, 1998 and incorporated herein by
reference
4.20 <F3> Form of Warrant Issued to Investors in the Debenture
Offering concluded May 26, 1998 and incorporated
herein by reference
10.1 <F1> Merger Agreement and Plan of Reorganization between
the Company and Monument Mortgage, Inc., dated
December 20, 1996 and incorporated herein by
reference
10.2 <F1> Consulting Agreement between the Company and James
Umphryes, dated January 1, 1997 and incorporated
herein by reference
10.3 <F4> 1998 Stock Option Plan incorporated herein by
reference
10.4 Asset Purchase Agreement between Finet and Real
Estate Office Software, Inc. dated August 30, 1997... 198
10.5 Stock Purchase Agreement between the Company and
Coastal Federal Mortgage Company,
dated April 30, 1998................................. 209
10.6 Stock Purchase Agreement between Finet and MICAL
Mortgage, Inc., dated May 19, 1998................... 229
21.1 Subsidiaries of Finet Holdings Corporation........... 249
23.1 Consent of Independent Auditors...................... 250
27.1 <F1> Financial Data Schedule, 1997 incorporated herein
by reference
27.2 Financial Data Schedule, 1998........................ 251
<FN>
<F1>
Filed as an Exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended April 30, 1997 and incorporated herein by reference.
<F2>
Filed as an Exhibit to the Company's Registration Statement on Form SB-2
filed with the Commission on March 18, 1994 and incorporated herein by
reference.
<F3>
Filed as an Exhibit to the Company's Current Report on Form 8-K filed with
the Commission on April 6, 1998 and incorporated herein by reference.
<PAGE> 74
<F4>
Filed as an Exhibit to the Company's Registration Statement on Form S-8
filed with the Commission on June 19, 1998 (Registration No. 333-57287) and
incorporated herein by reference.
</FN>
</TABLE>
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
FINET HOLDINGS CORPORATION
Pursuant to Section 242
FINET HOLDINGS CORPORATION, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: That at a duly noticed and constituted meeting of the Board of
Directors of said corporation, the Board unanimously adopted the following
resolutions:
WHEREAS, this Board of Directors has determined that certain amendments to
the Corporation's Restated Certificate of Incorporation are advisable for
the best interests of the corporation and that said amendments should be
submitted to the shareholders for their consent and authorization as
provided for by Section 228 of the General Corporation Law of the State of
Delaware,
NOW, THEREFORE, BE IT RESOLVED: That Article FOURTH of the Restated
Certificate of Incorporation of this corporation be amended to read as
follows:
"FOURTH: Capital Stock. The total number of shares which the Corporation
shall have authority to issue is Sixty Million One Hundred Thousand
(60,100,000) shares, consisting of One Hundred Thousand (100,000) shares of
Preferred Stock, of the par value of one cent ($.01) per share (hereinafter
called "Preferred Stock"), and Sixty Million (60,000,000) shares of Common
Stock of the par value of one cent ($.01) per share (hereinafter called
"Common Stock").
SECOND: That, pursuant to Section 228 of the General Corporation Law of the
State of
Delaware, the holders of a majority of the issued and outstanding shares of
stock of the corporation entitled to vote, voted, via written consent, in
favor of this amendment, as adopted, pursuant to resolution by the Board of
Directors, and thus the necessary number of shares required by the statute
were voted in favor of, and consented to, the amendments.
<PAGE> 75
IN WITNESS WHEREOF, FINET HOLDINGS CORPORATION has caused this certificate
to be signed by L. Daniel Rawitch its Chief Executive Officer, on this day
October 29, 1997
FINET HOLDINGS CORPORATION
By: /s/ L. Daniel Rawitch
L. Daniel Rawitch CEO
Attest: /s/ Jan Hoeffel
Jan Hoeffel, Secretary
I hereby acknowledge that the signing of this Certificate is my act and
deed and the act and deed of the Corporation, and that the facts stated
herein are true.
Executed under penalty of perjury on October 29, 1997.
/s/ L. Daniel Rawitch
<PAGE> 76
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of the date set forth on
the signature page attached hereto (the "Signature Page") between FINET
HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and JOSE
MARIA SALEMA GARCAO (the "Purchaser"):
R E C I T A L S:
WHEREAS, the Company has authorized the issuance and sale pursuant to
the terms and conditions hereof of 1,000,000 shares of its Common Stock
(the "Shares"); and
WHEREAS, the Purchaser desires to purchase and the Compnay desires to
sell the Shares on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these premises and the mutual
covennants and agreements herein contained and othere valuable
consideration, the receipt and adequacy of which the parties hereto
acknowledge, the parties have agreed as follows:
1. Purchase and Sale of the Shares. The Company agrees to sell to the
Purchaser and upon the basis of the representations and warranties, and
subject to the terms and conditions, set forth in this Agreement, the
Purchser agrees to purchase from the Company 1,000,000 shares of Common
Stock in consideration for (a) cancellation of the Company's indebtedness
to the Purchaser in the amount of $270,000, and (b) a cash purchase price
of $230,000, which aggregate consideration constitutes a purchase price of
$0.50 per share.
2. Closing Date; Delivery. The closing of the purchase and sale of the
Shares shall be held at the offices of the Company, 235 Montgomery Street,
Suite 750, San Francisco, California, 94104 on December 16, 1996 or at such
other time and place as the parties may agree upon. At the Closing,
subject to the terms of this Agreement, the Company will deliver to the
Purchaser certificates representing the Shares to be purchased by the
Purchaser from the Company, against payment at the Closing of the cash
purchase price in immediately available funds and delivery by the Purchaser
of written cancellation of the Company's indebtedness to the Purchaser.
3. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Purchaser that:
(a) Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws
of the state of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties
and assets, and to carry on it business as presently conducted and as
proposed to be conducted. The Company is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where the nature
of its activities or of its properties owned or leased makes such
qualification, licensing or domestication necessary at this time. The
Company has furnished you with copies of its Articles of Incorporation and
Bylaws. Said copies are true, correct and complete and contain all
amendments through the date of this Agreement.
(b) Corporate Power. The Company has now, or will have at the Closing
Date, all requisite legal and corporate power to enter into this Agreement,
to sell the Shares hereunder, and to carry out and perform its obligations
under the terms of this Agreement.
<PAGE> 77
(c) Subsidiaries. The Company has no subsidiaries other than (i) Finet
Corporation, which is a wholly-owned subsidiary of the Company; (ii) Finet
Correspondent, Inc., a wholly-woned subsidiary of the Company, (iii) FWC
Shell Company ("FWC"), a wholly-owned subsidiary of the Company; (iv) RPM
Affiliates, which is a wholly-owned subsidiary of FWC; (v) RPM Mortgage,
Inc., a wholly-owned subsidiary of FWC; and (viii) Fremont Mortgage, Inc.,
a wholly-owned subsidiary of FWC (sometimes hereinafter collectively
referred to as the "Subsidiaries"). The Company does not own, directly or
indirectly, shares of stock or other interests in any other corporation,
association, joint venture, or business organization except as may be
listed on a Schedule of Exceptions filed as an exhibit hereto.
(d) Capitalization. The authorized capital stock of the Company is
30,000,000 shares of Common Stock. There are issued and outstanding
8,475,242 shares of Common Stock. The issued and outstanding shares of
Common Stock have been duly authorized and validly issued, are fully paid
and nonassessable and were issued in compliance with all applicable state
and federal laws concerning the issuance of securities. There are no
outstanding rights, options, warrants, conversion rights, or agreements for
the purchase or acquisition from the Company of any shares of its capital
stock, except (i) that options for 438,876 shares of the Company's Common
Stock have been granted to directors, officers and employees of the Company
pursuant to the Company's 1989 Incentive Stock Option Plan and are
currently outstanding; (ii) a debenture convertible into a maximum of
2,000,000 shares of Common Stock is issued and outstanding to Cumberland
Partners; (iii) warrants for 131,167 shares have been granted to
underwriters in connection with the May 1993 Unit Offering, and are
currently outstanding; and (iv) warrants for 425,000 Common shares have
been granted to certain bridge lenders of the Company.
(d) Authorization.
(i) All corporate action on the part of the Company, its officers,
directors, and stockholders necessary for the sale and issuance of
the Shares pursuant hereto and the performance of the Company's
obligations hereunder, has been taken or will be taken prior to the
Closing. This Agreement is a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with
its terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application
affecting enforcement of creditors' rights, and except as limited
by application of legal principles affecting the availability of
equitable remedies.
(ii) The Shares, when issued in compliance with the provisions of
this Agreement, will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances;
provided, however, that such shares may be subject to restrictions
on transfer under state and/or federal securities laws as set forth
herein, and as may be required by future changes in such laws.
(iii) No shareholder of the Company has any right of first refusal
or any preemptive rights in connection with the issuance of the
Shares or of Common Stock by the Company.
(f) Financial Statements. The Company's audited balance sheet and
statement of income and expenses for the fiscal year ended 1994 and the
Company's unaudited balance sheeet and statement of income and expenses for
the 9-month period ended September 30, 1995 (hereinafter collectively
referred to as the Financial Statements) which have been supplied to the
Purchaser are true and correct, have been prepared in accordance with
generally accepted accounting principles consistently applied (except as
disclosed therein and except that the Financial Statements do not contain
the footnotes required by generally accepted accounting principles), and
fairly present the financial condition of the Company and the results of
the operations of the Company as of the date thereof.
<PAGE> 78
The Company has delivered to the Purchaser a copy of its Private
Placement Memorandum dated October 1, 1996.
(g) Material Contracts and Commitments. All the material contracts,
commitments, agreements, and instruments to which the Company is a party
are legal, valid, binding, and in full force and effect in all material
respects and enforceable by the Company in accordance with their terms
except as limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws of general application affecting enforcement of creditors'
rights, and except as limited by application of legal principles
(h) affecting the availability of equitable remedies. The Company is
not in material default under any of such contracts. A list of all such
material contracts, agreements and instruments is set forth in Exhibit A
hereto.
(i) Compliance with Other Instruments, None Burdensome, etc. Neither
the Company nor any Subsidiary is in violation of any term of its
respective Articles of Incorporation or Bylaws, or in any material respect
of any mortgage, indenture, contract, agreement, instrument, or, to the
best knowledge of the Company, any judgment, decree, order, statute, rule,
or regulation applicable to it. The execution, delivery, and performance
by the Company of this Agreement, and the issuance and sale of the Shares
pursuant hereto, will not result in any such violation or be in conflict
with or constitute a default under any such term, or cause the acceleration
of maturity of any loan or material obligation to which the Company or the
Subsidiaries are a party or by which any of them are bound or with respect
to which any of them is an obligor or guarantor, or result in the creation
or imposition of any material lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon, or, to the best knowledge of the
Company after due inquiry, give to any other person any interest or right
(including any right of termination or cancellation) in or with respect to
any of the material properties, assets, business or agreements of the
Company or the Subsidiaries. To the best knowledge of the Company after
due inquiry, no such term or condition materially adversely affects or in
the future (so far as can reasonably be foreseen by the Company at the date
of this Agreement) may materially adversely affect the business, property,
prospects, condition, affairs, or operations of the Company and the
Subsidiary.
(j) Litigation, etc. Other than as listed on Exhibit B hereto, there
are no actions, proceedings or investigations pending (or, to the best of
the Company's knowledge, any basis therefor or threat thereof), which,
either in any case or in the aggregate, might result in any adverse change
in the business, prospects, conditions, affairs, or operations of the
Company or in any of its properties or assets, or in any impairment of the
right or ability of the Company to carry on its business as proposed to be
conducted, or in any material liability on the part of the Company, or
which question the validity of this Agreement or any action taken or to be
taken in connection herewith.
(k) Governmental Consent, etc. No consent, approval, or authorization
of, or designation, declaration, or filing with, any governmental unit is
required on the part of the Company in connection with the valid execution
and delivery of this Agreement, or the offer, sale or issuance of the
Shares, or the consummation of any other transaction contemplated hereby
(except exemption notice filings under the Blue Sky securities laws of
those states in which offers or sales may be made in connection with this
Offering, which filings have been or will be timely made so as to comply
with such laws).
(l) Offering. The offer, sale and issuance of the Shares in conformity
with the terms of this Agreement will not violate the Securities Act.
(m) Use of Proceeds. The net proceeds from the sale of the Shares
shall be used to implement the Company's voluntary
reorganization/recapitalization plan as set forth in the Private Placement
Memorandum relating to the offer and sale of the Shares, dated October 1,
1996.
<PAGE> 79
(n) Insurance. Neither the Company nor any of its Subsidiaries maintain
in force any insurance policies as of the date of this Agreement.
(o) Intellectual Property, etc. Neither the Company nor any of its
Subsidiaries own the rights to any trademarks, service marks, trade names,
copyrights, patents or other intellectual property. Neither the Company
nor any Subsidiary has received any notice or claim of infringement of any
patents, inventions, rights, trademarks, trade names or copyrights of
others with respect to any processes, methods, formulae or procedures used
by any of said corporations in the present or planned conduct of their
respective businesses.
(p) Title to and Condition of Properties. The Company and its
Subsidiaries have good and marketable title to all their respective
tangible and intangible property and assets, including those reflected in
the Financial Statements (except suchproperty or assets as have since
September 30, 1995 been sold or otherwise disposed of in the ordinary
course of business), and such property and assets are subject to no
mortgage or security interests, conditional sales contract, charge, lien or
encumbrance (except for the lien of current taxes not yet due and payable
and such imperfections of title, easements and encumbrances, if any, as are
not substantial in character, amount or extent and do not materially
detract from the value of, or interfere with the present use of the
properties subject thereto or affected thereby, or otherwise materially
impair the business operations of the Company and any Subsidiary), and
subsequent to September 30, 1995 neither the Company nor any Subsidiary has
sold or disposed of any of its property and assets or obligated itself to
do so except in the ordinary course of business. Except for such minor
defects as are not substantial in character and which do not have a
materially adverse effect upon the validity thereof, all material real and
personal property leases to which the Company or the Subsidiaries are a
party are in good standing, valid and effective, and there is not under any
such lease any existing material default or event which with notice or
lapse of time or both would constitute a material default and in respect of
which the Company or the Subsidiaries have not taken reasonable steps to
prevent such a default from occurring.
(q) Taxes. The Company and the Subsidiaries represent that upon
completion of the offering of the Shares they will file all tax returns
that are required to have been filed by them prior to the date of this
Agreement with appropriate federal, state, county and local governmental
agencies or instrumentalities.
(r) Disclosure. This Agreement, the exhibits hereto, the Financial
Statements, and all certificates delivered to you pursuant to this
Agreement, when read together, do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order
to make the statements contained therein or herein not misleading, it being
understood that the Private Placement Memorandum contains estimates and
projections which have been made in good faith by the Company and no
warranty of such projections is expressed or implied hereby. There is, to
the best of the Company's knowledge, no fact which materially adversely
affects the business, prospects, condition, affairs or operations of the
Company or any of its properties or assets which has not been set forth in
this Agreement, the exhibits hereto, the Financial Statements or the
Private Placement Memorandum.
(s) The Shares:
(i) are free and clear of any security interests, liens, claims, or
other encumbrances;
(ii) have been duly and validly authorized and issued and are, and
on the Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued or
sold in violation of any pre-emptive or other similar rights of the
holders of any securities of the Company;
(iv) will not subject the holders thereof to personal liability by
reason of being such holders; and
<PAGE> 80
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to, and agrees with, the Company as follows:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Shares, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has
passed on or made any recommendation or endorsement of the Shares.
(c) The Company has given the Purchaser the opportunity to have
answered all of the Purchaser's questions concerning the Company and its
business and has made available to the Purchaser all information requested
by the Purchaser which is reasonably necessary to verify the accuracy of
other information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
(d) The Purchaser understands that the Shares are being offered and
sold to it in reliance on specific exemptions or non-application from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and understandings of the
Purchaser set forth herein in order to determine the applicability of such
exemptions or non-applications and the suitability of the Purchaser to
acquire the Shares.
(e) The Purchaser is aware that the Shares have not been registered
under the Securities Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) and Regulation D thereof, and that
they must be held by the Purchaser for an indeterminate period and the
Purchaser must therefore bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from registration. The Purchaser is aware
of the provisions of Rule 144 promulgated under the Securities Act which
permits limited resale of shares purchased in a private placement subject
to the satisfaction certain conditions, including, among other things the
existence of a public market for the Shares, the availability of certain
current public information about the Company, the resale occurring not less
than two years after a party has purchased and paid for the security to be
sold, the sale being through a "broker's transaction" or in transactions
directly with a "market maker" (as provided by Rule 144(f)) and the number
of shares being sold during any three-month period not exceeding specified
limitations. The Purchaser is also aware that, while many of the
restrictions of Rule 144 do not apply to the resale of shares by a person
who owned those shares for at least three years prior to their resale and
who is not an "affiliate" (within the meaning of Rule 144(a)) of the issuer
and has not been an affiliate of the issuer for at least three months prior
to the date of resale of the restricted securities, the Company does not
warrant or represent that you are not an affiliate as of the date of this
Agreement or that you will not be an affiliate at any relevant times in the
future.
(f) Each instrument representing the Shares may be endorsed with the
following legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCHSALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT.
<PAGE> 81
(ii) Any other legend required by California or other state
securities laws.
The Company need not register a transfer of legended Shares, and may
instruct its transfer agent not to register the transfer of the Shares,
unless one of the conditions specified in the foregoing legends is
satisfied.
(g) Any legend endorsed on an instrument pursuant to Section 4(f)
hereof and the stop transfer instructions with respect to such Shares shall
be removed, and the Company shall issue an instrument without such legend
to the holder of such Shares if such Shares are registered under the
Securities Act and a prospectus meeting the requirements of Section 10 of
the Securities Act is available or if such holder provides the Company with
an opinion of counsel for such holder of the Shares, reasonably
satisfactory to the Company, to the effect that a public sale, transfer or
assignment of such Shares may be made without registration.
(h) The Purchaser is either (i) acquiring the Shares for the
Purchaser's own account; or (ii) for the account of another for which the
Purchaser acts as a fiduciary, in which case the Purchaser will so advise
the Company. If acting as a fiduciary, the Purchaser makes the
representations, warranties, and covenants as set forth herein on its own
behalf and as agent for and on behalf of such other party. The Purchaser is
acquiring the Shares for investment and without any present intention to
engage in a distribution thereof.
(i) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(j) The Purchaser is an "Accredited Investor" as that term is
defined under Rule 501 adopted pursuant to the Securities Act. "Accredited
Investors" are defined in Rule 501 to include among others: (1) Various
specified institutional investors (such as banks, savings and loan
associations, licensed brokers or dealers, insurance companies, investment
companies, small business investment companies, employee benefit plans
having assets in excess of $5,000,000, and self-directed plans having
investment decisions made solely by persons that are Accredited Investors);
(2) Any entity with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered; (3) Any person
who had individual income in excess of $200,000 in each of the two most
recent years or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (4) Any person whose individual
net worth (or joint net worth with the person's spouse) at the time of
purchase exceeds $1,000,000; (5) Directors and executive officers of Finet;
(6) Trusts with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person prescribed in Rule 506(b)(2)(ii); and
(7) Any entity in which all the equity owners are deemed accredited.
5. Negative Covenants of the Company. The Company further covenants and
agrees that without the prior written approval of the Purchaser, it will
not:
(a) Engage in any business other than the business engaged in or
proposed to be engaged in by the Company or any subsidiary on the date
hereof and any businesses or activities substantially similar or related
thereto.
(b) Issue and sell any options to purchase more than an aggregate of
1,000,000 shares of the Company's Common Stock to employees, officers and
directors of, and consultants and franchisees to the Company, pursuant to
any incentive program approved by the Board of Directors of the Company.
(c) Liquidate or dissolve, merge, consolidate or sell substantially all
of its assets.
(d) Declare or pay any dividends; or purchase, redeem or otherwise
acquire for value or make any other distribution with respect to any of the
Company's capital stock, other than the repurchase of shares of capital
stock from terminating or terminated employees at a price no greater
than fair market value.
<PAGE> 82
(e) Invest, directly or indirectly, in any business or enterprise other
than in connection with the operation of its business; provided however,
pending the use of the net proceeds of this offering in its businesses the
Company may invest such net proceeds in short term interest bearing
deposits and securities.
(f) By amendment of its articles of incorporation, throught the
acquisition of Monument Mortgage, Inc., and Preference America Mortgage
Network, through the voluntary reorganization or recapitalization, or
through any transfer of its assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company.
6. Conditions Precedent to the Purchaser's Obligations. The obligations
of each of the Purchaser hereunder are subject to the performance by the
Company of its obligations hereunder and to the satisfaction of the
following additional conditions precedent on or before the Closing Date:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct as of
the date hereof and at the Closing Date, with the same force and effect as
if they had been made on and as of the Closing Date.
(b) After the date hereof until the Closing Date there shall not have
occurred:
(i) any change, or any development involving a prospective change,
in either (A) the condition, financial or otherwise, or in the earnings,
business or operations, or in or affecting the properties of the Company or
(B) the financial or market conditions or circumstances in the United
States, in either case which, in the Purchaser's judgment, is material and
adverse and makes it impractical or inadvisable to proceed with the
offering, sale, or delivery of the Shares;
(ii) an imposition of a new legal or regulatory restriction not
in effect on the date hereof, or any change in the interpretation of
existing legal or regulatory restrictions, that materially and adversely
affects the offering, sale, or delivery of the Shares; or
(iii) a suspension, or material limitation of, trading (A)
generally on or by the New York Stock Exchange or NASDAQ, or (B) of any
securities of the Company on any exchange or in any over-the-counter
market.
7. Conditions Precedent to the Company's Obligations. The obligations
of the Company hereunder are subject to the performance by the Purchaser of
its obligations hereunder and to the satisfaction of the following
additional condition precedent:
The representations and warranties made by the Purchaser in this Agreement
shall, unless waived by the Company, be true and correct at the Closing
Date, with the same force and effect as if they had been made on, and as
of, the Closing Date.
8. Registration Rights
(a) Request for Registration. In case the Company shall receive from
the Purchaser a written request that the Company effect any registration,
qualification, or compliance with respect to all or a part of the Shares
the Company will: (i) as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications and compliances
(including, without limitations, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable
blue sky or other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of the Purchaser's Shares as are specified in such request, together with
all or such portion of the Shares of any Holder or Holders joining in such
request as are specified in a written request given within thirty days
after receipt of such written notice from the Company; provided that the
Company shall not
<PAGE> 83
be obligated to take any action to effect such registration, qualification
or compliance pursuant to this clause (i): (A) After the Company has
effected two such registrations pursuant to this subparagraph (i) and such
registrations have been declared or ordered effective; or (B) If the amount
of securities being offered for sale is less than 25 percent of the Shares.
Subject to the foregoing clauses (A) through (B), the Company shall
file a registration statement covering the Shares so requested to be
registered as soon as practical, but in any event within ninety days, after
receipt of the request or requests of the Purchaser; provided, however,
that if the Company shall furnish to such Purchaser a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company and it
stockholders for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not
more than ninety days within which to file such registration statement.
(b) In any event, the Company shall use its best efforts to cause such
registration statement to become effective within 150 days of the closing
date, and to keep such registration statement effective for up to three
years.
(c) Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Agreement,
including without limitation, all registration, filing, and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company.
(d) Indemnification.
(i) The Company will indemnify the Purchaser with respect to such
registration, qualification, or compliance effected pursuant to this
paragraph, and each underwriter, if any, and each person who controls any
underwriter of the Shares held by or issuable to the Purchaser, against all
claims, losses, damages, and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification,
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and
will reimburse the Purchaser, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Purchaser or underwriter specifically for
use therein.
(ii) The Purchaser will, if Shares held by or issuable to such
Purchaser are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each
of its directors and officers who sign such registration statement, each
underwriter, if any, of the Company's securities covered by such a
registration statement, and each person who controls the Company within the
meaning of the Securities Act, against all claims, losses, damages, and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such directors,
officers, persons, or underwriters for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering
<PAGE> 84
circular, or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Purchaser specifically for use therein.
(iii) Each party entitled to indemnification under this
paragraph (d) (the Indemnified Party) shall give notice to the party
required to provide indemnification (the Indemnifying Party) promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this paragraph. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
(e) Transfer of Registration Rights. The rights to cause the Company
to register the securities granted to the Purchaser by the Company under
Section 8 may be assigned by the Purchaser to a transferee or assignee of
any of the Purchaser's Shares, provided, that the Company is given written
notice by the Purchaser at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration
rights are being assigned.
9. Fees and Expenses. The Purchaser and the Company each agrees to pay
its own expenses incident to the performance of its obligations hereunder,
except that the Company agrees to pay the fees, expenses and disbursements
of the Purchaser's counsel.
10. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and Purchaser, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or
any officer, director, or employee of, or person controlling or under
common control with, such party, and will survive delivery of any payment
of the Shares.
11. Notices. All communications hereunder shall be in writing, and, if
sent to the Purchaser shall be sufficient in all respects if delivered,
sent by registered mail, or by telecopy and confirmed to the Purchaser at:
Jose Maria Salema Garcao
Lote CT-14
Quinta Da Marinha
2750 Cascais, Portugal
with a copy sent to:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, CA 94111
Tel: (415) 398-3344
Fax: (415) 956-0439
<PAGE> 85
or, if sent to the Company, shall be delivered, sent by registered mail, or
by telecopy and confirmed to the Company at:
Finet Holdings Corporation
235 Montgomery Street, #750
San Francisco, CA 94104
Tel: (415) 658-4150
Fax: (415) 658-4155
with a copy sent to:
William D. Evers, Esq.
Miller, Mailliard & Culver, LLP
155 Montgomery Street, Suite 1212
San Francisco, CA 94104
Tel: (415) 391-4291
Fax: (415) 391-4292
12. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it
is not necessary that signature of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and
the same agreement.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their respective successors and, with respect to
Section 9 hereof, the officers, directors, and controlling persons thereof
and each person under common control therewith, and no other person shall
have any right or obligation hereunder.
(c) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California.
(d) The headings of the sections of this document have been inserted
for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
<PAGE> 86
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By:
President
PURCHASER:
By:
Jose Maria Salema Garcao
<PAGE> 87
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT is made as of December 16, 1996 between
FINET HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and
JOSE MARIA SALEMA GARCAO (the "Purchaser").
R E C I T A L S:
WHEREAS, the Company has authorized the issuance and sale of a warrant
to purchase up to 1,000,000 Shares of its Common Stock over a five year
term at an exercise price of $1.00 per share as set forth herein (the
"Warrant") (the Warrant and the Shares of Common Stock to be issued upon
the exercise of the Warrant are hereinafter referred to as "the
Securities"); and
WHEREAS, the Purchaser desires to purchase and the Company desires to
sell the Securities on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these premises and the mutual
covenants and agreements herein contained and other valuable consideration,
the receipt and adequacy of which the parties hereto acknowledge, the
parties have agreed as follows:
1. Purchase and Sale of Warrants. The Company agrees to sell to the
Purchaser and upon the basis of the representations and warranties, and
subject to the terms and conditions set forth in this Agreement, the
Purchaser agrees to purchase the Warrant, the consideration for such sale
being the Purchaser's material assistance in funding the Company's
voluntary plan of reorganization. The Warrant shall be in the form of
Exhibit A hereto.
2. Number of Shares and Exercise Price. The Warrant expires five
years from the date of this Agreement. The purchase price of shares of
Common Stock issuable upon exercise of the Warrants is $1.00 per share.
3. Representations and Warranties of the Company. The representation
and warranties of the Company set forth in the Common Stock Purchase
Agreement dated December 16, 1996 between the Company and Jose Maria Salema
Garcao are incorporated herein by reference (the Common Stock Purchase
Agreement is attached hereto as Exhibit B). In addition, the Company
represents and warrants to the Purchaser as follows:
(a) The Securities:
(i) are free and clear of any security interests, liens, claims, or other
encumbrances;
(ii) have been duly and validly authorized and issued and are, and on the
Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued or sold
in violation of any pre-emptive or other similar rights of the holders of
any securities of the Company; and
(iv) will not subject the holders thereof to personal liability by reason
of being such holders.
4. Representations and Warranties of the Purchaser. The
representations and warranties of the Purchaser contained in the Common
Stock Purchase Agreement (Exhibit B hereto) are incorporated by reference
herein. In addition, the Purchaser represents and warrants to, and agrees
with, the Company:
<PAGE> 88
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Securities, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has
passed on or made any recommendation or endorsement of the Securities.
(c) The Company has given the Purchaser the opportunity to have
answered all of the Purchaser's questions concerning the Company and its
business and has made available to the Purchaser all information requested
by the Purchaser which is reasonably necessary to verify the accuracy of
other information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
(d) The Purchaser understands that the Securities have not been
registered under the Securities Act and that it must hold the Securities
indefinitely unless the Securities are subsequently registered under the
Securities Act and qualified under applicable state securities laws, or
unless an exemption from such registration and qualification is available.
The Purchaser is acquiring the Securities for investment and without any
present intention to engage in a distribution thereof.
(e) The Purchaser is either (i) acquiring the Securities for the
Purchaser's own account; or (ii) for the account of another for which the
Purchaser acts as a fiduciary, in which case the Purchaser will so advise
the Company. If acting as a fiduciary, the Purchaser makes the
representations, warranties, and covenants as set forth herein on its own
behalf and as agent for and on behalf of such other party.
(f) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(g) The Purchaser is an "Accredited Purchaser" as that term is
defined under Rule 501 adopted pursuant to the Securities Act. "Accredited
Purchasers" are defined in Rule 501 to include among others: (1) Various
specified institutional Purchasers (such as banks, savings and loan
associations, licensed brokers or dealers, insurance companies, investment
companies, small business investment companies, employee benefit plans
having assets in excess of $5,000,000, and self-directed plans having
investment decisions made solely by persons that are Accredited
Purchasers); (2) Any entity with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered; (3)
Any person who had individual income in excess of $200,000 in each of the
two most recent years or joint income with that person's spouse in excess
of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (4) Any person whose individual
net worth (or joint net worth with the person's spouse) at the time of
purchase exceeds $1,000,000; (5) Directors and executive officers of Finet;
(6) Trusts with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person prescribed in Rule 506(b)(2)(ii); and
(7) Any entity in which all the equity owners are deemed accredited.
5. Restrictions on Transfer. The Purchaser agrees that:
(a) The Purchaser will not attempt to transfer the Securities in
violation of the restrictions set forth in this Agreement.
(b) The Company may note such restrictions on transfer in its
records and refuse to recognize any transfer which violates this agreement
or for which the Company has not received an acceptable opinion of counsel
stating that such transfer will not violate such restrictions.
<PAGE> 89
(c) One or more legends indicating a lack of registration under the
Securities Act and a lack of qualification under state securities laws will
be imprinted on the Securities. One such legend shall read substantially
as follows:
THE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY (i) IN
A REGISTRATION UNDER SAID ACT OR (ii) IF AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT IS AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO IT.
6. Affirmative Covenants of the Company. The Company covenants and agrees
with the Purchaser as follows:
(a) The Company will appoint to its Board of Directors a person chosen
by the Purchaser.
(b) To provide an opinion of counsel to the Company in a form
acceptable to the Purchaser.
7. Negative Covenants of the Company. The Company further covenants
and agrees that without the prior written approval of the Purchaser, it
will not:
(a) Engage in any business other than the business engaged in or
proposed to be engaged in by the Company or any subsidiary on the date
hereof and any businesses or activities substantially similar or related
thereto.
(b) Issue and sell any options to purchase more than an aggregate of
1,000,000 shares of the Company's Common Stock to employees, officers and
directors of, and consultants and franchisees to the Company, pursuant to
any incentive program approved by the Board of Directors of the Company.
(c) Liquidate or dissolve, merge, consolidate or sell substantially all
of its assets.
(d) Declare or pay any dividends; or purchase, redeem or otherwise
acquire for value or make any other distribution with respect to any of the
Company's capital stock, other than the repurchase of shares of capital
stock from terminating or terminated employees at a price no greater than
fair market value.
(e) Invest, directly or indirectly, in any business or enterprise other
than in connection with the operation of its business; provided however,
pending the use of the net proceeds of this offering in its businesses the
Company may invest such net proceeds in short term interest bearing
deposits and securities.
(f) By amendment of its articles of incorporation, through the
acquisition of Monument Mortgage, Inc. and Preference America Mortgage
Network, through the voluntary reorganization or recapitalization, or
through any transfer of its assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company.
8. Registration Rights. The Company hereby grants to Purchaser the
following registration rights with respect to the Common Shares to be
issued upon exercise of the Warrant (the "Shares"):
(a) Definitions.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of
1933 (the "Securities Act").
<PAGE> 90
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, and the declaration or ordering
of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with the provisions of this Section 8, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees and
expenses, and the expenses of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees
of the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Shares and all fees and
disbursements of counsel to Purchaser.
"Shares" means the Common Shares exercisable pursuant to the
Warrant and any common stock issued with respect thereto (e.g. upon a stock
split or stock dividend).
"Purchaser" means the person set forth above and any permitted
assignee.
(b) Company Registration.
i) Notice of Registration. If, at any time after January 1,
1997, the Company shall determine to register any of its securities either
for its own account or the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on
any registration form which does not permit secondary sales, the Company
will:
a) promptly give to Purchaser written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws); and
b) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Shares specified in a written
request or requests, made by Purchaser within fifteen (15) days after
receipt of the written notice from the Company described in this clause
(i), except as set forth in Section 8(b)(ii) below.
ii) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting:
the Company shall so advise Purchaser as part of the written notice given
pursuant to Section 8(b) hereof. In such event, the right of Purchaser to
registration pursuant to this Section 8 shall be conditioned upon
Purchaser's participation in such underwriting and the inclusion of
Purchaser's Shares in the underwriting to the extent provided herein.
Purchaser shall (together with the Company, its directors and officers, and
any other shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 8, if the
underwriter determines that marketing factors require a limitation on the
number of shares to be underwritten, the underwriter may exclude from such
registration and underwriting some or all of the Shares which would
otherwise be underwritten pursuant hereto. Any securities so excluded
shall be apportioned pro rata among Purchaser and any other shareholders
distributing their securities through such underwriting according to the
total amount of securities otherwise entitled to be included therein owned
by such shareholders or in such other proportions as shall mutually be
agreed upon.
<PAGE> 91
If Purchaser disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Shares excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
The Company shall bear all Registration Expenses incurred in connection
with any registration, qualification and compliance by the Company pursuant
to this Section . All Selling Expenses shall be borne by the holders of
the securities so registered pro rata on the basis of the number of their
shares so registered.
iii Registration Procedures. In the case of registration
effected by the Company pursuant to this Agreement, the Company will keep
Purchaser advised in writing as to the initiation of registration and as to
the completion thereof. At its expense, the Company will:
a) keep such registration effective for a period of three
years or until Purchaser has completed the distribution described in the
registration statement relating thereto, whichever first occurs;
b) furnish such number of prospectuses and other documents
incident thereto as Purchaser from time to time may reasonably request; and
c) use its best efforts to register or qualify the Shares
under the securities or blue sky laws of such jurisdictions as Purchaser
may request; provided, however, that the Company shall not be obligated to
register or qualify such Shares in any particular jurisdiction in which the
Company would be required to execute a general consent to service of
process in order to effect such registration, qualification, or compliance,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act or applicable rules or
regulations thereunder.
d) Notify the holder of Shares covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing.
(c) Indemnification
i) The Company will indemnify the Purchaser with respect to
which registration, qualification or compliance has been effected pursuant
to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Securities
Act or the 1934 Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading,
or any violation by the Company of the Securities Act, or the 1934 Act, or
any rule or regulation promulgated under the Securities Act, or the 1934
Act, or under any state securities law or under common law, applicable to
the Company in connection with any such registration, qualification or
compliance, and the Company will reimburse the Purchaser, each such under
writer and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, however, that the Company will not
be liable (i) for amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld)
and (ii) in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
<PAGE> 92
omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished to the Company by an
instrument duly executed by the Purchaser, controlling person or
underwriter and stated to be specifically for use therein.
ii) The Purchaser will, if Shares held by the Purchaser are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered
by such a registration statement, each person who controls the Company or
such underwriter within the meaning of Section 15 of the Securities Act
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such directors, officers, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed
by the Purchaser and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of the Purchaser under this
subsection shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without
the consent of the Purchaser (which consent shall not be unreasonably
withheld), and (ii) shall be limited in an amount equal to the aggregate
net proceeds of the shares sold by the Purchaser, except to the extent such
liability arises out of or is based on willful misconduct by the Purchaser.
iii) Each party entitled to indemnification under this
Section 8(c) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement except to the extent that the failure to
give such notice is materially prejudicial to an Indemnifying Party's
ability to defend such action and provided further, that the Indemnifying
Party shall not assume the defense for matters as to which there is a
conflict of interest or separate and different defenses, but shall pay the
fees and expenses of one separate counsel retained by the Indemnified Party
in the event of such conflict of interest. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
iv) If the indemnification provided for in this Section 8(c) is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand and
of the Indemnified Party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission.
<PAGE> 93
v) The obligations of the Company and the Purchaser under this
Section 8(c) shall survive the completion of any offering of Shares in a
registration statement under this Section 8 and otherwise.
vi) Information by Purchaser. The Purchaser of Shares included
in any registration shall furnish to the Company such information regarding
Purchaser, the Shares held by it and the distribution proposed by such
Purchaser as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
vii) Transfer of Registration Rights. The rights to cause
the Company to register securities granted the Purchaser under Section 8
may be assigned to a transferee or assignee in connection with any transfer
or assignment of Shares by the Purchaser provided that: (i) such transfer
may otherwise be effected in accordance with applicable securities laws and
(ii) such assignee or transferee becomes a party to this Agreement and
assumes all of the obligations of the transferring Purchaser under Section
8.
9. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time
permit the sale of the Shares to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act.
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and
the Securities Exchange Act of 1934, as amended; and
(c) So long as the Purchaser owns any Shares, to furnish to
the Purchaser forthwith upon request a written statement by the Company as
to its compliance with the reporting requirements of said Rule 144, and of
the Securities Act and the Securities Exchange Act of 1934, a copy of the
most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as the Purchaser may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Purchaser to sell any such securities without
registration.
10. Fees and Expenses. The Purchaser and the Company each agrees to pay
its own expenses incident to the performance of its obligations hereunder,
except that the Company agrees to pay the fees, expenses and disbursements
of the Purchaser's counsel.
11. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and Purchaser, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or
any officer, director, or employee of, or person controlling or under
common control with, such party, and will survive delivery of any payment
of the Shares.
12. Notices. All communications hereunder shall be in writing, and, if
sent to the Purchaser shall be sufficient in all respects if delivered,
sent by registered mail, or by telecopy and confirmed to the Purchaser at:
Jose Maria Salema Garcao
Lote CT-14
Quinta Da Marinha
2750 Cascais, Portugal
<PAGE> 94
with a copy sent to:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, CA 94111
Tel: (415) 398-3344
Fax: (415) 956-0439
or, if sent to the Company, shall be delivered, sent by registered
mail, or by telecopy and confirmed to the Company at:
Finet Holdings Corporation
235 Montgomery Street, #750
San Francisco, CA 94104
Tel: (415) 658-4150
Fax: (415) 658-4155
with a copy sent to:
William D. Evers
Miller, Mailliard & Culver, LLP
155 Montgomery Street, Suite 1212
San Francisco, CA 94104
Tel: (415) 391-4291
Fax: (415) 391-4292
13. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it is
not necessary that signature of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same
agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors and, with respect to Section 9
hereof, the officers, directors, and controlling persons thereof and each
person under common control therewith, and no other person shall have any
right or obligation hereunder.
(c) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
(d) The headings of the sections of this document have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
<PAGE> 95
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By:
President
PURCHASER:
Jose Maria Salema Garcao
SIGNATURE PAGE TO WARRANT PURCHASE AGREEMENT
<PAGE> 96
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY (I) IN A
REGISTRATION UNDER SAID ACT OR (II) IF AN EXEMPTION FROM REGISTRATION UNDER
SAID ACT IS AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO
THAT EFFECT REASONABLY SATISFACTORY TO IT.
FINET HOLDINGS CORPORATION
COMMON STOCK PURCHASE WARRANT
This Warrant Expires December 16, 2001
Warrant No. 96-1 Shares:1,000,000
THIS CERTIFIES that, subject to the terms and conditions herein set
forth, JOSE MARIA SALEMA GARCO (the "Holder") is entitled to purchase from
FINET HOLDINGS CORPORATION, a Delaware corporation (the "Company"), at any
time or from time to time during the Exercise Period (as hereinafter
defined) the number of shares of fully paid and non-assessable shares of
Common Stock of the Company (the "Shares") as provided herein upon
surrender hereof at the principal office of the Company, and, at the
election of the holder hereof, upon payment of the purchase price at said
office in cash or by cashier's check or by the wire transfer of funds in a
dollar amount equal to the purchase price of the Shares for which the
consideration is being given.
1. Purchase Price. Subject to adjustment as hereinafter provided, the
purchase price of one share of Common Stock (or such securities as may be
substituted for one share of Common Stock pursuant to the provisions
hereinafter set forth) (the "Warrant Price") shall be One Dollar ($1.00)
2. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the happening of certain
events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
time to time on or after the date that the Company completes its voluntary
reorganization/recapitalization plan as set forth in the Private Placement
Memorandum dated October 1, 1996 relating to the Company's offering of
2,000,000 shares of its Common Stock in reliance on Regulation D, the
holders of the Common Stock of the Company (or any shares of stock or other
securities at the time receivable upon the exercise of this Warrant) shall
have received, or, on or after the record date fixed for the determination
of eligible stockholders, shall have become entitled to receive, without
payment therefor, other or additional stock of the Company by way of
dividend (other than as provided for in Paragraph 2(b) below), then and in
each such case, the holder of this Warrant shall, upon the exercise hereof,
be entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which
such holder would hold on the date of such exercise had it been the holder
of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock receivable
by it as aforesaid during such period, given effect to all adjustments
called for during such period by this Paragraph2.
<PAGE> 97
(b) Adjustment for Changes in Common Stock. In the event of
changes in the outstanding Common Stock of the Company by reason of split-
ups, recapitalizations, reclassifications, mergers, consolidations,
combinations or exchanges of shares, separations, reorganizations,
liquidations, or the like, occurring after the Company completes its
voluntary reorganization/recapitalization plan as set forth in the Private
Placement Memorandum dated October 1, 1996, the number and class of shares
available under the Warrant in the aggregate and the Warrant Price shall be
correspondingly adjusted by the Board of Directors of the Company. The
adjustment shall be such as will give the holder of the Warrant on exercise
for the same aggregate Warrant Price the total number, class, and kind of
shares as he would have owned had the Warrant been exercised prior to the
event and had he continued to hold such shares until after the event
requiring adjustment.
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any
fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market
value of one share of Common Stock on the date of exercise, as determined
by the fair market value of one share of the Company's Common Stock on the
date of exercise as determined in good faith by the Company's Board of
Directors.
4. No Stockholder Rights. This Warrant shall not entitle its holder
to any of the rights of a stockholder of the Company prior to exercise
thereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common Stock
upon the exercise of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised by the
registered holder or its registered assigns, in whole or in part and in
minimum units of 10,000 shares, by the surrender of this Warrant at the
principal office of the Company, together with the form of subscription
hereof duly executed, accompanied by payment in full of the amount of the
Warrant Price in the form described in this Warrant. Upon partial exercise
hereof, a new warrant or warrants containing the same date and provisions
as this Warrant shall be issued by the Company to the registered holder for
the number of shares of Common Stock with respect to which this Warrant
shall not have been exercised. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to
receive the shares of Common Stock issuable upon such exercise shall be
treated for all purposes as the holder of such shares of record as of the
close of business on such date. As promptly as practicable on or after
such date, the Company shall issue and deliver to the person or persons
entitled to receive the same, a certificate or certificates for the number
of full shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share as provided above.
7. Certificate of Adjustment. Whenever the Warrant Price is adjusted
as herein provided, the Company shall promptly deliver to the record holder
of this Warrant a certificate of an officer of the Company setting forth
the relevant Warrant Price or number of shares after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
8. Compliance With Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Common Stock
to be issued upon exercise hereof (or shares of any security into which
such Common Stock may be converted) are being acquired for investment and
that the holder will not offer, sell, or otherwise dispose of this Warrant
and any shares of Common Stock to be issued upon exercise hereof (or shares
of any security into which such Common Stock may be converted) except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Securities Act"). Upon exercise of this Warrant,
the holder hereof shall, if requested by the
<PAGE> 98
Company, confirm in writing its investment purpose and acceptance of the
restrictions on transfer of the shares of Common Stock.
9. Subdivision of Warrant. At the request of the holder of this
Warrant in connection with a transfer or exercise of a portion of the
Warrant, upon surrender of such Warrant for such purpose to the Company,
the Company at its expense (except for any transfer tax payable) will issue
and exchange therefor warrants of like tenor and date representing in the
aggregate the right to purchase such number of shares of such Common Stock
as shall be designated by such holder at the time of such surrender;
provided, however, that the Company's obligations to subdivide securities
under this section shall be subject to and conditioned upon the compliance
of any such subdivision with applicable state securities laws and with the
Securities Act.
10. Loss, Theft, Destruction, or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and in case of loss,
theft, or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor
and dates as of such cancellation, in lieu of this Warrant.
11. Miscellaneous. This Warrant shall be governed by the laws of the
State of California. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Warrant nor any term hereof may be changed,
waived, discharged, or terminated orally but only by an instrument in
writing signed by the Company and the registered holder hereof. All
notices and other communications from the Company to the holder of this
Warrant shall be by telecopy or expedited courier service to the address
furnished to the Company in writing by the last holder of this Warrant who
shall have furnished an address to the Company in writing.
12. Exercise Period. The Exercise Period shall mean the period
commencing on the date hereof and ending on December 16, 2001.
ISSUED this 16th day of December, 1996.
FINET HOLDINGS CORPORATION
By_________________________
President
ATTEST:
_________________________
<PAGE> 99
FORM OF ASSIGNMENT
FINET HOLDINGS CORPORATION
FOR VALUE RECEIVED the undersigned registered owner of this warrant
hereby sells, assigns, and transfers unto the Assignee named below all of
the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth below.
Name of Assignee Address Number of Shares
and does hereby irrevocably constitute and appoint
________________________________ Attorney to make such transfer on the
books of FINET HOLDINGS CORPORATION maintained for the purpose, with full
power of substitution in the premises.
Dated:______________________
__________________________________
Name of Warrant Holder
Signature: ______________________
Witness: ______________________
<PAGE> 100
SUBSCRIPTION FORM
FINET HOLDINGS CORPORATION
(To be executed only upon exercise of
Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ________________ of the number of shares of
Common Stock of FINET HOLDINGS CORPORATION purchasable with this Warrant,
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant.
Dated:_____________________
________________________________
(Signature of Registered Owner)
________________________________
(Street Address)
________________________________
(City) (State) (Zip Code)
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COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of December 30, 1996
between FINET HOLDINGS CORPORATION, a Delaware corporation (the "Company"),
and each of the purchasers (unless otherwise stated, the singular
"Purchaser" shall include the plural "Purchasers", and vice versa) whose
names and authorized signatures appear on the signature page hereto (the
"Signature Page").
R E C I T A L S:
WHEREAS, the Company has authorized the issuance and sale outside the
United States (as that term is defined in Regulation S ("Regulation S")
under the United States Securities Act of 1933, as amended (the "Securities
Act") of 6,000,000 shares of its Common Stock (the "Shares); and
WHEREAS, the Purchasers desires to purchase and the Company desires to sell
the Shares on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
and agreements herein contained and other valuable consideration, the
receipt and adequacy of which the parties hereto acknowledge, the parties
have agreed as follows:
1. Purchase and Sale of the Shares. The Company agrees to sell to the
Purchasers and upon the basis of the representations and warranties, and
subject to the terms and conditions, set forth in this Agreement, the
Purchasers, severally but not jointly, agree to purchase that number of the
Shares for the purchase price set forth opposite such Purchaser's name on
the Signature Page.
2. Closing Date; Escrow; Delivery. Subject to the Company satisfying the
conditions for becoming a Reporting Issuer as that term is defined in Rule
902(l) of Regulation S of the Securities Act, by or before January 15,
1997, the closing date shall be the date the Company becomes a Reporting
Issuer (the "Primary Closing Date"). In such event, on the Primary Closing
Date each of the Purchasers shall deliver payment of the Purchase Price for
such Purchaser's Shares in immediately available funds to the Company or
its appointed agent, and certificates representing the Shares to be
purchased by the Purchasers shall be delivered by the Company to an escrow
account for the Purchasers maintained with Continental Stock Transfer &
Trust Company, Inc. or comparable escrow agent. On the 41st day after the
Primary Closing Date the Share certificates, whose transfer shall be
unrestricted, shall be released from escrow to the Purchasers.
If the Company does not satisfy the conditions for becoming a Reporting
Issuer by or before January 15, 1997, the Purchasers shall have the option
to purchase the Shares. The closing date in such event will be mutually
agreed upon by the parties (the "Alternative Closing Date") (the Primary
and Alternative Closing Dates are collectively referred to herein as the
"Closing Date"). On the Alternative Closing Date the Purchasers shall
deliver payment of the Purchase Price to the Company or its appointed agent
and the Company shall deliver the Share certificates to the Purchasers with
appropriate Regulation S restrictive legends. The Purchasers understand
that if the Company does not become a Reporting Issuer by or before the
Alternative Closing Date, its Share ownership may be subject to up to a 12
month Restricted Period as defined in Rule 902(m) of Regulation S.
3. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Purchasers that:
<PAGE> 102
(a) Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws
of the state of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties
and assets, and to carry on it business as presently conducted and as
proposed to be conducted. The Company is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where the nature
of its activities or of its properties owned or leased makes such
qualification, licensing or domestication necessary at this time. The
Company has furnished you with copies of its Articles of Incorporation and
Bylaws. Said copies are true, correct and complete and contain all
amendments through the date of this Agreement.
(b) Corporate Power. The Company has now, or will have at the Closing
Date, all requisite legal and corporate power to enter into this Agreement,
to sell the Shares hereunder, and to carry out and perform its obligations
under the terms of this Agreement.
(c) Subsidiaries. The Company has no subsidiaries other than (i)
Finet Corporation, which is a wholly-owned subsidiary of the Company; (ii)
Finet Correspondent, Inc., a wholly-owned subsidiary of the Company; (iii)
FWC Shell Company ("FWC"), which is a wholly-owned subsidiary of the
Company; (iv) RPM Affiliates, a wholly-owned subsidiary of FWC; (v) RPM
Mortgage, Inc., a wholly-owned subsidiary of FWC; and (vi) Fremont
Mortgage, Inc., a wholly-owned subsidiary of FWC (sometimes hereinafter
collectively referred to as the "Subsidiaries"). The Company does not own,
directly or indirectly, shares of stock or other interests in any other
corporation, association, joint venture, or business organization except as
may be listed on a Schedule of Exceptions filed as an exhibit hereto.
(d) Capitalization. The authorized capital stock of the Company is
30,000,000 shares of Common Stock. There are issued and outstanding
8,796,576 shares of Common Stock. The issued and outstanding shares of
Common Stock have been duly authorized and validly issued, are fully paid
and nonassessable and were issued in compliance with all applicable state
and federal laws concerning the issuance of securities. There are no
outstanding rights, options, warrants, conversion rights, or agreements for
the purchase or acquisition from the Company of any shares of its capital
stock, except (i) that options for 438,876 shares of the Company's Common
Stock have been granted to directors, officers and employees of the Company
pursuant to the Company's 1989 Incentive Stock Option Plan and are
currently outstanding; (ii) a debenture convertible into a maximum of
2,000,000 shares of Common Stock is issued and outstanding to Cumberland
Partners; (iii) warrants for 131,167 shares have been granted to
underwriters in connection with the May 1993 Unit Offering, and are
currently outstanding; and (iv) warrants for 425,000 Common shares have
been granted to certain bridge lenders of the Company.
(e) Authorization.
(i) All corporate action on the part of the Company, its officers,
directors, and stockholders necessary for the sale and issuance of the
Shares pursuant hereto and the performance of the Company's obligations
hereunder, has been taken or will be taken prior to the Closing. This
Agreement is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws of general application affecting enforcement of creditors' rights, and
except as limited by application of legal principles affecting the
availability of equitable remedies.
(ii) The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that such shares
may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein, and as may be required by future
changes in such laws.
(iii) No shareholder of the Company has any right of first refusal or any
preemptive rights in connection with the issuance of the Shares or of
Common Stock by the Company.
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(f) Financial Statements. The Company's audited balance sheet,
statement of income and expenses, and Annual Report on Form 10-K for the
year ended December 31, 1995 and the Company's unaudited balance sheets,
statements of income and expenses, and Quarterly Reports on Form 10-Q for
the 3-month periods ending March 31, 1996, June 30, 1996, and September 30,
1996 (hereinafter collectively referred to as the Financial Statements)
have been supplied to the Purchaser, are true and correct, have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as disclosed therein and except that the
Financial Statements do not contain the footnotes required by generally
accepted accounting principles), and fairly present the financial condition
of the Company and the results of the operations of the Company as of the
date thereof.
(g) The Company has delivered to the Purchaser a copy of its Private
Placement Memorandum dated October 1, 1996.
(h) Material Contracts and Commitments. All the material contracts,
commitments, agreements, and instruments to which the Company is a party
are legal, valid, binding, and in full force and effect in all material
respects and enforceable by the Company in accordance with their terms
except as limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws of general application affecting enforcement of creditors'
rights, and except as limited by application of legal principles affecting
the availability of equitable remedies. The Company is not in material
default under any of such contracts. A list of all such material
contracts, agreements and instruments is set forth in Exhibit A hereto.
(i) Compliance with Other Instruments, None Burdensome, etc. Neither
the Company nor the Subsidiary is in violation of any term of its
respective Articles of Incorporation or Bylaws, or in any material respect
of any mortgage, indenture, contract, agreement, instrument, or, to the
best knowledge of the Company, any judgment, decree, order, statute, rule,
or regulation applicable to it. The execution, delivery, and performance
by the Company of this Agreement, and the issuance and sale of the Shares
pursuant hereto, will not result in any such violation or be in conflict
with or constitute a default under any such term, or cause the acceleration
of maturity of any loan or material obligation to which the Company or the
Subsidiary is are a party or by which either of them is bound or with
respect to which either of them is an obligor or guarantor, or result in
the creation or imposition of any material lien, claim, charge,
restriction, equity or encumbrance of any kind whatsoever upon, or, to the
best knowledge of the Company after due inquiry, give to any other person
any interest or right (including any right of termination or cancellation)
in or with respect to any of the material properties, assets, business or
agreements of the Company or the Subsidiary. To the best knowledge of the
Company after due inquiry, no such term or condition materially adversely
affects or in the future (so far as can reasonably be foreseen by the
Company at the date of this Agreement) may materially adversely affect the
business, property, prospects, condition, affairs, or operations of the
Company and the Subsidiary.
(j) Litigation, etc. Other than as listed on Exhibit B hereto, there
are no actions, proceedings or investigations pending (or, to the best of
the Company's knowledge, any basis therefor or threat thereof), which,
either in any case or in the aggregate, might result in any adverse change
in the business, prospects, conditions, affairs, or operations of the
Company or in any of its properties or assets, or in any impairment of the
right or ability of the Company to carry on its business as proposed to be
conducted, or in any material liability on the part of the Company, or
which question the validity of this Agreement or any action taken or to be
taken in connection herewith.
(k) Governmental Consent, etc. No consent, approval, or authorization
of, or designation, declaration, or filing with, any governmental unit is
required on the part of the Company in connection with the valid execution
and delivery of this Agreement, or the offer, sale or issuance of the
Shares, or the consummation of any other transaction contemplated hereby
(except qualification or exemption under the California Corporate
Securities Law, which exemption or qualification will be available or
obtained and will be effective on the Closing Date).
(l) Offering. The offer, sale and issuance of the Shares in conformity
with the terms of this Agreement will not violate the Securities Act.
<PAGE> 104
(m) Use of Proceeds. The net proceeds from the sale of the Shares
shall be used to implement the Company's voluntary
reorganization/recapitalization plan as set forth in the Private Placement
Memorandum dated October 1, 1996.
(n) Insurance. Neither the Company nor any of its Subsidiaries
maintain in force any insurance policies as of the date of this Agreement.
(o) Intellectual Property, etc. Neither the Company nor any of its
Subsidiaries own the rights to any trademarks, service marks, trade names,
copyrights, patents or other intellectual property. Neither the Company
nor any Subsidiary has received any notice or claim of infringement of any
patents, inventions, rights, trademarks, trade names or copyrights of
others with respect to any processes, methods, formulae or procedures used
by any of said corporations in the present or planned conduct of their
respective businesses.
(p) Title to and Condition of Properties. The Company and the
Subsidiaries have good and marketable title to all their respective
tangible and intangible property and assets, including those reflected in
the Financial Statements (except such property or assets as have since
September 30, 1995 been sold or otherwise disposed of in the ordinary
course of business), and such property and assets are subject to no
mortgage or security interests, conditional sales contract, charge, lien or
encumbrance (except for the lien of current taxes not yet due and payable
and such imperfections of title, easements and encumbrances, if any, as are
not substantial in character, amount or extent and do not materially
detract from the value of, or interfere with the present use of the
properties subject thereto or affected thereby, or otherwise materially
impair the business operations of the Company and the Subsidiary), and
subsequent to September 30, 1995 neither the Company nor the Subsidiaries
has sold or disposed of any of its property and assets or obligated itself
to do so except in the ordinary course of business. Except for such minor
defects as are not substantial in character and which do not have a
materially adverse effect upon the validity thereof, all material real and
personal property leases to which the Company or the Subsidiaries are a
party are in good standing, valid and effective, and there is not under any
such lease any existing material default or event which with notice or
lapse of time or both would constitute a material default and in respect of
which the Company or the Subsidiaries has not taken reasonable steps to
prevent such a default from occurring.
(q) Taxes. The Company and the Subsidiaries represent that upon
completion of the offering of the Shares they will file all tax returns
that are required to have been filed by them prior to the date of this
Agreement with appropriate federal, state, county and local governmental
agencies or instrumentalities.
(r) Disclosure. This Agreement, the exhibits hereto, the Financial
Statements, and all certificates delivered to you pursuant to this
Agreement, when read together, do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order
to make the statements contained therein or herein not misleading, it being
understood that the Private Placement Memorandum contains estimates and
projects which have been made in good faith by the Company and no warranty
of such projections is expressed or implied hereby. There is, to the best
of the Company's knowledge, no fact which materially adversely affects the
business, prospects, condition, affairs or operations of the Company or any
of its properties or assets which has not been set forth in this Agreement
, the exhibits hereto, or the Financial Statements.
(s) The Shares:
(i) are free and clear of any security interests, liens, claims, or other
encumbrances;
(ii) have been duly and validly authorized and issued and are, and on the
Closing Date will be, fully paid and non-assessable;
<PAGE> 105
(iii) will not have been, individually and collectively, issued or sold
in violation of any pre-emptive or other similar rights of the holders of
any securities of the Company;
(iv) will not subject the holders thereof to personal liability by reason
of being such holders; and
(v) will be, upon release from escrow at the termination of the Regulation
S Restricted Period, issued to the Purchaser free of any transfer
restrictions or legends.
(t) The Company is not currently a Reporting Issuer as defined in
Regulation S and acknowledges that attaining such status is a condition
precedent to the Purchaser's obligations hereunder.
(u) The sale of the Shares pursuant to this Agreement will be made in
accordance with the provisions and requirements of Regulation S and
applicable state or foreign law.
(v) No offer to buy the Shares was made to the Company by any person in the
United States.
(w) None of the Company, any affiliate of the Company, or any person acting
on behalf of the Company or any such affiliate has engaged, or will engage,
in any Directed Selling Efforts with respect to the Shares or any
distribution, as that term is used in the definition of Distributor, with
respect to the Shares.
(x) The transactions contemplated by this Agreement:
(i) have not been prearranged with a purchaser who is in the United States
or who is a U.S. Person; and
(ii) are not part of a plan or scheme to evade the registration provisions
of the Act.
(y) Neither the Company, nor any affiliate of the Company, nor any person
acting on their behalf, has undertaken or carried out any activity for the
purpose of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the Shares,
including, but not limited to, general solicitation activities or
advertising.
4. Representations and Warranties of the Purchaser. Each Purchaser,
severally but not jointly, represents and warrants to, and agrees with, the
Company:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Shares, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has passed on
or made any recommendation or endorsement of the Shares.
(c) The Company has given the Purchaser the opportunity to have answered
all of the Purchaser's questions concerning the Company and its business
and has made available to the Purchaser all information requested by the
Purchaser which is reasonably necessary to verify the accuracy of other
information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
<PAGE> 106
(d) The Purchaser understands that the Shares are being offered and sold to
it in reliance on specific exemptions or non-application from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and understandings of the
Purchaser set forth herein in order to determine the applicability of such
exemptions or non-applications and the suitability of the Purchaser to
acquire the Shares.
(e) The Purchaser is not a U.S. Person (as defined in Regulation S) and is
not an affiliate of the Issuer.
(f) No offer of the Shares was made to the Purchaser in the United States.
(g) At the time the buy order for the Shares was originated the Purchaser
was located outside the United States.
(h) The Purchaser is aware that the Shares have not been and will not be
registered under the Securities Act and may be offered or sold only
pursuant to registration under the Securities Act or an available exemption
therefrom. The Purchaser is acquiring the Shares for investment and
without any present intention to engage in a distribution thereof.
(i) The Purchaser is either (i) acquiring the Shares for the Purchaser's
own account; or (ii) for the account of another for which the Purchaser
acts as a fiduciary, in which case the Purchaser will so advise the
Company. If acting as a fiduciary, the Purchaser makes the
representations, warranties, and covenants as set forth herein on its own
behalf and as agent for and on behalf of such other party.
(j) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(k) The Purchaser is an "Accredited Investor" as that term is
defined under Rule 501 adopted pursuant to the Securities Act. "Accredited
Investors" are defined in Rule 501 to include among others: (1) Various
specified institutional investors (such as banks, savings and loan
associations, licensed brokers or dealers, insurance companies, investment
companies, small business investment companies, employee benefit plans
having assets in excess of $5,000,000, and self-directed plans having
investment decisions made solely by persons that are Accredited Investors);
(2) Any entity with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered; (3) Any person
who had individual income in excess of $200,000 in each of the two most
recent years or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (4) Any person whose individual
net worth (or joint net worth with the person's spouse) at the time of
purchase exceeds $1,000,000; (5) Directors and executive officers of Finet;
(6) Trusts with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person prescribed in Rule 506(b)(2)(ii); and
(7) Any entity in which all the equity owners are deemed accredited.
(l) The Purchaser understands that if the Company does not qualify as a
Regulation S Reporting Company as of the Alternative Closing Date,
appropriate legends restricting transfer will be placed on each Common
Stock share certificate delivered at such time.
(m) The Purchaser:
(i) will not, during the period commencing on the Primary Closing Date and
ending on the day 40 days after the Primary Closing Date, or alternatively,
the period commencing on the Alternative Closing Date and ending 12 months
to the day after such date (the "Restricted Period"), offer or sell the
Shares in the United States, to a U.S. Person or for the account or benefit
of a U.S. Person or other than in accordance with Rule 903 or 904 of
Regulation S, pursuant to registration under the Securities Act, or
pursuant to an available exemption from registration; and
<PAGE> 107
(ii) will not, after the expiration of the Restricted Period, offer, sell,
pledge, or otherwise transfer the Shares in the United States during the
period ending 120 days from the Primary Closing Date unless such offer,
sale, pledge or other transfer is pursuant to registration under the
Securities Act, or pursuant to an available exemption from registration.
(n) None of the Purchaser, its affiliates or any person acting on behalf
of the Purchaser or any such affiliate has engaged, or will engage, in any
Directed Selling Efforts with respect to the Shares or any distribution, as
that term is used in the definition of Distributor, with respect to the
Shares.
(o) The transactions contemplated by this Agreement:
(i) have not been pre-arranged with a purchaser located in the United
States or who is a U.S. Person; and
(ii) are not part of a plan or scheme to evade the registration provisions
of the Securities Act.
(p) The Purchaser has no put options, short positions, or other similar
instruments with respect to any of the Company's securities and has not
entered and does not have the intention of entering, into any such
instruments with respect to the Shares or securities of the same class.
(q) If the Purchaser offers and sells the Shares during the Restricted
Period following the Alternative Closing Date, then it will do so only (i)
in accordance with the provisions of Regulation S, (ii) pursuant to
registration of the Shares under the Securities Act, or (iii) pursuant to
an available exemption from the registration requirements of the Securities
Act.
(r) The Purchaser understands that each person exercising a Warrant will be
required to provide a certification that the Warrant is not owned by or
being exercised by a U.S. Person, or an opinion of counsel, satisfactory to
counsel to the Company, that the Warrant Shares have been registered or
that an exemption from registration is available.
(s) The Purchaser understands that each share certificate of Common Stock
and each Warrant certificate will bear a legend reflecting the foregoing.
5. Affirmative Covenants of the Company. The Company covenants and agrees
with the Purchasers as follows:
(a) To refrain from engaging, and to insure that none of its affiliates
will engage, in any Directed Selling Efforts with respect to the Shares or
any distribution, as that term is used in the definition of Distributor,
with respect to the Shares;
(b) To make every reasonable effort to attain the status of Reporting
Issuer as that term is defined in Regulation S;
(c) In the event the Company fails to attain the status of Reporting
Issuer as defined in Regulation S, it covenants that the Purchasers have
the option of purchasing up to the aggregate amount of Shares offered,
provided that the Restricted Period shall be 12 months instead of 40 days;
(d) The Company will appoint to its Board of Directors a person chosen
by the Purchasers.
(e) To provide an opinion of counsel to the Company in a form
acceptable to the Purchasers.
(f) The Company hereby grants to each Purchaser the right of
participation to purchase, pro rata, all or any part of New Securities (as
defined in this Section 5(f)) which the Company may, from time to time,
propose to sell and issue. A pro rata share, for purposes of this right of
participation, is the quotient obtained by dividing the aggregate
<PAGE> 108
number of shares of Common Stock held by the Purchaser plus the shares of
Common Stock issuable upon the exercise of any warrants then held by the
Purchaser by the sum of (x) the total number of outstanding shares of
Common Stock plus (y) the total number of shares of Common Stock issuable
upon conversion of all outstanding capital stock convertible into Common
Stock or upon the exercise of all options and warrants to purchase the
Company's Common Stock; notwithstanding the foregoing, if including in the
foregoing equation shares of Common Stock which are issuable upon
conversion of all outstanding capital stock convertible into Common Stock
or upon the exercise of all options and warrants to purchase the Company's
Common Stock results in the Purchaser receiving a lesser right of
participation than if such shares are not included, then such shares shall
not be included. For the purposes of this Section 5(f), Purchaser includes
any general partners and affiliates of a Purchaser. A Purchaser shall be
entitled to apportion the right of participation hereby granted it among
itself and its partners and affiliates in such proportions as it deems
appropriate.
(i) Except as set forth below, "New Securities" shall mean any shares of
capital stock of the Company, including Common Stock and Preferred Stock,
whether now authorized or not, and rights, options or warrants to purchase
said shares of capital stock, and securities of any type whatsoever that
are, or may become, convertible into said shares of capital stock. Notwith
standing the foregoing, "New Securities" does not include: (A) securities
offered to the public generally pursuant to an underwritten registration
statement under the Securities Act, (B) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization whereby the Company
or its shareholders own not less than fifty-one percent (51%) of the voting
power of the surviving or successor corporation, (C) shares of the
Company's Common Stock or options exercisable for the purchase of Common
Stock issued to employees, officers and directors of, and consultants and
franchisees to, the Company, pursuant to any incentive program approved by
the Board of Directors of the Company, (D) stock issued pursuant to any
currently outstanding rights or agreements including, without limitation,
convertible securities, options and warrants, (E) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company.
(ii) In the event that the Company proposes to undertake an issuance of New
Securities, it shall first make an offering of such new securities to each
Purchaser by giving the Purchaser written notice of its intention,
describing the type of New Securities, and the price and terms upon which
the Company proposes to issue the same. The Purchaser shall have fifteen
(15) business days from the date of receipt of any such notice to agree to
purchase up to its pro rata share of such New Securities for the price and
upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
(iii) In the event that the Purchaser fails to exercise the right of
participation within said fifteen (15) business day period, the Company
shall promptly, in writing, inform each Purchaser which purchases all the
shares available to it ("Fully-Exercising Purchaser") of any other
Purchaser's failure to do likewise. During the ten-day period commencing
after receipt of such information, each Fully-Exercising Purchaser shall be
entitled to purchase, pro rata, shares not subscribed for by the other
Purchasers. If all New Securities are not elected to be obtained as
provided herein, the Company shall have sixty (60) days thereafter to sell
or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within thirty (30) days from
the date of said agreement) to sell the New Securities not elected to be
purchased by the Purchaser at the price and upon terms no more favorable to
the purchasers of such securities than specified in the Company's notice.
In the event the Company has not sold the New Securities or entered into an
agreement to sell the New Securities within said sixty (60) day period (or
sold and issued New Securities in accordance with the foregoing within
thirty (30) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
(iv) The right of participation granted under this Agreement shall expire
upon the closing of an underwritten registered public offering of the
Common Stock of the Company to the general public with an aggregate price
to the public of not less than $10,000,000 which is effected pursuant to a
registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act.
<PAGE> 109
(v) The right of participation hereunder is not assignable, in whole or in
part, except (A) from the Purchaser to an entity controlling, controlled by
or under common control with the Purchaser and (B) from the Purchaser to a
transferee of the Shares so long as such transferee acquires not less than
300,000 shares of Common Stock (appropriately adjusted for any stock split,
stock dividend or similar capital reorganization).
6. Negative Covenants of the Company. The Company further covenants and
agrees that without the prior written approval of the Purchasers, it will
not:
(a) Engage in any business other than the business engaged in or
proposed to be engaged in by the Company or any subsidiary on the date
hereof and any businesses or activities substantially similar or related
thereto.
(b) Issue and sell any options to purchase more than an aggregate of
1,000,000 shares of the Company's Common Stock to employees, officers and
directors of, and consultants and franchisees to the Company, pursuant to
any incentive program approved by the Board of Directors of the Company.
(c) Liquidate or dissolve, merge, consolidate or sell substantially all
of its assets.
(d) Declare or pay any dividends; or purchase, redeem or otherwise
acquire for value or make any other distribution with respect to any of the
Company's capital stock, other than the repurchase of shares of capital
stock from terminating or terminated employees at a price no greater
than fair market value.
(e) Invest, directly or indirectly, in any business or enterprise other
than in connection with the operation of its business; provided however,
pending the use of the net proceeds of this offering in its businesses the
Company may invest such net proceeds in short term interest bearing
deposits and securities.
(f) By amendment of its articles of incorporation, through the
acquisition of Monument Mortgage, Inc. and Preference America Mortgage
Network, through the voluntary reorganization or recapitalization, or
through any transfer of its assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company.
7. Conditions Precedent to the Purchasers' Obligations. The obligations
of the Purchasers hereunder are subject to the performance by the Company
of its obligations hereunder and to the satisfaction of the following
additional conditions precedent on or before the Closing Date:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchasers, be true and correct as of
the date hereof and at the Closing Date, with the same force and effect as
if they had been made on and as of the Closing Date.
(b) After the date hereof until the Closing Date there shall not have
occurred:
(i) any change, or any development involving a prospective change, in
either (A) the condition, financial or otherwise, or in the earnings,
business or operations, or in or affecting the properties of the Company or
(B) the financial or market conditions or circumstances in the United
States, in either case which, in the Purchaser's judgment, is material and
adverse and makes it impractical or inadvisable to proceed with the
offering, sale, or delivery of the Shares;
(ii) an imposition of a new legal or regulatory restriction not in effect
on the date hereof, or any change in the interpretation of existing legal
or regulatory restrictions, that materially and adversely affects the
offering, sale, or delivery of the Shares; or
<PAGE> 110
(iii) a suspension, or material limitation of, trading (A) generally on
or by the New York Stock Exchange or NASDAQ, or (B) of any securities of
the Company on any exchange or in any over-the-counter market.
(c) Effective as of the Closing Date, the Company's Board of
Directors shall include one person designated by the Purchasers.
(d) By or before the Primary Closing Date the Company shall have
satisfied the conditions for becoming a Reporting Company as defined in
Rule 902(l) of Regulation S of the Securities Act.
8. Conditions Precedent to the Company's Obligations. The obligations of
the Company hereunder are subject to the performance by the Purchasers of
its obligations hereunder and to the satisfaction of the following
additional condition precedent:
The representations and warranties made by the Purchasers in this Agreement
shall, unless waived by the Company, be true and correct at the Closing
Date, with the same force and effect as if they had been made on, and as
of, the Closing Date.
9. Registration Rights
(a) Request for Registration. In case the Company shall receive from
the Purchaser a written request that the Company effect any registration,
qualification, or compliance with respect to all or a part of the Shares
the Company will: (i) as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications and compliances
(including, without limitations, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable
blue sky or other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of the Purchaser's Shares as are specified in such request, together with
all or such portion of the Shares of any Holder or Holders joining in such
request as are specified in a written request given within thirty days
after receipt of such written notice from the Company; provided that the
Company shall not be obligated to take any action to effect such
registration, qualification or compliance pursuant to this clause (i): (A)
After the Company has effected two such registrations pursuant to this
subparagraph (i) and such registrations have been declared or ordered
effective; or (B) If the amount of securities being offered for sale is
less than 25 percent of the Shares.
Subject to the foregoing clauses (A) through (B), the Company shall file a
registration statement covering the Shares so requested to be registered as
soon as practical, but in any event within ninety days, after receipt of
the request or requests of the Purchaser; provided, however, that if the
Company shall furnish to such Purchaser a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company and it
stockholders for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not
more than ninety days within which to file such registration statement.
(b) In the event registration of the Shares does not become effective
within 150 days after the final closing of the Shares for any reason other
than matters beyond the control of the Company, the Purchasers shall be
granted Common Stock Purchase Warrants, pro rata in proportion to their
Common Stock purchase, in an aggregate amount of 500,000 shares at $0.50
per share and 500,000 shares at $1.00 per share.
(c) Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Agreement,
including without limitation, all registration, filing, and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company.
<PAGE> 111
(d) Indemnification.
(i) The Company will indemnify the Purchaser with respect to such
registration, qualification, or compliance effected pursuant to this
paragraph, and each underwriter, if any, and each person who controls any
underwriter of the Shares held by or issuable to the Purchaser, against all
claims, losses, damages, and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification,
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and
will reimburse the Purchaser, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Purchaser or underwriter specifically for
use therein.
(ii) The Purchaser will, if Shares held by or issuable to such Purchaser
are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each
of its directors and officers who sign such registration statement, each
underwriter, if any, of the Company's securities covered by such a
registration statement, and each person who controls the Company within the
meaning of the Securities Act, against all claims, losses, damages, and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such directors,
officers, persons, or underwriters for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in reliance
upon and in conformity with written information furnished to the Company by
an instrument duly executed by such Purchaser specifically for use therein.
(iii) Each party entitled to indemnification under this paragraph (d)
(the Indemnified Party) shall give notice to the party required to provide
indemnification (the Indemnifying Party) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
paragraph. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(e) Transfer of Registration Rights. The rights to cause the Company to
register your securities granted to you by the Company under Section 9(a)
may be assigned by you to a transferee or assignee of any of your Shares,
provided, that the Company is given written notice by you at the time of or
within a reasonable time after said transfer, stating the name and address
of said transferee or assignee and identifying the securities with respect
to which such registration rights are being assigned.
<PAGE> 112
10. Fees and Expenses. The Purchaser and the Company each agrees to pay
its own expenses incident to the performance of its obligations hereunder,
except that the Company agrees to pay the fees, expenses and disbursements
of the Purchaser's counsel.
11. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and Purchaser, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or
any officer, director, or employee of, or person controlling or under
common control with, such party, and will survive delivery of any payment
of the Shares.
12. Notices. All communications hereunder shall be in writing, and, if
sent to the Purchasers shall be sufficient in all respects if delivered,
sent by registered mail, or by telecopy and confirmed to the Purchasers at
the addresses listed on the attached Schedule of Purchasers.
with a copy sent to:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, CA 94111
Tel: (415) 398-3344
Fax: (415) 956-0439
or, if sent to the Company, shall be delivered, sent by registered mail, or
by telecopy and confirmed to the Company at:
Finet Holdings Corporation
235 Montgomery Street, #750
San Francisco, CA 94104
Tel: (415) 658-4150
Fax: (415) 658-4155
with a copy sent to:
William D. Evers, Esq.
Miller, Mailliard & Culver, LLP
155 Montgomery Street, Suite 1212
San Francisco, CA 94104
Tel: (415) 391-4291
Fax: (415) 391-4292
13. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it is
not necessary that signature of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same
agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors and, with respect to Section 9
hereof, the officers, directors, and controlling persons thereof and each
person under common control therewith, and no other person shall have any
right or obligation hereunder.
<PAGE> 113
(c) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
(d) The headings of the sections of this document have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By:
President
<PAGE> 114
(Signature Page to Common Stock Purchase Agreement)
________________________________________
JOSE MARIA SALEMA GARCAO
________________________________________
LUIS JORGE SERRAS
JOSE OSVALDO GOMES
ARMANDO JOSE RINALDI BALBI
EDUARDO GUEDES Q. DE MENDIA
CARLOS SPYNOLA TEIXEIRA
Dr. JOSE DIOGO FERREIRA MARTINS
JOSE FILIPE NOBRE GUEDES
<PAGE> 115
(Signature Page No. 2 to Common Stock Purchase Agreement)
FILIPE SOARES FRANCO
MONICA ALBUQUERQUE D'OREY
FILIPA FERREIRA MARTINS
MANUEL D'OREY CAPUCHO
DR. MIGUEL FERREIRA DE ALMEIDA
<PAGE> 116
EXHIBIT A
FINET HOLDINGS CORPORATION
MATERIAL CONTRACTS, AGREEMENTS AND INSTRUMENTS
1. Finet Holdings Corporation and Monument Mortgage, Inc. Reorganization
Agreement, dated December 30, 1996;
2. Stock Purchase Agreement between Finet Holdings Corporation and
Preference America Mortgage Network , dated December 30, 1996.
<PAGE> 117
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT is made as of December 30, 1996 between
FINET HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and
JOSE MARIA SALEMA GARCAO (the "Purchaser").
R E C I T A L S:
WHEREAS, the Company has authorized the issuance and sale outside of
the United States of warrants to purchase 2,500,000 Shares of its Common
Stock, exercisable at varying per share prices over a five year term as set
forth herein (the "Warrants") (the Warrants and the Shares of Common Stock
to be issued upon the exercise of the Warrants are hereinafter referred to
as "the Securities"); and
WHEREAS, the Purchaser desires to purchase and the Company desires to
sell the Securities on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these premises and the mutual
covenants and agreements herein contained and other valuable consideration,
the receipt and adequacy of which the parties hereto acknowledge, the
parties have agreed as follows:
1. Purchase and Sale of Warrants. The Company agrees to sell to the
Purchaser and upon the basis of the representations and warranties, and
subject to the terms and conditions set forth in this Agreement, the
Purchaser agrees to purchase the Warrants, the consideration for such sale
being the Purchaser's material assistance in coordinating the sale of
6,000,000 Shares of the Company's Common Stock outside of the United
States. The Warrants shall be in the form of Exhibit A hereto.
2. Closing Date. Subject to the Company satisfying the conditions
for becoming a Reporting Issuer as that term is defined in Rule 902(l) of
Regulation S of the Securities Act of 1933 (the "Securities Act") by or
before January 15, 1997, the closing date shall be the date the Company
becomes a Reporting Issuer (the "Primary Closing Date"). In such event, on
the Primary Closing Date the certificates representing the Warrants shall
be delivered by the Company to the Purchaser. If the Company does not
satisfy the conditions for becoming a Reporting Issuer by or before January
15, 1997, the closing date in such event will be mutually agreed upon by
the parties (the "Alternative Closing Date") (the Primary and Alternative
Closing Dates are collectively referred to herein as the "Closing Date").
The Purchaser understands that if the Company does not become a Reporting
Issuer by or before the Alternative Closing Date, its ownership of the
Securities may be subject to up to a 12 month Restricted Period as defined
in Rule 902(m) of Regulation S.
3. Number of Shares and Exercise Price. The Warrants expire five
years from the date of this Agreement. The purchase price of shares of
Common Stock issuable upon exercise of the Warrants is as follows:
500,000 shares at $0.50 per share
500,000 shares at $1.00 per share
500,000 shares at $1.50 per share
250,000 shares at $2.00 per share
250,000 shares at $2.50 per share
500,000 shares at $3.00 per share
<PAGE> 118
4. Representations and Warranties of the Company. The representation
and warranties of the Company set forth in the Common Stock Purchase
Agreement dated November 22, 1996 between the Company and Jose Maria Salema
Garcao are incorporated herein by reference (the Common Stock Purchase
Agreement is attached hereto as Exhibit B). In addition, the Company
represents and warrants to the Purchaser as follows:
(a) The Securities:
(i) are free and clear of any security interests, liens, claims, or other
encumbrances;
(ii) have been duly and validly authorized and issued and are, and on the
Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued or sold
in violation of any pre-emptive or other similar rights of the holders of
any securities of the Company; and
(iv) will not subject the holders thereof to personal liability by reason
of being such holders.
(b) The Company is not currently a reporting issuer as defined in
Regulation S and will make every reasonable effort to attain that status as
quickly as possible.
(c) The sale of the Securities pursuant to this Agreement will be made in
accordance with the provisions and requirements of Regulation S and
applicable state or foreign law.
(d) No offer to buy the Securities was made to the Company by any person in
the United States.
(e) None of the Company, any affiliate of the Company, or any person acting
on behalf of the Company or any such affiliate has engaged, or will engage,
in any Directed Selling Efforts with respect to the Securities or any
distribution, as that term is used in the definition of Distributor, with
respect to the Securities.
(f) The transactions contemplated by this Agreement:
(v) have not been prearranged with a purchaser who is in the United States
or who is a U.S. Person; and
(vi) are not part of a plan or scheme to evade the registration provisions
of the Act.
(g) Neither the Company, nor any affiliate of the Company, nor any person
acting on their behalf, has undertaken or carried out any activity for the
purpose of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the Securities,
including, but not limited to, general solicitation activities or
advertising.
5. Representations and Warranties of the Purchaser. The
representations and warranties of the Purchaser contained in the Common
Stock Purchase Agreement (Exhibit B hereto) are incorporated by reference
herein. In addition, the Purchaser represents and warrants to, and agrees
with, the Company:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Securities, or the performance of the
Purchaser's obligations hereunder.
<PAGE> 119
(b) The Purchaser understands that no federal or state agency has
passed on or made any recommendation or endorsement of the Securities.
(c) The Company has given the Purchaser the opportunity to have
answered all of the Purchaser's questions concerning the Company and its
business and has made available to the Purchaser all information requested
by the Purchaser which is reasonably necessary to verify the accuracy of
other information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
(d) The Purchaser understands that the Securities are being offered
and sold to him in reliance on specific exemptions or non-application from
the registration requirements of federal and state securities laws,
including but not limited to the exemption provided for under Regulation S
("Regulation S") under the United States Securities Act of 1933, as amended
(the "Securities Act"). Except as otherwise defined herein, capitalized
terms used herein and not defined herein shall have the same meanings given
to them in Regulation S. The Purchaser further understands that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and understandings of the
Purchaser set forth herein in order to determine the applicability of such
exemptions or non-applications and the suitability of the Purchaser to
acquire the Securities.
(e) The Purchaser is not a U.S. Person (as defined in Regulation S)
and is not an affiliate of the Issuer.
(f) No offer of the Securities was made to the Purchaser in the
United States and at the time the buy order for the Securities was
originated the Purchaser was located outside the United States.
(g) The Purchaser is aware that the Securities have not been
registered under the Securities Act and may be offered or sold only
pursuant to registration under the Securities Act or an available exemption
therefrom. The Purchaser is acquiring the Securities for investment and
without any present intention to engage in a distribution thereof.
(h) The Purchaser is either (i) acquiring the Securities for the
Purchaser's own account; or (ii) for the account of another for which the
Purchaser acts as a fiduciary, in which case the Purchaser will so advise
the Company. If acting as a fiduciary, the Purchaser makes the
representations, warranties, and covenants as set forth herein on its own
behalf and as agent for and on behalf of such other party.
(i) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(j) The Purchaser is an "Accredited Investor" as that term is
defined under Rule 501 adopted pursuant to the Securities Act. "Accredited
Investors" are defined in Rule 501 to include among others: (1) Various
specified institutional investors (such as banks, savings and loan
associations, licensed brokers or dealers, insurance companies, investment
companies, small business investment companies, employee benefit plans
having assets in excess of $5,000,000, and self-directed plans having
investment decisions made solely by persons that are Accredited Investors);
(2) Any entity with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered; (3) Any person
who had individual income in excess of $200,000 in each of the two most
recent years or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (4) Any person whose individual
net worth (or joint net worth with the person's spouse) at the time of
purchase exceeds $1,000,000; (5) Directors and executive officers of Finet;
(6) Trusts with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person prescribed in Rule 506(b)(2)(ii); and
(7) Any entity in which all the equity owners are deemed accredited.
<PAGE> 120
(k) The Purchaser: (i) will not, during the period commencing on
the Primary Closing Date and ending on the day 40 days after the Primary
Closing Date, or alternatively, the period commencing on the Alternative
Closing Date and ending 12 months to the day after such date (the
"Restricted Period"), offer or sell the Shares in the United States, to a
U.S. Person or for the account or benefit of a U.S. Person or other than in
accordance with Rule 903 or 904 of Regulation S, pursuant to registration
under the Securities Act, or pursuant to an available exemption from
registration; and
(i) will, after the expiration of the Restricted Period, offer, sell,
pledge, or otherwise transfer the Shares only pursuant to registration
under the Securities Act or an available exemption therefrom and, in any
case, in accordance with applicable state and foreign securities laws.
(l) No Purchaser, or any affiliate or other person acting on behalf
of the Purchaser or any such affiliate has engaged, or will engage, in any
Directed Selling Efforts with respect to the Securities or any
distribution, as that term is used in the definition of Distributor, with
respect to the Securities.
(m) The transactions contemplated by this Agreement: (i) have not
been pre-arranged with a purchaser located in the United States or who is a
U.S. Person; and (ii) are not part of a plan or scheme to evade the
registration provisions of the Securities Act.
(n) The Purchaser has no put options, short positions, or other
similar instruments with respect to any of the Company's securities and has
not entered and does not have the intention of entering, into any such
instruments with respect to the Securities or securities of the same class.
(o) If the Purchaser offers and sells the Securities during the
Restricted Period, then it will do so only (i) in accordance with the
provisions of Regulation S, (ii) pursuant to registration of the Securities
under the Securities Act, or (iii) pursuant to an available exemption from
the registration requirements of the Securities Act.
(p) The Purchaser understands that each certificate evidencing the
Securities will bear a legend reflecting the foregoing.
6. Affirmative Covenants of the Company. The Company covenants and agrees
with the Purchaser as follows:
(a) To refrain from engaging, and to insure that none of its affiliates
will engage, in any Directed Selling Efforts with respect to the Securities
or any distribution, as that term is used in the definition of Distributor,
with respect to the Securities;
(b) To make every reasonable effort to attain the status of Reporting
Issuer as that term is defined in Regulation S;
(c) In the event the Company fails to attain the status of Reporting
Issuer as defined in Regulation S, it covenants that the Purchaser has the
option of purchasing up to the aggregate amount of Common shares offered,
provided that the Restricted Period shall be 12 months instead of 40 days;
(d) The Company will appoint to its Board of Directors a person chosen
by the Purchaser.
(e) To provide an opinion of counsel to the Company in a form
acceptable to the Purchaser.
7. Negative Covenants of the Company. The Company further covenants
and agrees that without the prior written approval of the Purchaser, it
will not:
<PAGE> 121
(a) Engage in any business other than the business engaged in or
proposed to be engaged in by the Company or any subsidiary on the date
hereof and any businesses or activities substantially similar or related
thereto.
(b) Issue and sell any options to purchase more than an aggregate of
1,000,000 shares of the Company's Common Stock to employees, officers and
directors of, and consultants and franchisees to the Company, pursuant to
any incentive program approved by the Board of Directors of the Company.
(c) Liquidate or dissolve, merge, consolidate or sell substantially all
of its assets.
(d) Declare or pay any dividends; or purchase, redeem or otherwise
acquire for value or make any other distribution with respect to any of the
Company's capital stock, other than the repurchase of shares of capital
stock from terminating or terminated employees at a price no greater than
fair market value.
(e) Invest, directly or indirectly, in any business or enterprise other
than in connection with the operation of its business; provided however,
pending the use of the net proceeds of this offering in its businesses the
Company may invest such net proceeds in short term interest bearing
deposits and securities.
(f) By amendment of its articles of incorporation, through the
acquisition of Monument Mortgage, Inc. and Preference America Mortgage
Network, through the voluntary reorganization or recapitalization, or
through any transfer of its assets, consolidation, merger, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company.
8. Restrictions on Transferability of Securities
(a) Restrictions on Transferability. The Securities shall not
be sold, assigned, transferred or pledged except upon the conditions speci
fied in this Agreement, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Purchaser will cause any
proposed purchaser, assignee, transferee, or pledgee of the Securities to
agree to take and hold such securities subject to the provisions and upon
the conditions specified in this Agreement.
(b) Restrictive Legends. Until the sale or transfer of the
Securities by the Purchasers shall be subject to an effective registration
under the Securities Act, each Warrant and each share certificate
representing the Common Stock underlying such Warrant, and any other
securities issued in respect of such securities upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event shall
(unless otherwise permitted by the provisions of Section 9 below) be
stamped or otherwise imprinted with the following legends (in addition to
any legend required under applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AND SUBJECT TO CERTAIN EXCEPTIONS, MAY NOT BE SOLD IN THE
UNITED STATES OR TO U.S. PERSONS. ANY SALE, TRANSFER, PLEDGE OR OTHER
DISPOSITION THEREOF IN THE UNITED STATES OR TO U.S. PERSONS MAY BE MADE
ONLY (i) IN A REGISTRATION UNDER SAID ACT OR (ii) IF AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT IS AVAILABLE AND THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO IT. [ANY
PERSON EXERCISING THIS WARRANT WILL BE REQUIRED TO PROVIDE EITHER (i) A
CERTIFICATION THAT THE WARRANT IS NOT OWNED BY OR BEING EXERCISED BY A U.S.
PERSON OR (ii) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT THE
SECURITIES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN
REGISTERED UNDER SAID ACT OR AN EXEMPTION FROM REGISTRATION IS UNDER SAID
ACT IS AVAILABLE.]"
<PAGE> 122
The Purchaser consents to the Company making a notation on its records
and giving instructions to any transfer agent of the Securities in order to
implement the restrictions on transfer established in this Agreement. As
used hereinafter the term "Restricted Securities" shall mean the securities
of the Company required to bear the legend set forth in this section.
(c) Notice of Proposed Transfers. The holder of each Warrant
and each share certificate representing the Common Stock underlying such
Warrant, and any other Restricted Securities issued in respect of the
Securities as described in Section 8(b), by acceptance thereof agrees to
comply in all respects with the provisions of this Section 8. Prior to any
proposed sale, assignment, transfer or pledge of any Restricted Securities,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written
notice to the issuer thereof of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or
pledge in sufficient detail, and shall, if reasonably requested by the
issuer, be accompanied, at such holder's expense by either (i) written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act, or (ii) a "no
action" letter from the Securities and Exchange Commission (the
"Commission") to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder
of such Restricted Securities shall be entitled to transfer such Restricted
securities in accordance with the terms of the notice delivered by the
holder to the Company.
9. Registration Rights.
Certain Definitions. As used in this Section, the following terms
shall have the following respective meanings:
(i) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(ii) "Holder" shall mean any Purchaser holding Registrable
Securities and any person holding Registrable Securities to whom the rights
under this Agreement have been transferred in compliance with Section 8
hereof.
(iii) "Registrable Securities" means the Securities of the
Company's Common Stock issuable upon exercise of the Warrant; provided,
however, that Securities of the Company's Common Stock or other securities
shall only be treated as Registrable Securities if and so long as (A) such
securities have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or
(B) all such securities may be sold by the Holder thereof under Rule 144
promulgated under the Securities Act, or a successor rule, within such
period as Purchaser may sell all such securities.
(iv) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement.
(v) "Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with this
Section 9, including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company and all reasonable fees and disbursements of one
counsel for the selling Holders, blue sky fees and expenses and the expense
of any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company and Selling Expenses (as hereinafter
defined)).
<PAGE> 123
(vi) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above.
(vii) "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(a) Request for Registration. In case the Company shall receive from
the Purchaser a written request that the Company effect any registration,
qualification, or compliance with respect to all or a part of the Common
Shares the Company will: (i) as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications and compliances
(including, without limitations, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable
blue sky or other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of the Purchaser's Shares as are specified in such request, together with
all or such portion of the Shares of any Holder or Holders joining in such
request as are specified in a written request given within thirty days
after receipt of such written notice from the Company; provided that the
Company shall not be obligated to take any action to effect such
registration, qualification or compliance pursuant to this clause (i): (A)
After the Company has effected two such registrations pursuant to this
subparagraph (i) and such registrations have been declared or ordered
effective; or (B) If the amount of securities being offered for sale is
less than 25 percent of the Common Shares.
Subject to the foregoing clauses (A) through (B), the Company shall file a
registration statement covering the Shares so requested to be registered as
soon as practical, but in any event within ninety days, after receipt of
the request or requests of the Purchaser; provided, however, that if the
Company shall furnish to such Purchaser a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company and it
stockholders for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not
more than ninety days within which to file such registration statement.
(b) Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Agreement,
including without limitation, all registration, filing, and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company.
(c) Indemnification.
(i) The Company will indemnify the Purchaser with respect to such
registration, qualification, or compliance effected pursuant to this
paragraph, and each underwriter, if any, and each person who controls any
underwriter of the Shares held by or issuable to the Purchaser, against all
claims, losses, damages, and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification,
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and
will reimburse the Purchaser, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Purchaser or underwriter specifically for
use therein.
<PAGE> 124
(ii) The Purchaser will, if Shares held by or issuable to such Purchaser
are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each
of its directors and officers who sign such registration statement, each
underwriter, if any, of the Company's securities covered by such a
registration statement, and each person who controls the Company within the
meaning of the Securities Act, against all claims, losses, damages, and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such directors,
officers, persons, or underwriters for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in reliance
upon and in conformity with written information furnished to the Company by
an instrument duly executed by such Purchaser specifically for use therein.
(iii) Each party entitled to indemnification under this paragraph (c)
(the Indemnified Party) shall give notice to the party required to provide
indemnification (the Indemnifying Party) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
paragraph. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(d) Transfer of Registration Rights. The rights to cause the Company to
register the securities granted to the Purchaser by the Company under
Section 9 may be assigned by the Purchaser to a transferee or assignee of
any of the Purchaser's Shares, provided, that the Company is given written
notice by the Purchaser at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration
rights are being assigned.
10. Fees and Expenses. The Purchaser and the Company each agrees to pay
its own expenses incident to the performance of its obligations hereunder,
except that the Company agrees to pay the fees, expenses and disbursements
of the Purchaser's counsel.
11. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and Purchaser, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or
any officer, director, or employee of, or person controlling or under
common control with, such party, and will survive delivery of any payment
of the Shares.
12. Notices. All communications hereunder shall be in writing, and, if
sent to the Purchaser shall be sufficient in all respects if delivered,
sent by registered mail, or by telecopy and confirmed to the Purchaser at:
Jose Maria Salema Garcao
Lote CT-14
Quinta Da Marinha
2750 Cascais, Portugal
<PAGE> 125
with a copy sent to:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, CA 94111
Tel: (415) 398-3344
Fax: (415) 956-0439
or, if sent to the Company, shall be delivered, sent by registered mail, or
by telecopy and confirmed to the Company at:
Finet Holdings Corporation
235 Montgomery Street, #750
San Francisco, CA 94104
Tel: (415) 658-4150
Fax: (415) 658-4155
with a copy sent to:
William D. Evers
Miller, Mailliard & Culver, LLP
155 Montgomery Street, Suite 1212
San Francisco, CA 94104
Tel: (415) 391-4291
Fax: (415) 391-4292
13. Miscellaneous.
(b) This Agreement may be executed in one or more counterparts and it is
not necessary that signature of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same
agreement.
(c) This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors and, with respect to Section 9
hereof, the officers, directors, and controlling persons thereof and each
person under common control therewith, and no other person shall have any
right or obligation hereunder.
(d) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
(e) The headings of the sections of this document have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
<PAGE> 126
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By:
President
PURCHASER:
Jose Maria Salema Garcao
SIGNATURE PAGE TO WARRANT PURCHASE AGREEMENT
<PAGE> 127
THESE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AND SUBJECT TO CERTAIN EXCEPTIONS, MAY NOT BE SOLD
IN THE UNITED STATES OR TO U.S. PERSONS. ANY SALE, TRANSFER, PLEDGE OR
OTHER DISPOSITION THEREOF IN THE UNITED STATES OR TO U.S. PERSONS MAY BE
MADE ONLY (i) IN A REGISTRATION UNDER SAID ACT OR (ii) IF AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT IS AVAILABLE AND THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT REASONABLY SATISFACTORY TO IT. ANY
PERSON EXERCISING THIS WARRANT WILL BE REQUIRED TO PROVIDE EITHER (i) A
CERTIFICATION THAT THE WARRANT IS NOT OWNED BY OR BEING EXERCISED BY A U.S.
PERSON OR (ii) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN
REGISTERED UNDER SAID ACT OR AN EXEMPTION FROM REGISTRATION IS UNDER SAID
ACT IS AVAILABLE
FINET HOLDINGS CORPORATION
COMMON STOCK PURCHASE WARRANT
This Warrant Expires December 30, 2001
Warrant No. Shares: 2,500,000
THIS CERTIFIES that, subject to the terms and conditions herein set
forth, JOSE MARIA SALEMA GARCO (the "Holder") is entitled to purchase from
FINET HOLDINGS CORPORATION, a Delaware corporation (the "Company"), at any
time or from time to time during the Exercise Period (as hereinafter
defined) the number of shares of fully paid and non-assessable shares of
Common Stock of the Company (the "Shares") as provided herein upon
surrender hereof at the principal office of the Company, and, at the
election of the holder hereof, upon payment of the purchase price at said
office in cash or by cashier's check or by the wire transfer of funds in a
dollar amount equal to the purchase price of the Shares for which the
consideration is being given.
1. Purchase Price. Subject to adjustment as hereinafter provided, the
purchase price of one share of Common Stock (or such securities as may be
substituted for one share of Common Stock pursuant to the provisions
hereinafter set forth) (the "Warrant Price") shall be the following:
500,000 shares at $0.50 per share
500,000 shares at $1.00 per share
500,000 shares at $1.50 per share
250,000 shares at $2.00 per share
250,000 shares at $2.50 per share
500,000 shares at $3.00 per share
2. Adjustment of Warrant Price and Number of Shares. The number and
kind of securities issuable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the happening of certain
events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
time to time on or after the date that the Company completes its voluntary
reorganization/recapitalization plan as set forth in the Private Placement
Memorandum dated October 1, 1996 relating to the Company's offering of
2,000,000 shares of its Common Stock in reliance on Regulation D, the
holders of the Common Stock of the Company (or any shares of stock or other
securities at
<PAGE> 128
the time receivable upon the exercise of this Warrant) shall have received,
or, on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment
therefor, other or additional stock of the Company by way of dividend
(other than as provided for in Paragraph 2(b) below), then and in each such
case, the holder of this Warrant shall, upon the exercise hereof, be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which
such holder would hold on the date of such exercise had it been the holder
of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock receivable
by it as aforesaid during such period, given effect to all adjustments
called for during such period by this Paragraph 2.
(b) Adjustment for Changes in Common Stock. In the event of
changes in the outstanding Common Stock of the Company by reason of split-
ups, recapitalizations, reclassifications, mergers, consolidations,
combinations or exchanges of shares, separations, reorganizations,
liquidations, or the like, occurring after the Company completes its
voluntary reorganization/recapitalization as set forth in the Private
Placement Memorandum dated October 1, 1996, the number and class of shares
available under the Warrant in the aggregate and the Warrant Price shall be
correspondingly adjusted by the Board of Directors of the Company. The
adjustment shall be such as will give the holder of the Warrant on exercise
for the same aggregate Warrant Price the total number, class, and kind of
shares as he would have owned had the Warrant been exercised prior to the
event and had he continued to hold such shares until after the event
requiring adjustment.
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any
fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market
value of one share of Common Stock on the date of exercise, as determined
by the fair market value of one share of the Company's Common Stock on the
date of exercise as determined in good faith by the Company's Board of
Directors.
4. No Stockholder Rights. This Warrant shall not entitle its holder
to any of the rights of a stockholder of the Company prior to exercise
thereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common Stock
upon the exercise of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised by the
registered holder or its registered assigns, in whole or in part and in
minimum units of 10,000 shares, by the surrender of this Warrant at the
principal office of the Company, together with the form of subscription
hereof duly executed, accompanied by payment in full of the amount of the
Warrant Price in the form described in this Warrant. Upon partial exercise
hereof, a new warrant or warrants containing the same date and provisions
as this Warrant shall be issued by the Company to the registered holder for
the number of shares of Common Stock with respect to which this Warrant
shall not have been exercised. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to
receive the shares of Common Stock issuable upon such exercise shall be
treated for all purposes as the holder of such shares of record as of the
close of business on such date. As promptly as practicable on or after
such date, the Company shall issue and deliver to the person or persons
entitled to receive the same, a certificate or certificates for the number
of full shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share as provided above.
7. Certificate of Adjustment. Whenever the Warrant Price is adjusted
as herein provided, the Company shall promptly deliver to the record holder
of this Warrant a certificate of an officer of the Company setting forth
the relevant
<PAGE> 129
Warrant Price or number of shares after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
8. Compliance With Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Common Stock
to be issued upon exercise hereof (or shares of any security into which
such Common Stock may be converted) are being acquired for investment and
that the holder will not offer, sell, or otherwise dispose of this Warrant
and any shares of Common Stock to be issued upon exercise hereof (or shares
of any security into which such Common Stock may be converted) except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Securities Act"). Upon exercise of this Warrant,
the holder hereof shall, if requested by the Company, confirm in writing
its investment purpose and acceptance of the restrictions on transfer of
the shares of Common Stock.
9. Subdivision of Warrant. At the request of the holder of this
Warrant in connection with a transfer or exercise of a portion of the
Warrant, upon surrender of such Warrant for such purpose to the Company,
the Company at its expense (except for any transfer tax payable) will issue
and exchange therefor warrants of like tenor and date representing in the
aggregate the right to purchase such number of shares of such Common Stock
as shall be designated by such holder at the time of such surrender;
provided, however, that the Company's obligations to subdivide securities
under this section shall be subject to and conditioned upon the compliance
of any such subdivision with applicable state securities laws and with the
Securities Act.
10. Loss, Theft, Destruction, or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and in case of loss,
theft, or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor
and dates as of such cancellation, in lieu of this Warrant.
11. Miscellaneous. This Warrant shall be governed by the laws of the
State of California. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Warrant nor any term hereof may be changed,
waived, discharged, or terminated orally but only by an instrument in
writing signed by the Company and the registered holder hereof. All
notices and other communications from the Company to the holder of this
Warrant shall be by telecopy or expedited courier service to the address
furnished to the Company in writing by the last holder of this Warrant who
shall have furnished an address to the Company in writing.
12. Exercise Period. The Exercise Period shall mean the period
commencing on the date hereof and ending on December 30, 2001.
ISSUED this 30th day of December, 1996.
FINET HOLDINGS CORPORATION
By_________________________
President
ATTEST:
_________________________
<PAGE> 130
FORM OF ASSIGNMENT
FINET HOLDINGS CORPORATION
FOR VALUE RECEIVED the undersigned registered owner of this warrant
hereby sells, assigns, and transfers unto the Assignee named below all of
the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth below.
Name of Assignee Address Number of Shares
and does hereby irrevocably constitute and appoint
________________________________ Attorney to make such transfer on the
books of FINET HOLDINGS CORPORATION maintained for the purpose, with full
power of substitution in the premises.
Dated:______________________
__________________________________
Name of Warrant Holder
Signature: ______________________
Witness: ____________________
<PAGE> 131
SUBSCRIPTION FORM
FINET HOLDINGS CORPORATION
(To be executed only upon exercise of
Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ________________ of the number of shares of
Common Stock of FINET HOLDINGS CORPORATION purchasable with this Warrant,
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant.
Dated:_____________________
________________________________
(Signature of Registered Owner)
________________________________
(Street Address)
________________________________
(City) (State) (Zip Code)
<PAGE> 132
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of March 21, 1997 between
FINET HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and
JOSE MARIA SALEMA GARCAO (the "Purchaser"):
RECITALS:
WHEREAS, the Company has authorized the issuance and sale pursuant to the
terms and conditions hereof of 1,000,000 shares of its Common Stock (the
"Shares"); and
WHEREAS, the Purchaser desires to purchase and the Company desires to sell
the Shares on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
and agreements herein contained and other valuable consideration, the
receipt and adequacy of which the parties hereto acknowledge, the parties
have agreed as follows:
1. Purchase and Sale of the Shares. The Company agrees to sell to the
Purchaser and upon the basis of the representations and warranties, and
subject to the terms and conditions, set forth in this Agreement, the
Purchaser agrees to purchase from the Company 1,000,000 shares of Common
Stock in consideration for a cash purchase price of $600,000, which
aggregate consideration constitutes a purchase price of $0.60 per share.
The purchase and sale transaction shall be deemed a direct private
transaction, without compensation due to Commonwealth.
2. Closing Date: Delivery. The closing of the purchase and sale of the
Shares shall be held at the offices of the Company, 3021 Citrus Circle
#150, Walnut Creek, CA 94598 on March 21, 1997 or at such other time and
place as the parties may agree upon. At the closing, subject to the terms
of this Agreement, the Company will deliver to the Purchaser certificates
representing the Shares to be purchased by the Purchaser from the Company,
against payment at the closing of the cash purchase price in immediately
available funds.
3. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Purchaser that:
(a) Organization and Standing, Articles and Bylaws. The Company
is a corporation duly organized and existing under, and by virtue of the
laws of the state of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties
and assets, and to carry on it business as presently conducted and as
proposed to be conducted. The Company is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where the nature
of its activities or of its properties owned or leased makes such
qualification, licensing or domestication necessary at this time. The
Company has furnished you with copies of its Articles of Incorporation and
Bylaws. Said copies are true, correct and complete and contain all
amendments through the date of this Agreement.
(b) Corporate Power. The Company has now, or will have at the
Closing Date, all requisite legal and corporate power to enter into this
Agreement, to sell the Shares hereunder, and to carry out and perform its
obligations under the terms of this Agreement.
(c) Subsidiaries. The Company has no subsidiaries other than (i)
Finet Corporation, which is a wholly-owned subsidiary of the Company; (ii)
Monument Mortgage, Inc., a wholly-owned subsidiary of the Company; (iii)
<PAGE> 133
PreferenceAmerica Mortgage Network, a wholly owned subsidiary of the
Company; (iv) The Property Transaction Network, a wholly owned subsidiary
of the Company; (v) FWC Shell Company ("FWC"), a wholly-owned subsidiary of
the Company; (vi) RPM Affiliates, which is a wholly-owned subsidiary of
FWC; (vii) RPM Mortgage, Inc., a wholly-owned subsidiary of FWC; and (viii)
Fremont Mortgage, Inc., a wholly-owned subsidiary of FWC (sometimes
hereinafter collectively referred to as the "Subsidiaries"). The Company
does not own, directly or indirectly, shares of stock or other interests in
any other corporation, association, joint venture, or business organization
except as may be listed on a Schedule of Exceptions filed as an exhibit
hereto.
(d) Capitalization. The authorized capital stock of the Company is
30,000,000 shares of Common Stock. The Company's Board of Directors has
resolved to request shareholder approval for an increase in authorized
capital stock to 40,000,000 shares, with such approval informally assented
to by a holders of a majority of shares outstanding. There are issued and
outstanding 23,596,150 shares of Common Stock. The issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable and were issued in compliance with all
applicable state and federal laws concerning the issuance of securities.
There are no outstanding rights, options, warrants, conversion rights, or
agreements for the purchase or acquisition from the Company of any shares
of its capital stock, except (i) that options for 511,876 shares of the
Company's Common Stock have been granted to directors, officers and
employees of the Company pursuant to the Company's 1989 Incentive Stock
Option Plan and are currently outstanding; (ii) warrants for 131,167 shares
have been granted to underwriters in connection with the May 1993 Unit
Offering and warrants for 700,000 shares have been granted to underwriters
in connection with the December 1996 Offerings, and are currently
outstanding; and (iv) warrants for 4,104,750 Common shares have been
granted to certain bridge lenders and shareholders of the Company.
(e) Authorization.
(i) All corporate action on the part of the Company, its
officers, directors, and stockholders necessary for the sale and issuance
of the Shares pursuant hereto and the performance of the Company's
obligations hereunder, has been taken or will be taken prior to the
Closing. This Agreement is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting enforcement of creditors'
rights, and except as limited by application of legal principles affecting
the availability of equitable remedies.
(ii) The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that such shares
may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein, and as may be required by future
changes in such laws.
(iii) No shareholder of the Company has any right of first refusal or any
preemptive rights in connection with the issuance of the Shares or of
Common Stock by the Company.
(f) Financial Statements. The Company's audited balance sheet and
statement of income and expenses for the fiscal year ended 1995
(hereinafter collectively referred to as the Financial Statements) have
been supplied to the Purchaser are true and correct, have been prepared in
accordance with generally accepted accounting principles consistently
applied (except as disclosed therein and except that the Financial
Statements do not contain the footnotes required by generally accepted
accounting principles), and fairly present the financial condition of the
Company and the results of the operations of the Company as of the date
thereof
(g) The Company has delivered to the Purchaser a copy of its
Private Placement Memorandum dated March 1, 1997.
<PAGE> 134
(h) Material Contracts and Commitments. All the material contracts,
commitments, agreements, and instruments to which the Company is a party
are legal, valid, binding, and in full force and effect in all material
respects and enforceable by the Company in accordance with their terms
except as limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws of general application affecting enforcement of creditors'
rights, and except as limited by application of legal principles affecting
the availability of equitable remedies. The Company is not in material
default under any of such contracts. A list of all such material contracts,
agreements and instruments is set forth in Exhibit A hereto.
(i) Compliance with Other Instruments, None Burdensome, etc.
Neither the Company nor any Subsidiary is in violation of any term of its
respective Articles of Incorporation or Bylaws, or in any material respect
of any mortgage, indenture, contract, agreement, instrument, or, to the
best knowledge of the Company, any judgment, decree, order, statute, rule,
or regulation applicable to it. The execution, delivery, and performance by
the Company of this Agreement, and the issuance and sale of the Shares
pursuant hereto, will not result in any such violation or be in conflict
with or constitute a default under any such term, or cause the acceleration
of maturity of any loan or material obligation to which the Company or the
Subsidiaries are a party or by which any of them are bound or with respect
to which any of them is an obligor or guarantor, or result in the creation
or imposition of any material lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon, or, to the best knowledge of the
Company after due inquiry, give to any other person any interest or right
(including any right of termination or cancellation) in or with respect to
any of the material properties, assets, business or agreements of the
Company or the Subsidiaries. To the best knowledge of the Company after due
inquiry, no such term or condition materially adversely affects or in the
future (so far as can reasonably be foreseen by the Company at the date of
this Agreement) may materially adversely affect the business, property,
prospects, condition, affairs, or operations of the Company and the
Subsidiary.
(1) Litigation etc. Other than as listed on Exhibit B hereto,
there are no actions, proceedings or investigations pending (or, to the
best of the Company's knowledge, any basis therefor or threat thereof),
which, either in any case or in the aggregate, might result in any adverse
change in the business, prospects, conditions, affairs, or operations of
the Company or in any of its properties or assets, or in any impairment of
the right or ability of the Company to carry on its business as proposed to
be conducted, or in any material liability on the part of the Company, or
which question the validity of this Agreement or any action taken or to be
taken in connection herewith.
(k) Governmental Consent etc. No consent, approval, or
authorization of; or designation, declaration, or filing with, any
governmental unit is required on the part of the Company in connection with
the valid execution and delivery of this Agreement, or the offer, sale or
issuance of the Shares, or the consummation of any other transaction
contemplated hereby (except qualification or exemption under the California
Corporate Securities Law, which exemption or qualification will be
available or obtained and will be effective on the Closing Date).
(1) Offering. The offer, sale and issuance of the Shares in
conformity with the terms of this Agreement will not violate the Securities
Act.
(m) Use of Proceeds. The net proceeds from the sale of the Shares
shall be used for development and expansion of mortgage loan origination
channels as set forth in the Private Placement Memorandum relating to the
offer and sale of the Shares, dated March 1, 1997.
(n) Insurance. Neither the Company nor any of its Subsidiaries
maintain in force any insurance policies as of the date of this Agreement.
(o) Intellectual Property, etc. Neither the Company nor any of its
Subsidiaries own the rights to any trademarks, service marks, trade names,
copyrights, patents or other intellectual property. Neither the Company nor
any Subsidiary has received any notice or claim of infringement of any
patents, inventions, rights, trademarks, trade names or
<PAGE> 135
copyrights of others with respect to any processes, methods, formulae or
procedures used by any of said corporations in the present or planned
conduct of their respective businesses.
(p) Title to and Condition of Properties. The Company and its Subsidiaries
have good and marketable title to all their respective tangible and
intangible property and assets, including those reflected in the Financial
Statements (except such property or assets as have since December 31, 1995
been sold or otherwise disposed of in the ordinary course of business), and
such property and assets are subject to no mortgage or security interests,
conditional sales contract, charge, lien or encumbrance (except for the
lien of current taxes not yet due and payable and such imperfections of
title, easements and encumbrances, if any, as are not substantial in
character, amount or extent and do not materially detract from the value
of; or interfere with the present use of the properties subject thereto or
affected thereby, or otherwise materially impair the business operations of
the Company and any Subsidiary), and subsequent to December 31, 1995
neither the Company nor any Subsidiary has sold or disposed of any of its
property and assets or obligated itself to do so except in the ordinary
course of business. Except for such minor defects as are not substantial in
character and which do not have a materially adverse effect upon the
validity thereof; all material real and personal property leases to which
the Company or the Subsidiaries are a party are in good standing, valid and
effective, and there is not under any such lease any existing material
default or event which with notice or lapse of time or both would
constitute a material default and in respect of which the Company or the
Subsidiaries have not taken reasonable steps to prevent such a default from
occurring.
(q) Taxes. The Company and the Subsidiaries represent that upon
completion of the offering of the Shares they will file all tax returns
that are required to have been filed by them prior to the date of this
Agreement with appropriate federal, state, county and local governmental
agencies or instrumentality's.
(r) Disclosure. This Agreement, the exhibits hereto, the Financial
Statements, and all certificates delivered to you pursuant to this
Agreement, when read together, do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order
to make the statements contained therein or herein not misleading, it being
understood that the Private Placement Memorandum contains estimates and
projections which have been made in good faith by the Company and no
warranty of such projections is expressed or implied hereby. There is, to
the best of the Company's knowledge, no fact which materially adversely
affects the business, prospects, condition, affairs or operations of the
Company or any of its properties or assets which has not been set forth in
this Agreement, the exhibits hereto, or the Financial Statements.
(s) The Shares:
(i) are free and clear of any security interests, liens,
claims, or other encumbrances;
(ii) have been duly and validly authorized and issued and are,
and on the Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued
or sold in violation of any pre-emptive or other similar rights of the
holders of any securities of the Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to, and agrees with, the Company:
<PAGE> 136
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Shares, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has
passed on or made any recommendation or endorsement of the Shares.
(c) The Company has given the Purchaser the opportunity to have
answered all of the Purchaser's questions concerning the Company and its
business and has made available to the Purchaser all information requested
by the Purchaser which is reasonably necessary to verity the accuracy of
other information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
(d) The Purchaser understands that the Shares are being offered and
sold to it in reliance on specific exemptions or non-application from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and understandings of the
Purchaser set forth herein in order to determine the applicability of such
exemptions or non-applications and the suitability of the Purchaser to
acquire the Shares.
(e) The Purchaser is aware that the Shares have not been registered
under the Securities Act by reason of their issuance in a transaction
exempt form the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) and Regulation D thereof; and that
they must be held by the Purchaser indefinitely and the Purchaser must
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from registration. The Purchaser is aware of the provisions of Rule
144 promulgated under the Securities Act which permits limited resale of
shares purchased in a private placement subject to the satisfaction certain
conditions, including, among other things the existence of a public market
for the Shares, the availability of certain current public information
about the Company, the resale occurring not less than two years after a
party has purchased and paid for the security to be sold, the sale being
through a "broker's transaction" or in transactions directly with a "market
maker" (as provided by Rule 144(f) and the number of shares being sold
during any three-month period not exceeding specified limitations. The
Purchaser is also aware that, while many of the restrictions of Rule 144 do
not apply to the resale of shares by a person who owned those shares for at
least three years prior to their resale and who is not an "affiliate"
(within the meaning of Rule 144(a)) of the issuer and has not been an
affiliate of the issuer for at least three months prior to the date of
resale of the restricted securities, the Company does not warrant or
represent that you are not an affiliate as of the date of this Agreement or
that you will not be an affiliate at any relevant times in the future.
(f) Each instrument representing the Shares may be endorsed with
the following legends:
(i) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT
OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
(ii) Any other legend required by California or other state
securities laws.The Company need not register a transfer of legended
Shares, and may instruct its transfer agent not to register the transfer of
the Shares, unless one of the conditions specified in the foregoing legends
is satisfied.
<PAGE> 137
(g) Any legend endorsed on an instrument pursuant to Section 4(f)
hereof and the stop transfer instructions with respect to such Shares shall
be removed, and the Company shall issue an instrument without such legend
to the holder of such Shares if such Shares are registered under the
Securities Act and a prospectus meeting the requirements of Section 10 of
the Securities Act is available of if such holder provides the Company with
an opinion of counsel for such holder of the Shares, reasonably
satisfactory to the Company, to the effect that a public sale, transfer or
assignment of such Shares may be made without registration.
(h) The Purchaser is either (i) acquiring the Shares for the
Purchasers own account; or (ii) for the account of another for which the
Purchaser acts as a fiduciary, in which case the Purchaser will so advise
the Company. if acting as a fiduciary, the Purchaser makes the
representations, warranties, and covenants as set forth herein on its own
behalf and as agent for and on behalf of such other party. The Purchaser is
acquiring the Shares for investment and without any present intention to
engage m a distribution thereof
(i) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(j) The Purchaser is an "Accredited Investor" as that term is
defined under Rule 501 adopted pursuant to the Securities Act. "Accredited
Investor" are defined in Rule 501 to include among others: (1) Various
specified institutional investors (such as banks, savings and loan
associations, licensed brokers or dealers, insurance companies, investment
companies, small business investment companies, employee benefit plans
having assets in excess of $5,000,000, and self-directed plans having
investment decisions made solely by persons that are Accredited Investors);
(2) Any entity with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered; (3) Any person
who had individual income in excess of $200,000 in each of the two most
recent years or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (4) Any person whose individual
net worth (or joint net worth with the person's spouse) at the time of
purchase exceeds $1,000,000; (5) Directors and executive officers of Finet;
(6) Trusts with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person prescribed in Rule 506(b)(2)(ii); and
(7) Any entity in which all the equity owners are deemed accredited.
5. Negative Covenants of the Company. The Company further covenants and
agrees that without the prior written approval of the Purchaser, it will
not.
(a) Engage in any business other than the business engaged in or
proposed to be engaged in by the Company or any subsidiary on the date
hereof and any businesses or activities substantially similar or related
thereto.
(b) Issue and sell any options to purchase more than an aggregate
of 1,000,000 shares of the Company's Common Stock to employees, officers
and directors of; and consultants and franchisees to the Company, pursuant
to any incentive program approved by the Board of Directors of the Company.
(c) Liquidate or dissolve, merge, consolidate or sell substantially
all of its assets.
(d) Declare or pay any dividends; or purchase, redeem or otherwise
acquire for value or make any other distribution with respect to any of the
Company's capital stock, other than the repurchase of shares of capital
stock from terminating or terminated employees at a price no greater than
fair market value.
(e) Invest, directly or indirectly, in any business or enterprise
other than in connection with the operation of its business; provided
however, pending the use of the net proceeds of this offering in its
businesses the Company may invest such net proceeds in short term interest
bearing deposits and securities.
<PAGE> 138
(f) By amendment of its articles of incorporation, through the
voluntary reorganization or recapitalization, or through any transfer of
its assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company.
6. Conditions Precedent to the Purchaser's Obligations. The obligations of
the Purchaser hereunder are subject to the performance by the Company of
its obligations hereunder and to the satisfaction of the following
additional conditions precedent on or before the Closing Date:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct as of
the date hereof and at the Closing Date, with the same force and effect as
if they had been made on and as of the Closing Date.
(b) After the date hereof until the Closing Date there shall not
have occurred:
(v) any change, or any development involving a prospective
change, in either (A) the condition, financial or otherwise, or in the
earnings, business or operations, or in or affecting the properties of the
Company or (B) the financial or market conditions or circumstances in the
United States, in either case which, in the Purchaser's judgment, is
material and adverse and makes it impractical or inadvisable to proceed
with the offering, sale, or delivery of the Shares;
(vi) an imposition of a new legal or regulatory restriction
not in effect on the date hereof, or any change in the interpretation of
existing legal or regulatory restrictions, that materially and adversely
affects the offering, sale, or delivery of the Shares; or
(vii) a suspension, or material limitation of; trading (A)
generally on or by the New York Stock Exchange or NASDAQ, or (B) of any
securities of the Company on any exchange or in any over-the-counter
market.
7. Conditions Precedent to the Company's Obligations. The
obligations of the Company hereunder are subject to the performance by the
Purchaser of its obligations hereunder and to the satisfaction of the
following additional condition precedent:
The representations and warranties made by the Purchaser in this Agreement
shall, unless waived by the Company, be true and correct at the Closing
Date, with the same force and effect as if they had been made on, and as
of; the Closing Date.
8. Registration Rights
(a) Request for Registration. In case the Company shall
receive from the Purchaser a written request that the Company effect any
registration, qualification, or compliance with respect to all or a part of
the Shares the Company will: (i) as soon as practicable, use its diligent
best efforts to effect all such registrations, qualifications and
compliances (including, without limitations, the execution of an
undertaking to file post-effective amendments, appropriate qualifications
under the applicable blue sky or other state securities laws and
appropriate compliance with exemptive regulations issued under the
Securities Act and any other governmental requirements or regulations) as
may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of the Purchaser's Shares as are
specified in such request, together with all or such portion of the Shares
of any Holder or Holders joining in such request as are specified in a
written request given within thirty days after receipt of such written
notice from the Company; provided that the Company shall not be obligated
to take any action to effect such registration, qualification or compliance
pursuant to this clause (i): (A) After the Company has effected two such
registrations pursuant to this
<PAGE> 139
subparagraph (i) and such registrations have been declared or ordered
effective; or (B) if the amount of securities being offered for sale is
less than 25 percent of the Shares.
Subject to the foregoing clauses (A) through (B), the Company shall file a
registration statement covering the Shares so requested to be registered as
soon as practical, but in any event within ninety days, after receipt of
the request or requests of the Purchaser; provided, however, that if the
Company shall furnish to such Purchaser a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company and it
stockholders for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not
more than ninety days within which to file such registration statement.
(b) In any event, the Company shall use its best efforts to cause
such registration statement to become effective within 150 days of the
closing date, and to keep such registration statement effective for up to
three years.
(c) Expenses of Registration. All expenses incurred in connection
with any registration, qualification or compliance pursuant to this
Agreement, including without limitation, all registration, filing, and
qualification fees, printing expenses, fees and disbursements of counsel
for the Company, and expenses of any special audits incidental to or
required by such registration, shall be borne by the Company.
(d) Indemnification
(i) The Company will indemnify the Purchaser with respect to
such registration, qualification, or compliance effected pursuant to this
paragraph, and each underwriter, if any, and each person who controls any
underwriter of the Shares held by or issuable to the Purchaser, against all
claims, losses, damages, and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification,
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and
will reimburse the Purchaser, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Purchaser or underwriter specifically for
use therein.
(ii) The Purchaser will, if Shares held by or issuable to such Purchaser
are included in the securities as to which such registration,
qualification, or compliance is being effected indemnity the Company, each
of its directors and officers who sign such registration statement, each
underwriter, if any, of the Company's securities covered by such a
registration statement, and each person who controls the Company within the
meaning of the Securities Act, against all claims, losses, damages, and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such directors,
officers, persons, or underwriters for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such
<PAGE> 140
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Purchaser specifically for
use therein.
(iii) Each party entitled to indemnification under this paragraph (d) (the
Indemnified Party) shall give notice to the party required to provide
indemnification (the Indemnifying Party) promptly alter such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
paragraph. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(e) Transfer of Registration Rights. The rights to cause the Company to
register the securities granted to the Purchaser by the Company under
Section 8 may be assigned by the Purchaser to a transferee or assignee of
any of the Purchaser's Shares, provided, that the Company is given written
notice by the Purchaser at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee
and indemnifying the securities with respect to which such registration
rights are being assigned.
9. Fees and Expenses. The Purchaser and the Company each agrees to pay its
own expenses incident to the performance of its obligations hereunder,
except that the Company agrees to pay the fees, expenses and disbursements
of the Purchaser's counsel.
10. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and Purchaser, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or
any officer, director, or employee of; or person controlling or under
common control with, such party, and will survive delivery of any payment
of the Shares.
11. Notices. All communications hereunder shall be in writing, and, if
sent to the Purchasers shall be sufficient in all respects if delivered,
sent by registered mail, or by telecopy and confirmed to the Purchasers at:
Jose Maria Salema Garcao
Lote CT-14
Quinta Da Marinha
2750 Cascais, Portugal
with a copy sent to:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, CA 94111
Tel:(415)398-3344
Fax: (415) 956-0439
or, if sent to the Company, shall be delivered, sent by registered mail, or
by telecopy and confirmed to the Company at:
<PAGE> 141
Finet Holdings Corporation
3021 Citrus Circle #150
Walnut Creek, CA 94598
Tel: (415) 658-4150
Fax: (415) 658-4155
with a copy sent to:
William D. Evers, Esq.
Evers & Andelin, LLP
155 Montgomery Street, Suite 1212
San Francisco, CA 94104
Tel: (415)391-4291
Fax: (415)391-4292
12. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and
it is not necessary that signature of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and
the same agreement.
b) This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their respective successors and, with respect to
Section 9 hereof, the officers, directors, and controlling persons thereof
and each person under common control therewith, and no other person shall
have any right or obligation hereunder.
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
(d) The headings of the sections of this document have been
inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
(a)
(b) COMPANY:
(c) FINET HOLDINGS CORPORATION
By: /s/ Jan Hoeffel
President
(d)
(e) PURCHASER:
By: /s/ Jose Maria Salema Garcao
Jose Maria Salema Garcao
<PAGE> 142
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT is made as of March 21, 1997 between FINET
HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and JOSE
MARIA SALEMA GARCAO (the "Purchaser").
RECITALS:
WHEREAS, the Company has authorized the issuance and sale of a warrant to
purchase up to 600,000 Shares of its Common Stock, exercisable at varying
per share prices over a five year term as set forth herein (the "Warrant")
(the Warrant and the Shares of Common Stock to be issued upon the exercise
of the Warrant are hereinafter referred to as "the Securities"); and
WHEREAS, the Purchaser desires to purchase and the Company desires to sell
the Securities on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of these premises and the mutual covenants
and agreements herein contained and other valuable consideration, the
receipt and adequacy of which the parties hereto acknowledge, the parties
have agreed as follows:
1. Purchase and Sale of Warrants. The Company agrees to sell to the
Purchaser and upon the basis of the representations and warranties, and
subject to the terms and conditions set forth in this Agreement, the
Purchaser agrees to purchase the Warrant, the consideration for such sale
being the Purchaser's material assistance in funding the Company's
voluntary plan of reorganization. The Warrant shall be in the form of
Exhibit A hereto.
2. Number of Shares and Exercise Price. The Warrant expires five years
from the date of this Agreement. The purchase price of shares of Common
Stock issuable upon exercise of the Warrants is as follows:
200,000 shares at $1.50 per share
200,000 shares at $2.00 per share
200,000 shares at $2.50 per share
3. Representations and Warranties of the Company. The representation and
warranties of the Company set forth in the Common Stock Purchase Agreement
dated March 21, 1997 between the Company and Jose Maria Salema Garcao are
incorporated herein by reference (the Common Stock Purchase Agreement is
attached hereto as Exhibit B). In addition, the Company represents and
warrants to the Purchaser as follows:
(a) The Securities:
(i) are free and clear of any security interests, liens,
claims, or other encumbrances;
(ii) have been duly and validly authorized and issued and are,
and on the Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued
or sold in violation of any pre-emptive or other similar rights of the
holders of any securities of the Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
<PAGE> 143
4. Representations and Warranties of the Purchaser. The representations
and warranties of the Purchaser contained in the Common Stock Purchase
Agreement, Exhibit B hereto) are incorporated by reference herein. In
addition, the Purchaser represents and warrants to, and agrees with, the
Company:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Securities, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has
passed on or made any recommendation or endorsement of the Securities.
(c) The Company has given the Purchaser the opportunity to have
answered all of the Purchaser's questions concerning the Company and its
business and has made available to the Purchaser all information requested
by the Purchaser which is reasonably necessary to verity the accuracy of
other information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
(d) The Purchaser understands that the Securities have not been
registered under the Securities Act and that it must hold the Securities
indefinitely unless the Securities are subsequently registered under the
Securities Act and qualified under applicable state securities laws, or
unless an exemption from such registration and qualification is available.
The Purchaser is acquiring the Securities for investment and without any
present intention to engage in a distribution thereof.
(e) The Purchaser is either (i) acquiring the Securities for the
Purchaser's own account; or (ii) for the account of another for which the
Purchaser acts as a fiduciary, in which case the Purchaser will so advise
the Company. If acting as a fiduciary, the Purchaser makes the
representations, warranties, and covenants as set forth herein on its own
behalf and as agent for and on behalf of such other party.
(f) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(g) The Purchaser is an "Accredited Purchaser" as that term is
defined under Rule 501 adopted pursuant to the Securities Act. "Accredited
Purchasers" are defined in Rule 501 to include among others: (1) Various
specified institutional Purchasers (such as banks, savings and loan
associations, licensed brokers or dealers, insurance companies, investment
companies, small business investment companies, employee benefit plans
having assets in excess of $5,000,000, and self-directed plans having
investment decisions made solely by persons that are Accredited
Purchasers); (2) Any entity with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered; (3)
Any person who had individual income in excess of $200,000 in each of the
two most recent years or joint income with that person's spouse in excess
of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (4) Any person whose individual
net worth (or joint net worth with the person's spouse) at the time of
purchase exceeds $1,000,000; (5) Directors and executive officers of Finet;
(6) Trusts with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person prescribed in Rule 506(b)(2)(ii); and
(7) Any entity in which all the equity owners are deemed accredited.
5. Restrictions on Transfer. The Purchaser agrees that:
<PAGE> 144
(a) The Purchaser will not attempt to transfer the Securities in
violation of the restrictions set forth in this Agreement.
(b) The Company may note such restrictions on transfer in its
records and refuse to recognize any transfer which violates this agreement
or for which the Company has not received an acceptable opinion of counsel
stating that such transfer will not violate such restrictions.
(c) One or more legends indicating a lack of registration under the
Securities Act and a lack of qualification under state securities laws will
be imprinted on the Securities. One such legend shall read substantially as
follows:
THE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY (i) IN A
REGISTRATION UNDER SAID ACT OR (ii) IF AN EXEMPTION FROM REGISTRATION UNDER
SAID ACT IS AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO
THAT EFFECT REASONABLY SATISFACTORY TO IT.
6. Negative Covenants of the Company. The Company further covenants and
agrees that without the prior written approval of the Purchaser, it will
not:
(a) Engage in any business other than the business engaged in or
proposed to be engaged in by the Company or any subsidiary on the date
hereof and any businesses or activities substantially similar or related
thereto.
(b) Issue and sell any options to purchase more than an aggregate of
1,000,000 shares of the Company's Common Stock to employees, officers and
directors of, and consultants and franchisees to the Company, pursuant to
any incentive program approved by the Board of Directors of the Company.
(c) Liquidate or dissolve, merge, consolidate or sell substantially
all of its assets.
(d) Declare or pay any dividends; or purchase, redeem or otherwise
acquire for value or make any other distribution with respect to any of the
Company's capital stock, other than the repurchase of shares of capital
stock from terminating or terminated employees at a price no greater than
fair market value.
(e) Invest, directly or indirectly, in any business or enterprise
other than in connection with the operation of its business; provided
however, pending the use of the net proceeds of this offering in its
businesses the Company may invest such net proceeds in short term interest
bearing deposits and securities.
(f) By amendment of its articles of incorporation, through the
voluntary reorganization or recapitalization, or through any transfer of
its assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company.
7. Registration Rights. The Company hereby grants to Purchaser the
following registration rights with respect to the Common Shares to be
issued upon exercise of the Warrant (the "Shares"):
(a) Definitions.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act of 1933 (the
"Securities Act").
<PAGE> 145
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act of 1933, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with the provisions of this Section 7, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and
the expenses of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Shares and all fees and disbursements
of counsel to Purchaser.
"Shares" means the Common Shares exercisable pursuant to the Warrant and
any common stock issued with respect thereto (e.g. upon a stock split or
stock dividend).
"Purchaser" means the person set forth above and any permitted assignee.
(b) Company Registration.
i) Notice of Registration. If; at any time after March 21,
1997, the Company shall determine to register any of its securities either
for its own account or the account of a security holder or holders
exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on
any registration form which does not permit secondary sales, the Company
will:
a) promptly give to Purchaser written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws); and
b) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Shares specified in a written
request or requests, made by Purchaser within fifteen (15) days after
receipt of the written notice from the Company described in this clause
(i), except as set forth in Section 7(b)(ii) below.
ii) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting:
the Company shall so advise Purchaser as part of the written notice given
pursuant to Section 7(b) hereof. In such event, the right of Purchaser to
registration pursuant to this Section 7 shall be conditioned upon
Purchaser's participation in such underwriting and the inclusion of
Purchaser's Shares in the underwriting to the extent provided herein.
Purchaser shall (together with the Company, its directors and officers, and
any other shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 7, if the underwriter
determines that marketing factors require a limitation on the number of
shares to be underwritten, the underwriter may exclude from such
registration and underwriting some or all of the Shares which would
otherwise be underwritten pursuant hereto. Any securities so excluded shall
be apportioned pro rata among Purchaser and any other shareholders
distributing their securities through such underwriting according to the
total amount of securities otherwise entitled to be included therein owned
by such shareholders or in such other proportions as shall mutually be
agreed upon.
<PAGE> 146
If Purchaser disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Shares excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
The Company shall bear all Registration Expenses incurred in connection
with any registration, qualification and compliance by the Company pursuant
to this Section 7. All Selling Expenses shall be borne by the holders of
the securities so registered pro rata on the basis of the number of their
shares so registered.
iii) Registration Procedures. In the case of registration
effected by the Company pursuant to this Agreement, the Company will keep
Purchaser advised in writing as to the initiation of registration and as to
the completion thereof at its expense, the Company will:
a) keep such registration effective for a period of
three years or until Purchaser has completed the distribution described in
the registration statement relating thereto, whichever first occurs;
b) furnish such number of prospectuses and other
documents incident thereto as Purchaser from time to time may reasonably
request; and
c) use its best efforts to register or qualify the
Shares under the securities or blue sky laws of such jurisdictions as
Purchaser may request; provided, however, that the Company shall not be
obligated to register or qualify such Shares in any particular jurisdiction
in which the Company would be required to execute a general consent to
service of process in order to effect such registration, qualification, or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder.
d) Notify the holder of Shares covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing.
(c) Indemnification.
i) The Company will indemnify the Purchaser with respect to
which registration, qualification or compliance has been effected pursuant
to this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Securities
Act or the 1934 Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on
any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading,
or any violation by the Company of the Securities Act, or the 1934 Act, or
any rule or regulation promulgated under the Securities Act, or the 1934
Act, or under any state securities law or under common law, applicable to
the Company in connection with any such registration, qualification or
compliance, and the Company will reimburse the Purchaser, each such
underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred, as such expenses are
incurred, in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action; provided, however, that the
Company will not be liable (i) for amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be
<PAGE> 147
unreasonably withheld) and (ii) in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission,
made in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by the Purchaser, controlling
person or underwriter and stated to be specifically for use therein.
ii) The Purchaser will, if Shares held by the Purchaser are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered
by such a registration statement, each person who controls the Company or
such underwriter within the meaning of Section 15 of the Securities Act
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such directors, officers, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed
by the Purchaser and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of the Purchaser under this
subsection shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without
the consent of the Purchaser (which consent shall not be unreasonably
withheld), and (ii) shall be limited in an amount equal to the aggregate
net proceeds of the shares sold by the Purchaser, except to the extent such
liability arises out of or is based on willful misconduct by the Purchaser.
iii) Each party entitled to indemnification under this Section
7(c) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
Agreement except to the extent that the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such
action and provided further, that the Indemnifying Party shall not assume
the defense for matters as to which there is a conflict of interest or
separate and different defenses, but shall pay the fees and expenses of one
separate counsel retained by the Indemnified Party in the event of such
conflict of interest. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
iv) If the indemnification provided for in this Section 7(c)
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand and
of the Indemnified Party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying
<PAGE> 148
Party and of the Indemnified Party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
v) The obligations of the Company and the Purchaser under
this Section 7(c) shall survive the completion of any offering of Shares in
a registration statement under this Section 7 and otherwise.
vi) Information by Purchaser. The Purchaser of Shares
included many registration shall furnish to the Company such information
regarding Purchaser, the Shares held by it and the distribution proposed by
such Purchaser as the Company may reasonably request in writing and as
shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
vii) Transfer of Registration Rights. The rights to cause the
Company to register securities granted the Purchaser under Section 7 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Shares by the Purchaser provided that:(i) such transfer may
otherwise be effected in accordance with applicable securities laws and
(ii) such assignee or transferee becomes a party to this Agreement and
assumes all of the obligations of the transferring Purchaser under Section
7.
8. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time
permit the sale of the Shares to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act.
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended; and
(c) So long as the Purchaser owns any Shares, to furnish to the
Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Securities Exchange Act of 1934, a copy of the most
recent annual or quarterly report of the Company, and such other reports
and documents of the Company and other information in the possession of or
reasonably obtainable by the Company as the Purchaser may reasonably
request in availing itself of any rule or regulation of the Commission
allowing the Purchaser to sell any such securities without registration.
9. Fees and Expenses. The Purchaser and the Company each agrees to pay its
own expenses incident to the performance of its obligations hereunder,
except that the Company agrees to pay the fees, expenses and disbursements
of the Purchaser's counsel.
10. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and Purchaser, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or
any officer, director, or employee of, or person controlling or under
common control with, such party, and will survive delivery of any payment
of the Shares.
<PAGE> 149
11. Notices. All communications hereunder shall be in writing, and, if
sent to the Purchaser shall be sufficient in all respects if delivered,
sent by registered mall, or by telecopy and confirmed to the Purchaser at:
Jose Maria Salema Garcao
Lote CT-14
Quinta Da Marinha
2750 Cascais, Portugal
with a copy sent to:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, CA 94111
Tel: (415) 398-3344
Fax: (415) 956-0439
or, if sent to the Company, shall be delivered sent by registered mall, or
by telecopy and confirmed to the Company at:
Finet Holdings Corporation
3021 Citrus Circle, #150
Walnut Creek, CA 94598
Tel: (415) 658-4150
Fax: (415) 658-4155
with a copy sent to:
William D. Evers
Evers & Andelin, LLP
155 Montgomery Street, Suite 1212
San Francisco, CA 94104
Tel: (415)391-4291
Fax: (415)391-4292
12. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and
it is not necessary that signature of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and
the same agreement.
(b) This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their respective successors and, with respect to
Section 7 hereof the officers, directors, and controlling persons thereof
and each person under common control therewith, and no other person shall
have any right or obligation hereunder.
<PAGE> 150
(c) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
(d) The headings of the sections of this document have been
inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
(i)1. COMPANY:
(i)2. FINET HOLDINGS CORPORATION
(i)2.1. By: /s/ Jan Hoeffel
(i)2.2. President
PURCHASER:
(i)2.3. By: /s/ Jose Maria Salema Garcao
(i)2.4. Jose Maria Salema Garcao
<PAGE> 151
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY (I) IN A
REGISTRATION UNDER SAID ACT OR (II) IF AN EXEMPTION FROM REGISTRATION UNDER
SAID ACT IS AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO
THAT EFFECT REASONABLY SATISFACTORY TO IT.
FINET HOLDINGS CORPORATION
COMMON STOCK PURCHASE WARRANT
This Warrant Expires March 15, 2002
Warrant No.____ Shares: 600,000
THIS CERTIFIES that, subject to the terms and conditions herein set forth,
JOSE MARIA SALEMA GARCAO (the "Holder") is entitled to purchase from FINET
HOLDINGS CORPORATION, a Delaware corporation (the "Company"), at any time
or from time to time during the Exercise Period (as hereinafter defined)
the number of shares of fully paid and non-assessable shares of Common
Stock of the Company (the "Shares") as provided herein upon surrender
hereof at the principal office of the Company, and, at the election of the
holder hereof upon payment of the purchase price at said office in cash or
by cashier's check or by the wire transfer of funds in a dollar amount
equal to the purchase price of the Shares for which the consideration is
being given.
1. Purchase Price. Subject to adjustment as hereinafter provided, the
purchase price of one share of Common Stock (or such securities as may be
substituted for one share of Common Stock pursuant to the provisions
hereinafter set forth) (the "Warrant Price") shall be the following:
200,000 shares at $1.50 per share
200,000 shares at $2.00 per share
200,000 shares at $2.50 per share
2. Adjustment of Warrant Price and Number of Shares. The number and kind
of securities issuable upon the exercise of this Warrant shall be subject
to adjustment from time to time upon the happening of certain events as
follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
time to time on or after the date that the Company completes its voluntary
reorganization/recapitalization plan as set forth in the Private Placement
Memorandum dated October 1, 1996, the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible stockholders, shall
have become entitled to receive, without payment therefor, other or
additional stock of the Company by way of dividend (other than as provided
for in Paragraph 2(b) below), then and in each such case, the holder of
this Warrant shall, upon the exercise hereof be entitled to receive, in
addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of
such other or additional stock of the Company which such holder would hold
on the date of such exercise had it been the holder of record of such
Common Stock on the date hereof and had thereafter, during the period from
the date hereof to and including the date of such exercise, retained such
shares and/or all other additional stock receivable by it as aforesaid
during such period, given effect to all adjustments called for during such
period by this Paragraph 2.
<PAGE> 152
(b) Adjustment for Changes in Common Stock. In the event of changes
in the outstanding Common Stock of the Company by reason of split-ups,
recapitalizations, reclassifications, mergers, consolidations, combinations
or exchanges of shares, separations, reorganizations, liquidations, or the
like, occurring after the Company completes its voluntary
reorganzation/recapitalization plan as set forth in the Private Placement
Memorandum dated October 1, 1996, the number and class of shares available
under the Warrant in the aggregate and the Warrant Price shall be
correspondingly adjusted by the Board of Directors of the Company. The
adjustment shall be such as will give the holder of the Warrant on exercise
for the same aggregate Warrant Price the total number, class, and kind of
shares as he would have owned had the Warrant been exercised prior to the
event and had he continued to hold such shares until after the event
requiring adjustment.
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any
fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market
value of one share of Common Stock on the date of exercise, as determined
by the fair market value of one share of the Company's Common Stock on the
date of exercise as determined in good faith by the Company's Board of
Directors.
4. No Stockholder Rights. This Warrant shall not entitle its holder to
any of the rights of a stockholder of the Company prior to exercise thereof
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates
to execute and issue. the necessary certificates for shares of Common Stock
upon the exercise of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised by the registered
holder or its registered assigns, in whole or in part and in minimum units
of 10,000 shares, by the surrender of this Warrant at the principal office
of the Company, together with the form of subscription hereof duly
executed, accompanied by payment in full of the amount of the Warrant Price
in the form described m this Warrant. Upon partial exercise hereof a new
warrant or warrants containing the same date and provisions as this Warrant
shall be issued by the Company to the registered holder for the number of
shares of Common Stock with respect to which this Warrant shall not have
been exercised. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares
of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of such shares of record as of the close of business
on such date. As promptly as practicable on or after such date, the Company
shall issue and deliver to the person or persons entitled to receive the
same, a certificate or certificates for the number of full shares of Common
Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share as provided above.
7 Certificate of Adjustment. Whenever the Warrant Price is adjusted as
herein provided, the Company shall promptly deliver to the record holder of
this Warrant a certificate of an officer of the Company setting forth the
relevant Warrant Price or number of shares after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
8. Compliance With Securities Act. The holder of this Warrant, by
acceptance hereof agrees that this Warrant and the shares of Common Stock
to be issued upon exercise hereof (or shares of any security into which
such Common Stock may be converted) are being acquired for investment and
that the holder will not offer, sell, or otherwise dispose of this Warrant
and any shares of Common Stock to be issued upon exercise hereof (or shares
of any security into which such Common Stock may be converted) except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Securities Act"). Upon exercise of this Warrant, the
holder hereof shall, if requested by the
<PAGE> 153
Company, confirm in writing its investment purpose and acceptance of the
restrictions on transfer of the shares of Common Stock.
9. Subdivision of Warrant. At the request of the holder of this Warrant
in connection with a transfer or exercise of a portion of the Warrant, upon
surrender of such Warrant for such purpose to the Company, the Company at
its expense (except for any transfer tax payable) will issue and exchange
therefor warrants of like tenor and date representing in the aggregate the
right to purchase such number of shares of such Common Stock as shall be
designated by such holder at the time of such surrender; provided, however,
that the Company's obligations to subdivide securities under this section
shall be subject to and conditioned upon the compliance of any such
subdivision with applicable state securities laws and with the Securities
Act.
- - -
10. Loss Theft Destruction or Mutilation of Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction, or mutilation of this Warrant, and in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated,
the Company will make and deliver a new Warrant of like tenor and dates as
of such cancellation, in lieu of this Warrant.
11. Miscellaneous. This Warrant shall be governed by the laws of the State
of California. The headings in this Warrant are for purposes of convenience
and reference only, and shall not be deemed to constitute a part hereof.
Neither this Warrant nor any term hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing
signed by the Company and the registered holder hereof All notices and
other communications from the Company to the holder of this Warrant shall
be by telecopy or expedited courier service to the address furnished to the
Company in writing by the last holder of this Warrant who shall have
furnished an address to the Company in writing.
12. Exercise Period. The Exercise Period shall mean the period commencing
on the date hereof and ending on March 18, 2002.
ISSUED this 18th day of March, 1997.
FINET HOLDINGS CORPORATION
By:____________________________
President
ATTEST:
_______________________
<PAGE> 154
FORM OF ASSIGNMENT
FINET HOLDINGS CORPORATION
FOR VALUE RECEIVED the undersigned registered owner of this warrant hereby
sells, assigns, and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth bellow.
Name of Assignee Address Number of Shares
and does hereby irrevocably constitute and appoint
_______________________________ Attorney to make such transfer on the books
of FINET HOLDINGS CORPORATION maintained for the purpose, with full power
of substitution in the premises.
Dated:_______________________
_____________________________
Name of Warrant Holder
_____________________________
Signature:
______________________________
Witness:
<PAGE> 155
SUBSCRIPTION FORM
FINET HOLDINGS CORPORATION
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases ________________ of the number of shares of
Common Stock of FINET HOLDINGS CORPORATION purchasable with this Warrant,
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant.
Dated:____________________
_________________________
(Signature of Registered Owner)
__________________________
(Street Address)
________________________
(City) (State) (Zip Code)
<PAGE> 156
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of the date set forth on
the signature page attached hereto (the "Signature Page") between FINET
HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and the
persons listed on Exhibit A who are signatories to this Agreement (the
"Purchaser"):
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of the Shares. Subject to the terms and conditions
of this Agreement, each of the Purchasers agrees to purchase at the
Closing, and the Company agrees to sell and issue to each of the Purchasers
at the Closing, severally and not jointly, against cash payment,
cancellation of indebtedness or cancellation of interest owed, the number
of shares of the Company's Common Stock (the "Shares") set forth opposite
each Purchaser's name in Exhibit A to this Agreement at a purchase price of
$1.00 per Share.
2. Closing Date; Delivery. The closing of the purchase and sale of the
Shares shall be held at the offices of the Company, 3021 Citrus Circle,
Suite 150, Walnut Creek, California 94598 on April 15, 1997 or at such
other time and place as the parties may agree upon (the "Closing"). At the
Closing, subject to the terms of this Agreement, the Company will deliver
to each of the Purchasers a certificate representing the number of Shares
to be purchased by the Purchaser from the Company, against payment at the
Closing of the cash purchase price in immediately available funds or by
cancellation of the Company's indebtedness to the Purchaser in the amount
set forth on Exhibit A.
3. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Purchasers that:
(a) Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws
of the state of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties
and assets, and to carry on it business as presently conducted and as
proposed to be conducted. The Company is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where the nature
of its activities or of its properties owned or leased makes such
qualification, licensing or domestication necessary at this time. The
Company has furnished you with copies of its Articles of Incorporation and
Bylaws. Said copies are true, correct and complete and contain all
amendments through the date of this Agreement.
(b) Corporate Power. The Company has now, or will have at the Closing
Date, all requisite legal and corporate power to enter into this Agreement,
to sell the Shares hereunder, and to carry out and perform its obligations
under the terms of this Agreement.
(c) Subsidiaries. The Company has no subsidiaries other than (i) Finet
Corporation, which is a wholly-owned subsidiary of the Company; (ii)
Monument Mortgage, Inc., a wholly-owned subsidiary of the Company; (iii)
PreferenceAmerica Mortgage Network, a wholly-owned subsidiary of the
Company; (iv) The Property Transaction Network, a wholly-owned subsidiary
of the Company; (v) FWC Shell Company ("FWC"), a wholly-owned subsidiary of
the Company; (vi) RPM Affiliates, which is a wholly-owned subsidiary of
FWC; (vii) RPM Mortgage, Inc., a wholly-owned subsidiary of FWC; and (viii)
Fremont Mortgage, Inc., a wholly-owned subsidiary of FWC (sometimes
hereinafter collectively referred to as the "Subsidiaries"). The Company
does not own, directly or indirectly,
<PAGE> 157
shares of stock or other interests in any other corporation, association,
joint venture, or business organization except as may be listed on a
Schedule of Exceptions filed as an exhibit hereto.
(d) Capitalization. The authorized capital stock of the Company is
30,000,000 shares of Common Stock. The Company's Board of Directors has
resolved to request shareholder approval for an increase in authorized
capital stock to 40,000,000 shares, with such approval informally assented
to by holders of a majority of shares outstanding. There are issued and
outstanding 23,596,150 shares of Common Stock. The issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable and were issued in compliance with all
applicable state and federal laws concerning the issuance of securities.
There are no outstanding rights, options, warrants, conversion rights, or
agreements for the purchase or acquisition from the Company of any shares
of its capital stock, except (i) that options for 511,876 shares of the
Company's Common Stock have been granted to directors, officers and
employees of the Company pursuant to the Company's 1989 Incentive Stock
Option Plan and are currently outstanding; (ii) warrants for 131,167 shares
have been granted to underwriters in connection with the May 1993 Unit
Offering, and are currently outstanding; (iii) warrants for 700,000 shares
have been granted to underwriters in connection with the December 1996
Private Placements, and are currently outstanding; and (iv) warrants for
4,104,750 Common shares have been granted to certain bridge lenders of the
Company.
(e) Authorization.
(i) All corporate action on the part of the Company, its officers,
directors, and stockholders necessary for the sale and issuance of the
Shares pursuant hereto and the performance of the Company's obligations
hereunder, has been taken or will be taken prior to the Closing. This
Agreement is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws of general application affecting enforcement of creditors' rights, and
except as limited by application of legal principles affecting the
availability of equitable remedies.
(ii) The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that such shares
may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein, and as may be required by future
changes in such laws.
(iii) No shareholder of the Company has any right of first refusal or any
preemptive rights in connection with the issuance of the Shares or of
Common Stock by the Company.
(f) Financial Statements. The Company's audited balance sheet and
statement of income and expenses for the fiscal year ended 1995
(hereinafter collectively referred to as the Financial Statements) which
have been supplied to the Purchasers are true and correct, have been
prepared in accordance with generally accepted accounting principles
consistently applied (except as disclosed therein and except that the
Financial Statements do not contain the footnotes required by generally
accepted accounting principles), and fairly present the financial condition
of the Company and the results of the operations of the Company as of the
date thereof.
(g) The Company has delivered to the Purchaser a copy of its Private
Placement Memorandum dated March 1, 1997.
(h) Material Contracts and Commitments. All the material contracts,
commitments, agreements, and instruments to which the Company is a party
are legal, valid, binding, and in full force and effect in all material
respects and enforceable by the Company in accordance with their terms
except as limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws of general application affecting enforcement of creditors'
rights, and except as limited by application of legal principles affecting
the availability of equitable remedies. The Company is not in material
default under any of such contracts. A list of all such material
contracts, agreements and instruments is set forth in Exhibit B hereto.
<PAGE> 158
(i) Compliance with Other Instruments, None Burdensome, etc. Neither
the Company nor any Subsidiary is in violation of any term of its
respective Articles of Incorporation or Bylaws, or in any material respect
of any mortgage, indenture, contract, agreement, instrument, or, to the
best knowledge of the Company, any judgment, decree, order, statute, rule,
or regulation applicable to it. The execution, delivery, and performance
by the Company of this Agreement, and the issuance and sale of the Shares
pursuant hereto, will not result in any such violation or be in conflict
with or constitute a default under any such term, or cause the acceleration
of maturity of any loan or material obligation to which the Company or the
Subsidiaries are a party or by which any of them are bound or with respect
to which any of them is an obligor or guarantor, or result in the creation
or imposition of any material lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon, or, to the best knowledge of the
Company after due inquiry, give to any other person any interest or right
(including any right of termination or cancellation) in or with respect to
any of the material properties, assets, business or agreements of the
Company or the Subsidiaries. To the best knowledge of the Company after
due inquiry, no such term or condition materially adversely affects or in
the future (so far as can reasonably be foreseen by the Company at the date
of this Agreement) may materially adversely affect the business, property,
prospects, condition, affairs, or operations of the Company and the
Subsidiary.
(j) Litigation, etc. Other than as listed on Exhibit C hereto, there
are no actions, proceedings or investigations pending (or, to the best of
the Company's knowledge, any basis therefor or threat thereof), which,
either in any case or in the aggregate, might result in any adverse change
in the business, prospects, conditions, affairs, or operations of the
Company or in any of its properties or assets, or in any impairment of the
right or ability of the Company to carry on its business as proposed to be
conducted, or in any material liability on the part of the Company, or
which question the validity of this Agreement or any action taken or to be
taken in connection herewith.
(k) Governmental Consent, etc. No consent, approval, or authorization
of, or designation, declaration, or filing with, any governmental unit is
required on the part of the Company in connection with the valid execution
and delivery of this Agreement, or the offer, sale or issuance of the
Shares, or the consummation of any other transaction contemplated hereby
(except exemption notice filings under the Blue Sky securities laws of
those states in which offers or sales may be made in connection with this
Offering, which filings have been or will be timely made so as to comply
with such laws).
(l) Offering. The offer, sale and issuance of the Shares in conformity
with the terms of this Agreement will not violate the Securities Act.
(m) Use of Proceeds. The net proceeds from the sale of the Shares
shall be used to implement the Company's voluntary
reorganization/recapitalization plan as set forth in the Private Placement
Memorandum relating to the offer and sale of the Shares, dated March 1,
1997.
(n) Insurance. Neither the Company nor any of its Subsidiaries maintain
in force any insurance policies as of the date of this Agreement.
(o) Intellectual Property, etc. Neither the Company nor any of its
Subsidiaries own the rights to any trademarks, service marks, trade names,
copyrights, patents or other intellectual property. Neither the Company
nor any Subsidiary has received any notice or claim of infringement of any
patents, inventions, rights, trademarks, trade names or copyrights of
others with respect to any processes, methods, formulae or procedures used
by any of said corporations in the present or planned conduct of their
respective businesses.
(p) Title to and Condition of Properties. The Company and its
Subsidiaries have good and marketable title to all their respective
tangible and intangible property and assets, including those reflected in
the Financial Statements (except such property or assets as have since
September 30, 1995 been sold or otherwise disposed of in the ordinary
course of business), and such property and assets are subject to no
mortgage or security interests, conditional sales contract, charge, lien or
encumbrance (except for the lien of current taxes not yet due and payable
and such imperfections of title, easements
<PAGE> 159
and encumbrances, if any, as are not substantial in character, amount or
extent and do not materially detract from the value of, or interfere with
the present use of the properties subject thereto or affected thereby, or
otherwise materially impair the business operations of the Company and any
Subsidiary), and subsequent to September 30, 1995 neither the Company nor
any Subsidiary has sold or disposed of any of its property and assets or
obligated itself to do so except in the ordinary course of business.
Except for such minor defects as are not substantial in character and which
do not have a materially adverse effect upon the validity thereof, all
material real and personal property leases to which the Company or the
Subsidiaries are a party are in good standing, valid and effective, and
there is not under any such lease any existing material default or event
which with notice or lapse of time or both would constitute a material
default and in respect of which the Company or the Subsidiaries have not
taken reasonable steps to prevent such a default from occurring.
(q) Taxes. The Company and the Subsidiaries represent that upon
completion of the offering of the Shares they will file all tax returns
that are required to have been filed by them prior to the date of this
Agreement with appropriate federal, state, county and local governmental
agencies or instrumentalities.
(r) Disclosure. This Agreement, the exhibits hereto, the Financial
Statements, and all certificates delivered to you pursuant to this
Agreement, when read together, do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order
to make the statements contained therein or herein not misleading, it being
understood that the Private Placement Memorandum contains estimates and
projections which have been made in good faith by the Company and no
warranty of such projections is expressed or implied hereby. There is, to
the best of the Company's knowledge, no fact which materially adversely
affects the business, prospects, condition, affairs or operations of the
Company or any of its properties or assets which has not been set forth in
this Agreement, the exhibits hereto, the Financial Statements or the
Private Placement Memorandum.
(s) The Shares:
(i) are free and clear of any security interests, liens, claims, or other
encumbrances;
(ii) have been duly and validly authorized and issued and are, and on the
Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued or sold
in violation of any pre-emptive or other similar rights of the holders of
any securities of the Company;
(iv) will not subject the holders thereof to personal liability by reason
of being such holders; and
4. Representations and Warranties of the Purchasers. Each of the
Purchasers represents and warrants to, and agrees with, the Company as
follows:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Shares, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has passed on
or made any recommendation or endorsement of the Shares.
(c) The Company has given the Purchaser the opportunity to have answered
all of the Purchaser's questions concerning the Company and its business
and has made available to the Purchaser all information requested by the
Purchaser which is reasonably necessary to verify the accuracy of other
information furnished by the Company. The
<PAGE> 160
Purchaser has received and evaluated all information about the Company and
its business which the Purchaser deems necessary to formulate an investment
decision, and does not desire any further information.
(d) The Purchaser understands that the Shares are being offered and sold to
it in reliance on specific exemptions or non-application from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and understandings of the
Purchaser set forth herein in order to determine the applicability of such
exemptions or non-applications and the suitability of the Purchaser to
acquire the Shares.
(e) The Purchaser is aware that the Shares have not been registered
under the Securities Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) and Regulation D thereof, and that
they must be held by the Purchaser for an indeterminate period and the
Purchaser must therefore bear the economic risk of such investment
indefinitely, unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from registration. The Purchaser is aware
of the provisions of Rule 144 promulgated under the Securities Act which
permits limited resale of shares purchased in a private placement subject
to the satisfaction certain conditions, including, among other things the
existence of a public market for the Shares, the availability of certain
current public information about the Company, the resale occurring not less
than two years after a party has purchased and paid for the security to be
sold, the sale being through a "broker's transaction" or in transactions
directly with a "market maker" (as provided by Rule 144(f)) and the number
of shares being sold during any three-month period not exceeding specified
limitations. The Purchaser is also aware that, while many of the
restrictions of Rule 144 do not apply to the resale of shares by a person
who owned those shares for at least three years prior to their resale and
who is not an "affiliate" (within the meaning of Rule 144(a)) of the issuer
and has not been an affiliate of the issuer for at least three months prior
to the date of resale of the restricted securities, the Company does not
warrant or represent that you are not an affiliate as of the date of this
Agreement or that you will not be an affiliate at any relevant times in the
future.
(f) Each instrument representing the Shares may be endorsed with the
following legends:
(i) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCHSALE, TRANSFER, ASSINGMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
(ii) Any other legend required by California or other state securities
laws.
The Company need not register a transfer of legended Shares, and may
instruct its transfer agent not to register the transfer of the Shares,
unless one of the conditions specified in the foregoing legends is
satisfied.
(g) Any legend endorsed on an instrument pursuant to Section 4(f) hereof
and the stop transfer instructions with respect to such Shares shall be
removed, and the Company shall issue an instrument without such legend to
the holder of such Shares if such Shares are registered under the
Securities Act and a prospectus meeting the requirements of Section 10 of
the Securities Act is available or if such holder provides the Company with
an opinion of counsel for such holder of the Shares, reasonably
satisfactory to the Company, to the effect that a public sale, transfer or
assignment of such Shares may be made without registration.
<PAGE> 161
(h) The Purchaser is either (i) acquiring the Shares for the Purchaser's
own account; or (ii) for the account of another for which the Purchaser
acts as a fiduciary, in which case the Purchaser will so advise the
Company. If acting as a fiduciary, the Purchaser makes the
representations, warranties, and covenants as set forth herein on its own
behalf and as agent for and on behalf of such other party. The Purchaser is
acquiring the Shares for investment and without any present intention to
engage in a distribution thereof.
(i) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(j) The Purchaser is an "Accredited Investor" as that term is
defined under Rule 501 adopted pursuant to the Securities Act. "Accredited
Investors" are defined in Rule 501 to include among others: (1) Various
specified institutional investors (such as banks, savings and loan
associations, licensed brokers or dealers, insurance companies, investment
companies, small business investment companies, employee benefit plans
having assets in excess of $5,000,000, and self-directed plans having
investment decisions made solely by persons that are Accredited Investors);
(2) Any entity with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered; (3) Any person
who had individual income in excess of $200,000 in each of the two most
recent years or joint income with that person's spouse in excess of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level this year; (4) Any person whose individual
net worth (or joint net worth with the person's spouse) at the time of
purchase exceeds $1,000,000; (5) Directors and executive officers of Finet;
(6) Trusts with total assets in excess of $5,000,000 not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person prescribed in Rule 506(b)(2)(ii); and
(7) Any entity in which all the equity owners are deemed accredited.
5. Negative Covenants of the Company. The Company further covenants
and agrees that without the prior written approval of the Purchaser, it
will not:
(a) Engage in any business other than the business engaged in or
proposed to be engaged in by the Company or any subsidiary on the date
hereof and any businesses or activities substantially similar or related
thereto.
(b) Issue and sell any options to purchase more than an aggregate of
1,000,000 shares of the Company's Common Stock to employees, officers and
directors of, and consultants and franchisees to the Company, pursuant to
any incentive program approved by the Board of Directors of the Company.
(c) Liquidate or dissolve, merge, consolidate or sell substantially all
of its assets.
(d) Declare or pay any dividends; or purchase, redeem or otherwise
acquire for value or make any other distribution with respect to any of the
Company's capital stock, other than the repurchase of shares of capital
stock from terminating or terminated employees at a price no greater
than fair market value.
(e) Invest, directly or indirectly, in any business or enterprise other
than in connection with the operation of its business; provided however,
pending the use of the net proceeds of this offering in its businesses the
Company may invest such net proceeds in short term interest bearing
deposits and securities.
(f) By amendment of its articles of incorporation, through the
voluntary reorganization or recapitalization, or through any transfer of
its assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company.
<PAGE> 162
6. Conditions Precedent to the Purchasers' Obligations. The obligations
of each of the Purchasers hereunder are subject to the performance by the
Company of its obligations hereunder and to the satisfaction of the
following additional conditions precedent on or before the Closing Date:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct as of
the date hereof and at the Closing Date, with the same force and effect as
if they had been made on and as of the Closing Date.
(b) After the date hereof until the Closing Date there shall not have
occurred:
(v) any change, or any development involving a prospective change, in
either (A) the condition, financial or otherwise, or in the earnings,
business or operations, or in or affecting the properties of the Company or
(B) the financial or market conditions or circumstances in the United
States, in either case which, in the Purchaser's judgment, is material and
adverse and makes it impractical or inadvisable to proceed with the
offering, sale, or delivery of the Shares;
(vi) an imposition of a new legal or regulatory restriction not in effect
on the date hereof, or any change in the interpretation of existing legal
or regulatory restrictions, that materially and adversely affects the
offering, sale, or delivery of the Shares; or
(vii) a suspension, or material limitation of, trading (A) generally on
or by the New York Stock Exchange or NASDAQ, or (B) of any securities of
the Company on any exchange or in any over-the-counter market.
7. Conditions Precedent to the Company's Obligations. The obligations
of the Company hereunder are subject to the performance by each of the
Purchasers of its obligations hereunder and to the satisfaction of the
following additional condition precedent:
The representations and warranties made by the Purchaser in this Agreement
shall, unless waived by the Company, be true and correct at the Closing
Date, with the same force and effect as if they had been made on, and as
of, the Closing Date.
8. Registration Rights
(a) Request for Registration. In case the Company shall receive from
the Purchaser a written request that the Company effect any registration,
qualification, or compliance with respect to all or a part of the Shares
the Company will: (i) as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications and compliances
(including, without limitations, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable
blue sky or other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of the Purchaser's Shares as are specified in such request, together with
all or such portion of the Shares of any Holder or Holders joining in such
request as are specified in a written request given within thirty days
after receipt of such written notice from the Company; provided that the
Company shall not be obligated to take any action to effect such
registration, qualification or compliance pursuant to this clause (i): (A)
After the Company has effected two such registrations pursuant to this
subparagraph (i) and such registrations have been declared or ordered
effective; or (B) If the amount of securities being offered for sale is
less than 25 percent of the Shares.
Subject to the foregoing clauses (A) through (B), the Company shall file a
registration statement covering the Shares so requested to be registered as
soon as practical, but in any event within ninety days, after receipt of
the request or requests of the Purchaser; provided, however, that if the
Company shall furnish to such Purchaser a certificate signed by the
President
<PAGE> 163
of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company and it
stockholders for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not
more than ninety days within which to file such registration statement.
(b) In any event, the Company shall use its best efforts to cause such
registration statement to become effective within 150 days of the closing
date, and to keep such registration statement effective for up to three
years.
(c) Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Agreement,
including without limitation, all registration, filing, and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company.
(d) Indemnification.
(i) The Company will indemnify the Purchaser with respect to such
registration, qualification, or compliance effected pursuant to this
paragraph, and each underwriter, if any, and each person who controls any
underwriter of the Shares held by or issuable to the Purchaser, against all
claims, losses, damages, and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification,
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and
will reimburse the Purchaser, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by such Purchaser or underwriter specifically for
use therein.
(ii) The Purchaser will, if Shares held by or issuable to such Purchaser
are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each
of its directors and officers who sign such registration statement, each
underwriter, if any, of the Company's securities covered by such a
registration statement, and each person who controls the Company within the
meaning of the Securities Act, against all claims, losses, damages, and
liabilities (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such directors,
officers, persons, or underwriters for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in reliance
upon and in conformity with written information furnished to the Company by
an instrument duly executed by such Purchaser specifically for use therein.
(iii) Each party entitled to indemnification under this paragraph (d)
(the Indemnified Party) shall give notice to the party required to provide
indemnification (the Indemnifying Party) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not
<PAGE> 164
be unreasonably withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this paragraph. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation.
(e) Transfer of Registration Rights. The rights to cause the Company to
register the securities granted to the Purchaser by the Company under
Section 8 may be assigned by the Purchaser to a transferee or assignee of
any of the Purchaser's Shares, provided, that the Company is given written
notice by the Purchaser at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration
rights are being assigned.
9. Fees and Expenses. The Purchaser and the Company each agrees to pay
its own expenses incident to the performance of its obligations hereunder,
except that the Company agrees to pay the fees, expenses and disbursements
of the Purchaser's counsel.
10. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and Purchaser, respectively, pursuant
to this Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or
any officer, director, or employee of, or person controlling or under
common control with, such party, and will survive delivery of any payment
of the Shares.
11. Notices. All communications hereunder shall be in writing, and, if
sent to the Purchasers shall be sufficient in all respects if delivered,
sent by registered mail, or by telecopy and confirmed to the Purchasers at:
Jose Maria Salema Garcao
Lote CT-14
Quinta Da Marinha
2750 Cascais, Portugal
with a copy sent to:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, CA 94111
Tel: (415) 398-3344
Fax: (415) 956-0439
or, if sent to the Company, shall be delivered, sent by registered mail, or
by telecopy and confirmed to the Company at:
Finet Holdings Corporation
235 Montgomery Street, #750
San Francisco, CA 94104
<PAGE> 165
Tel: (415) 658-4150
Fax: (415) 658-4155
with a copy sent to:
William D. Evers, Esq.
Miller, Mailliard & Culver, LLP
155 Montgomery Street, Suite 1212
San Francisco, CA 94104
Tel: (415) 391-4291
Fax: (415) 391-4292
12. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it is
not necessary that signature of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same
agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors and, with respect to Section 9
hereof, the officers, directors, and controlling persons thereof and each
person under common control therewith, and no other person shall have any
right or obligation hereunder.
(c) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
(d) The headings of the sections of this document have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By:
President
PURCHASER:
By:
Jose Maria Salema Garcao
<PAGE> 166
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the date set forth on the
signature page attached hereto (the "Signature Page") between FINET
HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and the
person whose name and address appear on the Signature Page to this
Agreement (the "Purchaser"):
RECITALS:
WHEREAS, the Company has authorized the sale to purchasers of units in the
Company's July 1993 securities offering who subscribe to the Company's
April 1997 Private Placement Offering (the"Offering"), of Units (the
"Units"), each Unit consisting of one share of the Company's Common Stock
and a warrant (the "Warrants") to purchase one share of the Company's
Common Stock for each two shares of Common Stock purchased in the Offering,
at an exercise price of $1.50 per share through April 30, 1998, $2.50 per
share through April 30, 1999 and $3.50 per share through April 28, 2001;
and
WHEREAS, the Purchaser desires to purchase and the Company desires to sell
the Units on the terms and conditions set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of the Units. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase at the Closing, and the
Company agrees to sell and issue to the Purchaser at the Closing, against
cash payment, the number of Units of the Company's Common Stock (the
"Shares") set forth below the Purchaser's name on the Signature Page to
this Agreement at a purchase price of $1.00 per Share.
2. Closing Date; Delivery. The purchase and sale of the Units shall be
held at the offices of the Company, 3021 Citrus Circle, Suite 150, Walnut
Creek, California 94598, and may occur at successive closings, the last of
which shall be April 30, 1997 or at such other times and places as the
parties may agree upon (collectively, the "Closing"). At the Closing,
subject to the terms of this Agreement, the Company will deliver to the
Purchaser a certificate representing the number of Units to be purchased by
the Purchaser from the Company, against payment at the Closing of the cash
purchase price in immediately available funds.
3. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Purchaser that:
(a) Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws
of the state of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties
and assets, and to carry on it business as presently conducted and as
proposed to be conducted. The Company is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where the nature
of its activities or of its properties owned or leased makes such
qualification, licensing or domestication necessary at this time.
(b) Corporate Power. The Company has now, or will have at the Closing
Date, all requisite legal and corporate power to enter into this Agreement,
to sell the Units hereunder, and to carry out and perform its obligations
under the terms of this Agreement.
(c) Subsidiaries. The Company has no subsidiaries other than (i) Finet
Corporation, which is a wholly-owned subsidiary of the Company; (ii)
Monument Mortgage, Inc., a wholly-owned subsidiary of the Company;
<PAGE> 167
(iii) PreferenceAmerica Mortgage Network, a wholly-owned subsidiary of the
Company; (iv) The Property Transaction Network, a wholly-owned subsidiary
of the Company; (v) FWC Shell Company ("FWC"), a wholly-owned subsidiary of
the Company; (vi) RPM Affiliates, which is a wholly-owned subsidiary of
FWC; (vii) RPM Mortgage, Inc., a wholly-owned subsidiary of FWC; and (viii)
Fremont Mortgage, Inc., a wholly-owned subsidiary of FWC (sometimes
hereinafter collectively referred to as the "Subsidiaries"). The Company
does not own, directly or indirectly, shares of stock or other interests in
any other corporation, association, joint venture, or business organization
except as may be listed on a Schedule of Exceptions filed as an exhibit
hereto.
(d) Capitalization. The authorized capital stock of the Company is
30,000,000 shares of Common Stock. The Company's Board of Directors has
resolved to request shareholder approval for an increase in authorized
capital stock to 40,000,000 shares, with such approval informally assented
to by holders of a majority of shares outstanding. There are issued and
outstanding 24,772,317 shares of Common Stock. The issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable and were issued in compliance with all
applicable state and federal laws concerning the issuance of securities.
There are no outstanding rights, options, warrants, conversion rights, or
agreements for the purchase or acquisition from the Company of any shares
of its capital stock, except (i) that options for 438,876 shares of the
Company's Common Stock have been granted to directors, officers and
employees of the Company pursuant to the Company's 1989 Incentive Stock
Option Plan and are currently outstanding; (ii) warrants for 131,167 shares
have been granted to placement agents in connection with the May 1993 Unit
Offering, and are currently outstanding; (iii) warrants for 600,000 shares
have been granted to placement agents in connection with the December 1996
Private Placements, and are currently outstanding; (iv) warrants for 42,776
Common shares have been granted to certain bridge lenders of the Company,
and are currently outstanding; and (v) warrants for 4,100,000 shares have
been granted to shareholders of the Company, and are currently outstanding.
(e) Authorization.
(i) All corporate action on the part of the Company, its
officers, directors, and stockholders necessary for the sale and issuance
of the Units pursuant hereto and the performance of the Company's
obligations hereunder, has been taken or will be taken prior to the
Closing. This Agreement is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting enforcement of creditors'
rights, and except as limited by application of legal principles affecting
the availability of equitable remedies.
(ii)The Units, when issued in compliance with the provisions of
this Agreement, will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; provided, however, that such
Units may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein, and as may be required by future
changes in such laws.
(iii) No shareholder of the Company has any right of first
refusal or any preemptive rights in connection with the issuance of the
Units or of Common Stock by the Company.
(d) Financial Statements. The Company's unaudited balance sheet for the
fiscal quarter ended September 30, 1996, as well as the balance sheet for
its wholly-owned subsidiary Monument Mortgage, Inc. as of the same date
(the "Financial Statements") which have been supplied to the Purchaser are
true and correct, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as disclosed therein and
except that the Financial Statements do not contain the footnotes required
by generally accepted accounting principles), and fairly present the
financial condition of the Company and the results of the operations of the
Company as of the date thereof.
(e) The Company has delivered to the Purchaser a copy of its Private
Placement Memorandum dated April 1, 1997.
<PAGE> 168
(f) Material Contracts and Commitments. All the material contracts,
commitments, agreements, and instruments to which the Company is a party
are legal, valid, binding, and in full force and effect in all material
respects and enforceable by the Company in accordance with their terms
except as limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws of general application affecting enforcement of creditors'
rights, and except as limited by application of legal principles affecting
the availability of equitable remedies. The Company is not in material
default under any of such contracts.
(g) Compliance with Other Instruments, None Burdensome, etc. Neither the
Company nor any Subsidiary is in violation of any term of its respective
Articles of Incorporation or Bylaws, or in any material respect of any
mortgage, indenture, contract, agreement, instrument, or, to the best
knowledge of the Company, any judgment, decree, order, statute, rule, or
regulation applicable to it. The execution, delivery, and performance by
the Company of this Agreement, and the issuance and sale of the Units
pursuant hereto, will not result in any such violation or be in conflict
with or constitute a default under any such term, or cause the acceleration
of maturity of any loan or material obligation to which the Company or the
Subsidiaries are a party or by which any of them are bound or with respect
to which any of them is an obligor or guarantor, or result in the creation
or imposition of any material lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon, or, to the best knowledge of the
Company after due inquiry, give to any other person any interest or right
(including any right of termination or cancellation) in or with respect to
any of the material properties, assets, business or agreements of the
Company or the Subsidiaries. To the best knowledge of the Company after
due inquiry, no such term or condition materially adversely affects or in
the future (so far as can reasonably be foreseen by the Company at the date
of this Agreement) may materially adversely affect the business, property,
prospects, condition, affairs, or operations of the Company and the
Subsidiary.
(h) Litigation, etc. There are no actions, proceedings or investigations
pending (or, to the best of the Company's knowledge, any basis therefor or
threat thereof), which, either in any case or in the aggregate, might
result in any adverse change in the business, prospects, conditions,
affairs, or operations of the Company or in any of its properties or
assets, or in any impairment of the right or ability of the Company to
carry on its business as proposed to be conducted, or in any material
liability on the part of the Company, or which question the validity of
this Agreement or any action taken or to be taken in connection herewith.
(i) Governmental Consent, etc. No consent, approval, or authorization of,
or designation, declaration, or filing with, any governmental unit is
required on the part of the Company in connection with the valid execution
and delivery of this Agreement, or the offer, sale or issuance of the
Units, or the consummation of any other transaction contemplated hereby
(except exemption notice filings under the Blue Sky securities laws of
those states in which offers or sales may be made in connection with this
Offering, which filings have been or will be timely made so as to comply
with such laws).
(j) Offering. The offer, sale and issuance of the Units in conformity with
the terms of this Agreement will not violate the Securities Act.
(k) Use of Proceeds. The net proceeds from the sale of the Units shall be
used to implement the Company's voluntary reorganization/recapitalization
plan as set forth in the Private Placement Memorandum relating to the offer
and sale of the Units, dated April 1, 1997.
(l) Insurance. The Company has in full force and effect fire, casualty and
other insurance policies, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be
damaged or destroyed.
(m) Intellectual Property, etc. Neither the Company nor any of its
Subsidiaries own the rights to any trademarks, service marks, trade names,
copyrights, patents or other intellectual property other than a federally
registered service mark covering the Company's name and logo. Neither the
Company nor any Subsidiary has received any notice or claim of infringement
of any patents, inventions, rights, trademarks, trade names or copyrights
of others with respect to any
<PAGE> 169
processes, methods, formulae or procedures used by any of said corporations
in the present or planned conduct of their respective businesses.
(n) Title to and Condition of Properties. The Company and its Subsidiaries
have good and marketable title to all their respective tangible and
intangible property and assets, including those reflected in the Financial
Statements (except such property or assets as have since September 30, 1996
been sold or otherwise disposed of in the ordinary course of business), and
such property and assets are subject to no mortgage or security interests,
conditional sales contract, charge, lien or encumbrance (except for the
lien of current taxes not yet due and payable and such imperfections of
title, easements and encumbrances, if any, as are not substantial in
character, amount or extent and do not materially detract from the value
of, or interfere with the present use of the properties subject thereto or
affected thereby, or otherwise materially impair the business operations of
the Company and any Subsidiary), and subsequent to September 30, 1996
neither the Company nor any Subsidiary has sold or disposed of any of its
property and assets or obligated itself to do so except in the ordinary
course of business. Except for such minor defects as are not substantial
in character and which do not have a materially adverse effect upon the
validity thereof, all material real and personal property leases to which
the Company or the Subsidiaries are a party are in good standing, valid and
effective, and there is not under any such lease any existing material
default or event which with notice or lapse of time or both would
constitute a material default and in respect of which the Company or the
Subsidiaries have not taken reasonable steps to prevent such a default from
occurring.
(o) Taxes. The Company and the Subsidiaries represent that upon completion
of the offering of the Units they will file all tax returns that are
required to have been filed by them prior to the date of this Agreement
with appropriate federal, state, county and local governmental agencies or
instrumentalities.
(p) Disclosure. This Agreement, the exhibits hereto, the Financial
Statements, and all certificates delivered to you pursuant to this
Agreement, when read together, do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order
to make the statements contained therein or herein not misleading, it being
understood that the Private Placement Memorandum contains estimates and
projections which have been made in good faith by the Company and no
warranty of such projections is expressed or implied hereby. There is, to
the best of the Company's knowledge, no fact which materially adversely
affects the business, prospects, condition, affairs or operations of the
Company or any of its properties or assets which has not been set forth in
this Agreement, the Financial Statements or the Private Placement
Memorandum.
(q) The Units:
(i) are free and clear of any security interests, liens, claims, or
other encumbrances;
(ii) have been duly and validly authorized and issued and are, and
on the Closing Date will be, fully paid and non-assessable;
(iii)will not have been, individually and collectively, issued or
sold in violation of any preemptive or other similar rights of the holders
of any securities of the Company;
(iv)will not subject the holders thereof to personal liability by
reason of being such holders; and
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to, and agrees with, the Company as follows:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Units, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has passed on
or made any recommendation or endorsement of the Shares.
<PAGE> 170
(c) The Company has given the Purchaser the opportunity to have answered
all of the Purchaser's questions concerning the Company and its business
and has made available to the Purchaser all information requested by the
Purchaser which is reasonably necessary to verify the accuracy of other
information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
(d) The Purchaser understands that the Units are being offered and sold to
it in reliance on specific exemptions or non-application from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and understandings of the
Purchaser set forth herein in order to determine the applicability of such
exemptions or non-applications and the suitability of the Purchaser to
acquire the Units.
(e) The Purchaser is aware that the Units have not been registered under
the Securities Act by reason of their issuance in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) and Regulation D thereof, and that they must be
held by the Purchaser for an indeterminate period and the Purchaser must
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from registration. The Purchaser is aware of the provisions of Rule
144 promulgated under the Securities Act which permits limited resale of
shares purchased in a private placement subject to the satisfaction certain
conditions, including, among other things the existence of a public market
for the Units, the availability of certain current public information about
the Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being through a
"broker's transaction" or in transactions directly with a "market maker"
(as provided by Rule 144(f)) and the number of shares being sold during any
three-month period not exceeding specified limitations. The Purchaser is
also aware that, while many of the restrictions of Rule 144 do not apply to
the resale of shares by a person who owned those shares for at least three
years prior to their resale and who is not an "affiliate" (within the
meaning of Rule 144(a)) of the issuer and has not been an affiliate of the
issuer for at least three months prior to the date of resale of the
restricted securities, the Company does not warrant or represent that you
are not an affiliate as of the date of this Agreement or that you will not
be an affiliate at any relevant times in the future.
(f) Each instrument representing the Units may be endorsed with the
following legends:
(i) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT
OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
(ii) Any other legend required by California or other state
securities laws.
The Company need not register a transfer of legended Units, and may
instruct its transfer agent not to register the transfer of the Units,
unless one of the conditions specified in the foregoing legends is
satisfied.
(g) Any legend endorsed on an instrument pursuant to Section 4(f) hereof
and the stop transfer instructions with respect to such Units shall be
removed, and the Company shall issue an instrument without such legend to
the holder of such Units if such Units are registered under the Securities
Act and a prospectus meeting the requirements of Section 10 of the
Securities Act is available or if such holder provides the Company with an
opinion of counsel for such holder of the Units,
<PAGE> 171
reasonably satisfactory to the Company, to the effect that a public sale,
transfer or assignment of such Units may be made without registration.
(h) The Purchaser is either (i) acquiring the Units for the Purchaser's own
account; or (ii) for the account of another for which the Purchaser acts as
a fiduciary, in which case the Purchaser will so advise the Company. If
acting as a fiduciary, the Purchaser makes the representations, warranties,
and covenants as set forth herein on its own behalf and as agent for and on
behalf of such other party. The Purchaser is acquiring the Units for
investment and without any present intention to engage in a distribution
thereof.
(i) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(j) The Purchaser is an "Accredited Investor" as that term is defined under
Rule 501 adopted pursuant to the Securities Act. "Accredited Investors"
are defined in Rule 501 to include among others: (1) Various specified
institutional investors (such as banks, savings and loan associations,
licensed brokers or dealers, insurance companies, investment companies,
small business investment companies, employee benefit plans having assets
in excess of $5,000,000, and self-directed plans having investment
decisions made solely by persons that are Accredited Investors); (2) Any
entity with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered; (3) Any person who
had individual income in excess of $200,000 in each of the two most recent
years or joint income with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation of reaching the same
income level this year; (4) Any person whose individual net worth (or joint
net worth with the person's spouse) at the time of purchase exceeds
$1,000,000; (5) Directors and executive officers of Finet; (6) Trusts with
total assets in excess of $5,000,000 not formed for the specific purpose of
acquiring the securities offered, whose purchase is directed by a
sophisticated person prescribed in Rule 506(b)(2)(ii); and (7) Any entity
in which all the equity owners are deemed accredited.
5. Conditions Precedent to the Purchaser's Obligations. The obligations
of the Purchaser hereunder are subject to the performance by the Company of
its obligations hereunder and to the satisfaction of the following
additional conditions precedent on or before the Closing Date:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct as of
the date hereof and at the Closing Date, with the same force and effect as
if they had been made on and as of the Closing Date.
(b) After the date hereof until the Closing Date there shall not have
occurred:
(i) any change, or any development involving a prospective
change, in either (A) the condition, financial or otherwise, or in the
earnings, business or operations, or in or affecting the properties of the
Company or (B) the financial or market conditions or circumstances in the
United States, in either case which, in the Purchaser's judgment, is
material and adverse and makes it impractical or inadvisable to proceed
with the offering, sale, or delivery of the Units;
(ii)an imposition of a new legal or regulatory restriction not in
effect on the date hereof, or any change in the interpretation of existing
legal or regulatory restrictions, that materially and adversely affects the
offering, sale, or delivery of the Units; or
(iii)a suspension, or material limitation of, trading (A)
generally on or by the New York Stock Exchange or NASDAQ, or (B) of any
securities of the Company on any exchange or in any over-the-counter
market.
6. Conditions Precedent to the Company's Obligations. The obligations of
the Company hereunder are subject to the performance by the Purchaser of
its obligations hereunder and to the satisfaction of the following
additional condition precedent:
<PAGE> 172
The representations and warranties made by the Purchaser in this Agreement
shall, unless waived by the Company, be true and correct at the Closing
Date, with the same force and effect as if they had been made on, and as
of, the Closing Date.
7. Registration Rights
(a) Request for Registration. In case the Company shall receive from the
Purchaser a written request that the Company effect any registration,
qualification, or compliance with respect to all or a part of the Common
Stock sold pursuant to the Offering and/or the shares of Common Stock
issuable upon the exercise of the Warrants (collectively, the "Shares"),
the Company will: (i) as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications and compliances
(including, without limitations, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable
blue sky or other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of all of the Purchaser's Shares as are specified in such request, together
with all or such portion of the Shares of any Holder or Holders joining in
such request as are specified in a written request given within thirty days
after receipt of such written notice from the Company; provided that the
Company shall not be obligated to take any action to effect such
registration, qualification or compliance pursuant to this clause (i): (A)
After the Company has effected one such registration pursuant to this
subparagraph (i) and such registration has been declared or ordered
effective; or (B) If the amount of securities being offered for sale is
less than 25 percent of the Shares.
Subject to the foregoing clauses (A) through (B), the Company shall
file a registration statement covering the Shares so requested to be
registered as soon as practical, but in any event within ninety days, after
receipt of the request or requests of the Purchaser; provided, however,
that if the Company shall furnish to the Purchaser a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not
more than ninety days within which to file such registration statement.
(b) In any event, the Company shall use its best efforts to cause such
registration statement to become effective within 150 days of the date of
request for registration by the Purchaser pursuant to this Agreement, and
to keep such registration statement effective for up to three years.
(c) Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 7(a),
including without limitation, all registration, filing, and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
and expenses of any special audits incidental to or required by such
registration, shall be borne by the Company.
(d) Company Registration.
Definitions.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act of 1933
(the "Securities Act").
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance
with the Securities Act of 1933, and the declaration or ordering of the
effectiveness of such registration statement.
<PAGE> 173
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with the provisions of this Section 7, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees and
expenses, and the expenses of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees
of the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Shares and all fees and disbursements
of counsel to Purchaser.
"Shares" means the Common Stock sold pursuant to the Offering and/or
the shares of Common Stock issuable upon exercise of the Warrants, and any
Common Stock issued with respect thereto (e.g. upon a stock split or stock
dividend).
"Purchaser" means the person set forth above and any permitted
assignee.
(i) Notice of Registration. If, at any time after May 1, 1997,
the Company shall determine to register any of its securities either for
its own account or the account of a security holder or holders exercising
their respective demand registration rights,
(ii) other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Commission Rule 145
transaction, or a registration on any registration form which does not
permit secondary sales, the Company will:
a) promptly give to Purchaser written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other
state securities laws); and
b) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Shares specified in a written
request or requests, made by Purchaser within fifteen (15) days after
receipt of the written notice from the Company described in this clause
(i), except as set forth in Section 7(d)(ii) below.
(iii) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting:
the Company shall so advise Purchaser as part of the written notice given
pursuant to Section 7(d) hereof. In such event, the right of Purchaser to
registration pursuant to this Section 7(d) shall be conditioned upon
Purchaser's participation in such underwriting and the inclusion of
Purchaser's Shares in the underwriting to the extent provided herein.
Purchaser shall (together with the Company, its directors and officers, and
any other shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 7, if the
underwriter determines that marketing factors require a limitation on the
number of shares to be underwritten, the underwriter may exclude from such
registration and underwriting some or all of the Shares which would
otherwise be underwritten pursuant hereto. Any securities so excluded
shall be apportioned pro rata among Purchaser and any other shareholders
distributing their securities through such underwriting according to the
total amount of securities otherwise entitled to be included therein owned
by such shareholders or in such other proportions as shall mutually be
agreed upon.
If Purchaser disapproves of the terms of any such underwriting,
it may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Shares excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
<PAGE> 174
The Company shall bear all Registration Expenses incurred in
connection with any registration, qualification and compliance by the
Company pursuant to this Section 7(d). All Selling Expenses shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of their shares so registered.
(iv) Registration Procedures. In the case of registration
effected by the Company pursuant to this Agreement, the Company will keep
Purchaser advised in writing as to the initiation of registration and as to
the completion thereof. At its expense, the Company will:
a) keep such registration effective for a period of three
years or until Purchaser has completed the distribution described in the
registration statement relating thereto, whichever first occurs;
b) furnish such number of prospectuses and other documents
incident thereto as Purchaser from time to time may reasonably request; and
c) use its best efforts to register or qualify the Shares
under the securities or blue sky laws of such jurisdictions as Purchaser
may request; provided, however, that the Company shall not be obligated to
register or qualify such Shares in any particular jurisdiction in which the
Company would be required to execute a general consent to service of
process in order to effect such registration, qualification, or compliance,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act or applicable rules or
regulations thereunder.
d) Notify the holder of Shares covered by such registration
statement at any time when a prospectus relating thereto is required to be
delivered under the Act of the happening of any event as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(e) Indemnification.
(i) The Company will indemnify and hold harmless the Purchaser
with respect to such registration, qualification, or compliance effected
pursuant to this paragraph, and each placement agent, if any, and each
person who controls any placement agent of the Shares held by or issuable
to the Purchaser, against all claims, losses, damages, and liabilities (or
actions in respect thereto), joint or several, to which they may become
subject under the Act or otherwise, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse the Purchaser, each such
placement agent and each person who controls any such placement agent, for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage or liability arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by an instrument duly executed by the Purchaser or
placement agent specifically for use therein.
(ii) The Purchaser will, if Shares held by or issuable to the
Purchaser are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify and hold harmless
the Company, each of its directors and officers who sign such registration
statement, each underwriter or placement agent, if any, of the Company's
securities covered by such a registration statement, and each person who
controls the Company within the meaning of the Securities Act, against all
claims, losses, damages, and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration
<PAGE> 175
statement, prospectus, offering circular, or other document, or any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and the Purchaser will reimburse the Company, such directors,
officers, persons, or placement agents for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in reliance
upon and in conformity with written information furnished to the Company by
an instrument duly executed by the Purchaser specifically for use therein.
(iii)Each party entitled to indemnification under this
paragraph (d) (the Indemnified Party) shall give notice to the party
required to provide indemnification (the Indemnifying Party) promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this paragraph. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
(f) Transfer of Registration Rights. The rights to cause the Company to
register the securities granted to the Purchaser by the Company under
Section 8 may be assigned by the Purchaser to a transferee or assignee of
any of the Purchaser's Shares, provided, that the Company is given written
notice by the Purchaser at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration
rights are being assigned.
8. Fees and Expenses. Other than as stated in this Agreement, the
Purchaser and the Company agrees to pay their own expenses incident to the
performance of its obligations hereunder.
9. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and the Purchaser, respectively,
pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of the other party to
this Agreement or any officer, director, or employee of, or person
controlling or under common control with, such party, and will survive
delivery of any payment of the Units.
10. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it is
not necessary that signature of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same
agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors and, with respect to Section 9
hereof, the officers, directors, and controlling persons thereof and each
person under common control therewith, and no other person shall have any
right or obligation hereunder.
<PAGE> 176
(c) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
(d) The headings of the sections of this document have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By:
President
PURCHASER:
By:
_____________________________________
Name of Purchaser [type or print]
[For Institutional, Corporate, Partnership, and Other Non-Individual
Purchasers:]
_____________________________________
_____________________________________
Name of Person Signing [type or print]
Title: ________________________________
[type or print ]
Amount of Investment: $
Units Purchased:
<PAGE> 177
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS ("STATE SECURITIES LAWS"),
AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL IS OBTAINED STATING
THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM
SUCH REGISTRATION.
Expires at 5:00p.m. Eastern Time on April 28, 2000
FINET HOLDINGS CORPORATION
WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
No. W-97 -xxa xx,000 Warrants
FOR VALUE RECEIVED, FINET HOLDINGS CORPORATION, a Delaware corporation (the
"Company"), hereby certifies that:
or his/her assigns (the "Holder"), is entitled, subject to the provisions
of this Warrant, to purchase from the Company, up to 5,000 fully
paid and non-assessable shares of Common Stock.. The purchase price of one
share of Common Stock (the "Exercise Price") shall be the following:
$1.50 until 5:00p.m. Eastern Time on April 30, 1998
$2.50 until 5:00p.m. Eastern Time on April 30, 1999
$3.50 until 5:00p.m. Eastern Time on April 28, 2000
The term "Common Stock" means the Common Stock, par value $.01 per share,
of the Company as constituted as of March 25, 1997 (the "Issue Date"). The
shares of Common Stock to be received upon the exercise of this Warrant are
hereinafter referred to as "Warrant Stock." The term "Company" means and
includes the corporation named above as well as (i) any immediate or more
remote successor corporation resulting from the merger or consolidation of
such corporation (or any immediate or more remote successor corporation of
such corporation (or any immediate or more remote successor corporation of
such corporation) to which it has transferred its property or assets as an
entirety or substantially as an entirety.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver a new Warrant of like
tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not his Warrant so lost, stolen, destroyed or mutilated shall be
at any time enforceable by anyone.
The Holder agrees with the Company that this Warrant is issued, and all the
rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.
<PAGE> 178
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part at any time,
or from time to time, during the period commencing on the date hereof and
expiring at 5:00 p.m. Eastern Time on April 28, 2000 (the "Expiration
Date"), by presentation and surrender of this Warrant to the Company at its
principal office with the Warrant Exercise Form attached hereto duly
executed and accompanied by payments (either in cash or by certified or
official bank check, payable to order of the Company) of the Exercise Price
for the number of shares specified in such form and instruments of
transfer, if appropriate, duly executed by the Holder or his or her duly
authorized attorney. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder. Upon receipt by
the Company of this Warrant, together with the Exercise Price, at its
office in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the transfer books of the Company shall then be closed
or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder. The Company shall pay any and
all documentary stamp or similar issue or transfer taxes payable in respect
of the issue or delivery of shares of Common Stock on exercise of this
Warrant.
(b) The Holder hereby acknowledges that neither this Warrant nor any of
the securities that may be acquired upon exercise of this Warrant,
including the Warrant Stock and the Other Securities, have been registered
under the Securities Act or under the State Securities Laws. The Holder
acknowledges that, upon exercise of this Warrant, the securities to be
issued upon such exercise may be subject to applicable federal and state
securities (or other) laws requiring registration, qualification or
approval of governmental authorities before such securities may be validly
issued or delivered upon notice of such exercise. The Company's sole
obligation to any Holder upon exercise hereof shall be to use its best
efforts to obtain exemptions from registration or qualification for the
issuance of such securities under applicable state and federal securities
laws, and the Holder further agrees that the issuance of such securities
shall be deferred until such exemption shall have been obtained; and it is
further agreed that the Company shall have no other obligation to the
Holder for the non-issuance of such securities except to return the Warrant
so rendered and to refund the Holder any consideration tendered in respect
to the Exercise Price. With respect to any such securities, this Warrant
may not be exercised by, and securities shall not be issued, to any Holder
in any state in which such exercise would be unlawful. Any restrictions
imposed by this section upon the exercise of this Warrant shall cease and
terminate as to any particular shares of Common Stock (a) when such
securities shall have been registered under the Securities Act and all
applicable State Securities Laws, or (b) when, in the opinion of Counsel to
the Company, such restrictions are no longer required in order to ensure
compliance with the Securities Act or any applicable State Securities Laws.
2. Reservation of Shares. The Company shall at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common
Stock from time to time receivable upon exercise of this Warrant. All such
shares (and Other Securities) shall be duly authorized and, when issued
upon such exercise, shall be validly issued, fully paid and non-assessable
and free of all preemptive rights.
3. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant, but
the Company shall pay the Holder an amount equal to the fair market value
of such fractional share of Common Stock in lieu of each fraction of a
share otherwise called for upon any exercise of this Warrant. For purposes
of this Warrant, the fair market value of a share of Common Stock shall be
determined as follows:
(a) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for
trading on the NASDAQ system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the
last business day prior to the date of exercise of this Warrant, or if no
such sale is made on such day, the average of the closing bid and asked
prices for such day on such exchange or system; or
<PAGE> 179
(b) If the Common Stock is not listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value thereof
as at the end of the most recent fiscal year of the Company ending prior to
the date of the exercise of the Warrant, determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
4. Exchange, Transfer. Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of
different denominations, entitling the Holder or Holders thereof to
purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. Upon surrender of this Warrant to the Company at its
principal office with the Assignment form annexed hereto duly executed and
funds sufficient to pay any transfer tax, the Company shall, without
charge, execute and deliver a new Warrant in the name of the assignee named
in such instrument of assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation hereof at the office of the Company
together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
6. Redemption. The Company shall have the right, upon the giving of at
least 30 days' prior written notice to the Holders of all the Warrants, to
redeem all of the Warrants at a price of $.05 per Warrant (the "Redemption
Price") commencing one year from the Issue Date, provided that the average
closing bid price per share of the Common Stock in the over-the-counter
market as reported on the American Stock Exchange Emerging Company
Marketplace (or the average closing sales price on the primary exchange or
NASDAQ on which the Common Stock is traded, if the Common Stock is traded
on a national securities exchange or NASDAQ) for 20 consecutive trading
days, ending not more than 15 calendar days prior to the date of the
redemption notice, equals or exceeds at least 200% of the then effective
exercise price of the Warrants. All Warrants issued on this date must be
redeemed if any are redeemed. Such notices of redemption shall (a)
designate the date of redemption which date shall not be less than 30 or
more than 60 days from the date of such notice, (b) state the Redemption
Price and that payment therefor will be made upon surrender of the Warrant
at the offices of the Company and (c) indicate that the right to exercise
the Warrant will terminate at the close of business on the business day
prior to the redemption date. If the giving of notice of redemption shall
be given as aforesaid, the right to exercise the Warrant will terminate at
the close of business on the business day prior to the redemption date, and
the Holder of this Warrant shall thereafter be entitled upon surrender of
this Warrant only to receive the Redemption Price without interest.
7. Transfers to Comply with the Securities Act. The Company shall be
under no obligation to transfer this Warrant, or any of the Common Stock
issued upon exercise of this Warrant, unless and until the Company shall
have received an opinion of counsel, reasonably acceptable to the Company,
that such transfer does not require registration of any such securities
under the Securities Act or any applicable state securities laws. This
Warrant and any Warrant Stock or Other Securities may not be sold,
transferred, pledged, hypothecated or otherwise disposed of except as
follows: (a) to a person who, in the opinion of counsel to the Company, is
a person to whom this Warrant or the Warrant Stock or Other Securities may
legally be transferred without the delivery of a current prospectus under
the Securities Act with respect thereto and then only against receipt of an
agreement of such person to comply with the provisions of this Section 7
with respect to any resale or other disposition of such securities; or (b)
to any person upon delivery of a prospectus then meeting the requirements
of the Securities Act relating to such securities and the offering thereof
for such sale or disposition, and thereafter to all successive assignees.
<PAGE> 180
8. Legend. Unless the shares of Warrant Stock or Other Securities have
been registered under the Securities Act, upon exercise of any of the
Warrants and the issuance of any of the shares of Warrant Stock, all
certificates representing shares shall bear on the face thereof
substantially the following legend:
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS ("STATE LAWS"), AND MAY NOT
BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF,
UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT
SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
9. Supplements and Amendments. The Company may from time to time
supplement or amend this Warrant Certificate without the approval of any
Holder of Warrant Certificate in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company may deem
necessary or desirable and which the Company shall not adversely affect the
interests of the Holders of Warrant Certificates.
10. Notices. All notices required hereunder shall be in writing and
shall be deemed given when telegraphed, delivered personally or within two
days after mailing when by certified or registered mail, return receipt
requested, addressed to the Company at the address set forth below or
addressed to the Holder at the address set forth on the first page, as the
case may be, or at such other address of which the Company or the Holder
has been advised by notice hereunder.
Company: Finet Holdings Corporation
3021 Citrus Circle, Suite 150
Walnut Creek, CA 94598
Attention: Jan Hoeffel, President
11. Applicable Law. The Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the
State of Delaware.
12. Captions. The caption headings of the Sections of this Warrant
Certificate are for convenience of reference only and are not intended, nor
should they be construed as, a part of this Warrant Certificate and shall
be given no substantive effect.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf, in its corporate name, by its duly authorized officer, all as of
the day and year first above written.
FINET HOLDINGS CORPORATION
By: ________________________
President
ATTEST:
By: ________________________
<PAGE> 181
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing _________ shares of Common Stock of Finet Holdings
Corporation, a Delaware corporation, and hereby makes payment of $
________________________ in payment therefor.
INSTRUCTIONS FOR ISSUANCE OF STOCK
(if other than to the registered holder of the within Warrant)
(f) Name
_______________________________________________________________________
(Please typewrite or print in block letters)
(g)
Address____________________________________________________________________
__
___________________________________________________________________________
__
Social Security or
Taxpayer Identification Number
__________________________________________________
and if such number of Warrants shall not be all Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Holder at the
address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING PAGE
<PAGE> 182
1. The exercise of this Warrant was not solicited unless the following box
is checked. [ ]
2. The exercise of this Warrant was solicited by
_______________________________________________________________________
Dated:_________________, 199__
_____________________________ _____________________________
Signature, if jointly held Signature
_____________________________ _____________________________
Print Name Print Name
_____________________________ _____________________________
_____________________________ _____________________________
Address Address
_____________________________ _____________________________
Social Security Number Social Security Number or
Taxpayer Identification Number Taxpayer Identification Number
_____________________________ _____________________________
Signature Guaranteed Signature Guaranteed
_____________________________ _____________________________
<PAGE> 183
ASSIGNMENT FORM
FOR VALUE RECEIVED,_______________________________________________________
hereby sells, assigns and transfers unto
Name_______________________________________________________________________
_
(Please typewrite or print in block letters)
the right to purchase Common Stock of Finet Holdings Corporation, a
Delaware corporation, represented by this Warrant to the extent of shares
as to which such right is exercisable and does hereby irrevocably
constitute and appoint____________________________________________
Attorney, to transfer the same on the books of the Company with full power
of substitution in the premises.
Dated:______________, 199__
__________________________
Signature
__________________________
Signature, if jointly held
__________________________
Print Name
__________________________
Print Name
<PAGE> 184
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of October 31, 1997 between FINET
HOLDINGS CORPORATION, a Delaware corporation (the "Company"), and JOSE
MARIA SALEMA GARCAO (the "Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of the Units. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase, and the Company agrees to
sell and issue to the Purchaser, 150,000 Units (the "Units"), each Unit
consisting of one share of the Company's Common (the "Common Stock") at a
purchase price of $3 per share and a warrant to purchase one share of the
Company's Common Stock at an exercise price of $5 per share (the
"Warrants"), for an aggregate purchase price of $450,000. The form of
Warrants is attached hereto as Exhibit A.
2. Closing Date: Delivery. The purchase and sale of the Units shall be
held at the offices of the Company, 3021 Citrus Circle, Suite 150, Walnut
Creek, California 94595 on October 31, 1997 or at such other time and place
as the parties may agree upon. At the closing, subject to the terms of
this Agreement, the Company will deliver to the Purchaser the Warrants and
certificates representing the shares of Common Stock to be purchased by the
Purchaser from the Company, against payment at the closing of the cash
purchase price in immediately available funds.
3. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Purchaser that:
(a) Organization and Standing; Articles and Bylaws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws
of the state of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties
and assets, and to carry on it business as presently conducted and as
proposed to be conducted. The Company is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where the nature
of its activities or of its properties owned or leased makes such
qualification, licensing or domestication necessary at this time.
(b) Corporate Power. The Company has now, or will have at the Closing
Date, all requisite legal and corporate power to enter into this Agreement,
to sell the Units hereunder, and to carry out and perform its obligations
under the terms of this Agreement.
(c) Authorization.
(i) All corporate action on the part of the Company, its officers,
directors, and stockholders necessary for the sale and issuance of the
Units pursuant hereto and the performance of the Company's obligations
hereunder, has been taken or will be taken prior to the Closing. This
Agreement is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws of general application affecting enforcement of creditors' rights, and
except as limited by application of legal principles affecting the
availability of equitable remedies.
(ii) The Units, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that such Units
may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein, and as may be required by future
changes in such laws.
(iii) No shareholder of the Company has any right of first refusal or any
preemptive rights in connection with the issuance of the Units or of Common
Stock by the Company.
(d) Compliance with Other Instruments, None Burdensome, etc. Neither the
Company nor any subsidiary of the Company (collectively, the
"Subsidiaries") is in violation of any term of its respective Articles of
Incorporation or Bylaws, or in any material respect of any mortgage,
indenture, contract, agreement, instrument, or, to the best knowledge of
the Company, any judgment, decree, order, statute, rule, or regulation
applicable to it. The
<PAGE> 185
execution, delivery, and performance by the Company of this Agreement, and
the issuance and sale of the Units pursuant hereto, will not result in any
such violation or be in conflict with or constitute a default under any
such term, or cause the acceleration of maturity of any loan or material
obligation to which the Company or the Subsidiaries are a party or by which
any of them are bound or with respect to which any of them is an obligor or
guarantor, or result in the creation or imposition of any material lien,
claim, charge, restriction, equity or encumbrance of any kind whatsoever
upon, or, to the best knowledge of the Company after due inquiry, give to
any other person any interest or right (including any right of termination
or cancellation) in or with respect to any of the material properties,
assets, business or agreements of the Company or the Subsidiaries. To the
best knowledge of the Company after due inquiry, no such term or condition
materially adversely affects or in the future (so far as can reasonably be
foreseen by the Company at the date of this Agreement) may materially
adversely affect the business, property, prospects, condition, affairs, or
operations of the Company and the Subsidiary.
(e) Litigation, etc. There are no actions, proceedings or investigations
pending (or, to the best of the Company's knowledge, any basis therefor or
threat thereof), which, either in any case or in the aggregate, might
result in any adverse change in the business, prospects, conditions,
affairs, or operations of the Company or in any of its properties or
assets, or in any impairment of the right or ability of the Company to
carry on its business as proposed to be conducted, or in any material
liability on the part of the Company, or which question the validity of
this Agreement or any action taken or to be taken in connection herewith.
(f) Governmental Consent, etc. No consent, approval, or authorization of,
or designation, declaration, or filing with, any governmental unit is
required on the part of the Company in connection with the valid execution
and delivery of this Agreement, or the offer, sale or issuance of the
Units, or the consummation of any other transaction contemplated hereby.
(g) Offering. The offer, sale and issuance of the Units in conformity with
the terms of this Agreement will not violate the Securities Act.
(h) The Units:
(i) are free and clear of any security interests, liens, claims, or other
encumbrances;
(ii) have been duly and validly authorized and issued and are, and on
the Closing Date will be, fully paid and non-assessable;
(iii) will not have been, individually and collectively, issued or sold
in violation of any pre-emptive or other similar rights of the holders of
any securities of the Company;
(iv) will not subject the holders thereof to personal liability by
reason of being such holders; and
4. Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to, and agrees with, the Company as follows:
(a) No consent, approval, authorization, or order of any court,
governmental agency or body, or arbitrator having jurisdiction over the
Purchaser is required for execution of this Agreement, including, without
limitation, the purchase of the Units, or the performance of the
Purchaser's obligations hereunder.
(b) The Purchaser understands that no federal or state agency has passed on
or made any recommendation or endorsement of the Units.
(c) The Company has given the Purchaser the opportunity to have answered
all of the Purchaser's questions concerning the Company and its business
and has made available to the Purchaser all information requested by the
Purchaser which is reasonably necessary to verify the accuracy of other
information furnished by the Company. The Purchaser has received and
evaluated all information about the Company and its business which the
Purchaser deems necessary to formulate an investment decision, and does not
desire any further information.
(d) The Purchaser understands that the Units are being offered and sold to
it in reliance on specific exemptions or non-application from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments, and
<PAGE> 186
understandings of the Purchaser set forth herein in order to determine the
applicability of such exemptions or non-applications and the suitability of
the Purchaser to acquire the Units.
(e) The Purchaser is aware that the Units have not been registered under
the Securities Act by reason of their issuance in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) and Regulation D thereof, and that they must be
held by the Purchaser for an indeterminate period and the Purchaser must
therefore bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from registration. The Purchaser is aware of the provisions of Rule
144 promulgated under the Securities Act which permits limited resale of
Units purchased in a private placement subject to the satisfaction certain
conditions, including, among other things the existence of a public market
for the Units, the availability of certain current public information about
the Company, the resale occurring not less than two years after a party has
purchased and paid for the security to be sold, the sale being through a
"broker's transaction" or in transactions directly with a "market maker"
(as provided by Rule 144(f)) and the number of Units being sold during any
three-month period not exceeding specified limitations. The Purchaser is
also aware that, while many of the restrictions of Rule 144 do not apply to
the resale of Units by a person who owned those Units for at least two
years prior to their resale and who is not an "affiliate" (within the
meaning of Rule 144(a)) of the issuer and has not been an affiliate of the
issuer for at least three months prior to the date of resale of the
restricted securities, the Company does not warrant or represent that you
are not an affiliate as of the date of this Agreement or that you will not
be an affiliate at any relevant times in the future.
(f) Each instrument representing the Units may be endorsed with the
following legends:
(i) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT
OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT.
(ii) Any other legend required by California or other state securities
laws.
The Company need not register a transfer of legended Units, and may
instruct its transfer agent not to register the transfer of the Common
Stock, unless one of the conditions specified in the foregoing legends is
satisfied.
(g) Any legend endorsed on an instrument pursuant to Section 4(f) hereof
and the stop transfer instructions with respect to such Units shall be
removed, and the Company shall issue an instrument without such legend to
the holder of such Units if such Units are registered under the Securities
Act and a prospectus meeting the requirements of Section 10 of the
Securities Act is available or if such holder provides the Company with an
opinion of counsel for such holder of the Units, reasonably satisfactory to
the Company, to the effect that a public sale, transfer or assignment of
such Units may be made without registration.
(h) The Purchaser is either
(i) acquiring the Units for the Purchaser's own account; or
(ii) for the account of another for which the Purchaser acts as a
fiduciary, in which case the Purchaser will so advise the Company. If
acting as a fiduciary, the Purchaser makes the representations, warranties,
and
<PAGE> 187
covenants as set forth herein on its own behalf and as agent for and on
behalf of such other party. The Purchaser is acquiring the Units for
investment and without any present intention to engage in a distribution
thereof.
(i) The Purchaser has the knowledge and experience in financial and
business matters to evaluate the merits and risks of the proposed
investment.
(j) The Purchaser is an "Accredited Investor" as that term is defined under
Rule 501 adopted pursuant to the Securities Act. "Accredited Investors"
are defined in Rule 501 to include among others: (1) Various specified
institutional investors (such as banks, savings and loan associations,
licensed brokers or dealers, insurance companies, investment companies,
small business investment companies, employee benefit plans having assets
in excess of $5,000,000, and self-directed plans having investment
decisions made solely by persons that are Accredited Investors); (2) Any
entity with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered; (3) Any person who
had individual income in excess of $200,000 in each of the two most recent
years or joint income with that person's spouse in excess of $300,000 in
each of those years and has a reasonable expectation of reaching the same
income level this year; (4) Any person whose individual net worth (or joint
net worth with the person's spouse) at the time of purchase exceeds
$1,000,000; (5) Directors and executive officers of Finet; (6) Trusts with
total assets in excess of $5,000,000 not formed for the specific purpose of
acquiring the securities offered, whose purchase is directed by a
sophisticated person prescribed in Rule 506(b)(2)(ii); and (7) Any entity
in which all the equity owners are deemed accredited.
5. Conditions Precedent to the Purchaser's Obligations. The obligations
of the Purchaser hereunder are subject to the performance by the Company of
its obligations hereunder and to the satisfaction of the following
additional conditions precedent on or before each Closing:
(a) The representations and warranties made by the Company in this
Agreement shall, unless waived by the Purchaser, be true and correct as of
the date hereof and at the Closing Date, with the same force and effect as
if they had been made on and as of the Closing Date.
(b) After the date hereof until each Closing there shall not have occurred:
(i) any change, or any development involving a prospective change, in
either (A) the condition, financial or otherwise, or in the earnings,
business or operations, or in or affecting the properties of the Company or
(B) the financial or market conditions or circumstances in the United
States, in either case which, in the Purchaser's judgment, is material and
adverse and makes it impractical or inadvisable to proceed with the
offering, sale, or delivery of the Units;
(ii) an imposition of a new legal or regulatory restriction not in
effect on the date hereof, or any change in the interpretation of existing
legal or regulatory restrictions, that materially and adversely affects the
offering, sale, or delivery of the Units; or
(iii) a suspension, or material limitation of, trading (A) generally on
or by the New York Stock Exchange or NASDAQ, or (B) of any securities of
the Company on any exchange or in any over-the-counter market.
6. Conditions Precedent to the Company's Obligations. The obligations of
the Company hereunder are subject to the performance by the Purchaser of
its obligations hereunder and to the satisfaction of the following
additional condition precedent:
<PAGE> 188
The representations and warranties made by the Purchaser in this Agreement
shall, unless waived by the Company, be true and correct at the Closing
Date, with the same force and effect as if they had been made on, and as
of, each Closing .
7. Registration Rights
(a) Company Registration.
Definitions.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of
1933 (the "Securities Act").
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, and the declaration or ordering
of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in compliance with the provisions of this Section 7, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, blue sky fees and
expenses, and the expenses of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees
of the Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Shares and all fees and
disbursements of counsel to Purchaser.
"Shares" means the Common Stock sold hereunder and any Common
Stock issued with respect thereto (e.g. upon a stock split or stock
dividend).
"Purchaser" means the Purchaser set forth above and any
permitted assignee.
(i) Notice of Registration. If, at any time after January 1, 1998, the
Company shall determine to register any of its securities either for its
own account or the account of a security holder or holders exercising their
respective demand registration rights, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
Commission Rule 145 transaction, or a registration on any registration form
which does not permit secondary sales, the Company will:
a) promptly give to Purchaser written notice thereof (which shall include
a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other state
securities laws); and
b) include in such registration (and any related qualification under blue
sky laws or other compliance), and in any underwriting involved therein,
all the Shares specified in a written request or requests, made by
Purchaser within fifteen (15) days after receipt of the written notice from
the Company described in this clause (i), except as set forth in
Section 7(d)(ii) below.
(ii) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting: the
Company shall so advise Purchaser as part of the written notice given
pursuant to Section 7(d) hereof. In such event, the right of Purchaser to
registration pursuant to this Section 7(d) shall be
<PAGE> 189
conditioned upon Purchaser's participation in such underwriting and the
inclusion of Purchaser's Shares in the underwriting to the extent provided
herein. Purchaser shall (together with the Company, its directors and
officers, and any other shareholders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for underwriting by the
Company.
Notwithstanding any other provision of this Section 7, if the
underwriter determines that marketing factors require a limitation on the
number of Shares to be underwritten, the underwriter may exclude from such
registration and underwriting some or all of the Shares which would
otherwise be underwritten pursuant hereto. Any securities so excluded
shall be apportioned pro rata among Purchaser and any other shareholders
distributing their securities through such underwriting according to the
total amount of securities otherwise entitled to be included therein owned
by such shareholders or in such other proportions as shall mutually be
agreed upon.
If Purchaser disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Shares excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
The Company shall bear all Registration Expenses incurred in connection
with any registration, qualification and compliance by the Company pursuant
to this Section 7(d). All Selling Expenses shall be borne by the holders
of the securities so registered pro rata on the basis of the number of
their shares so registered.
(iii) Registration Procedures. In the case of registration effected by
the Company pursuant to this Agreement, the Company will keep Purchaser
advised in writing as to the initiation of registration and as to the
completion thereof. At its expense, the Company will:
a) keep such registration effective for a period of three years or until
Purchaser has completed the distribution described in the registration
statement relating thereto, whichever first occurs;
b) furnish such number of prospectuses and other documents incident
thereto as Purchaser from time to time may reasonably request; and
c) use its best efforts to register or qualify the Shares under the
securities or blue sky laws of such jurisdictions as Purchaser may request;
provided, however, that the Company shall not be obligated to register or
qualify such Shares in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
order to effect such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act or applicable rules or regulations
thereunder.
d) Notify the holder of Shares covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered
under the Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(b) Indemnification.
(i) The Company will indemnify and hold harmless the Purchaser with respect
to such registration, qualification, or compliance effected pursuant to
this paragraph, and each placement agent, if any, and each person who
controls any placement agent of the Shares held by or issuable to the
Purchaser, against all claims, losses, damages, and liabilities (or actions
in respect thereto), joint or several, to which they may become subject
under the Act
<PAGE> 190
or otherwise, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification,
or compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and
will reimburse the Purchaser, each such placement agent and each person who
controls any such placement agent, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by the Purchaser or placement agent specifically
for use therein.
(ii) The Purchaser will, if Shares held by or issuable to the Purchaser
are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify and hold harmless
the Company, each of its directors and officers who sign such registration
statement, each underwriter or placement agent, if any, of the Company's
securities covered by such a registration statement, and each person who
controls the Company within the meaning of the Securities Act, against all
claims, losses, damages, and liabilities (or actions in respect thereto)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Purchaser will reimburse the Company, such directors, officers, persons, or
placement agents for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular, or other document in reliance upon and in conformity
with written information furnished to the Company by an instrument duly
executed by the Purchaser specifically for use therein.
(iii) Each party entitled to indemnification under this paragraph (d)
(the Indemnified Party) shall give notice to the party required to provide
indemnification (the Indemnifying Party) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
paragraph. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(c) Transfer of Registration Rights. The rights to cause the Company to
register the securities granted to the Purchaser by the Company under
Section 7 may be assigned by the Purchaser to a transferee or assignee of
any of the Purchaser's Shares, provided, that the Company is given written
notice by the Purchaser at the time of or within a reasonable time after
said transfer, stating the name and address of said transferee or assignee
and identifying the securities with respect to which such registration
rights are being assigned.
8. Fees and Expenses. The Company agrees to pay the reasonable fees,
expenses and disbursements of Purchaser's counsel incurred with respect to
this Agreement and the transactions contemplated hereby.
<PAGE> 191
9. Survival of the Representations, Warranties, etc. The respective
agreements, representations, warranties, indemnities, and other statements
made by or on behalf of the Company and the Purchaser, respectively,
pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation made by or on behalf of the other party to
this Agreement or any officer, director, or employee of, or person
controlling or under common control with, such party, and will survive
delivery of any payment of the Shares.
10. Miscellaneous.
(a) This Agreement may be executed in one or more counterparts and it is
not necessary that signature of all parties appear on the same counterpart,
but such counterparts together shall constitute but one and the same
agreement.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successors and, with respect to Section 7
hereof, the officers, directors, and controlling persons thereof and each
person under common control therewith, and no other person shall have any
right or obligation hereunder.
(c) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
(d) The headings of the sections of this document have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
IN WITNESS HEREOF, the parties hereto have duly executed and delivered this
Agreement, all as of the day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By:
President
PURCHASER:
By:
Amount of Investment:
Units Purchased
<PAGE> 192
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY (i) IN A
REGISTRATION UNDER SAID ACT OR (ii) IF AN EXEMPTION FROM REGISTRATION UNDER
SAID ACT IS AVAILABLE AND THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO
THAT EFFECT REASONABLY SATISFACTORY TO IT.
FINET HOLDINGS CORPORATION
COMMON STOCK PURCHASE WARRANT
This Warrant Expires October 31, 2002
Warrant No. 97-xx Shares:xx
THIS CERTIFIES that, subject to the terms and conditions herein set
forth, xx (the "Holder") is entitled to purchase from Finet Holdings
Corporation, a Delaware corporation (the "Company"), at any time or from
time to time during the Exercise Period (as hereinafter defined) the number
of fully paid and non-assessable shares of Common Stock of the Company (the
"Shares") as provided herein upon surrender hereof at the principal office
of the Company, and, at the election of the holder hereof, upon payment of
the purchase price at said office in cash or by cashier's check or by the
wire transfer of funds in a dollar amount equal to the purchase price of
the Shares for which the consideration is being given.
This Warrant shall be exercisable for that number of Shares as set
forth above.
1. Purchase Price. Subject to adjustment as hereinafter provided, the
purchase price of one share of Common Stock (or such securities as may be
substituted for one share of Common Stock pursuant to the provisions
hereinafter set forth) (the "Warrant Price") shall be Five Dollars ($5).
2. Adjustment of Warrant Price and Number of Shares. In addition to
the adjustment provided for in Section 1 above, the number and kind of
securities issuable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as
follows:
(a) Adjustment for Dividends in Stock. In case at any time or from
time to time on or after the date hereof the holders of the Common Stock of
the Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received, or, on
or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment
therefor, other or additional stock of the Company by way of dividend
(other than as provided for in Paragraph 2(b) below), then and in each such
case, the holder of this Warrant shall, upon the exercise hereof, be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of such other or additional stock of the Company which
such holder would hold on the date of such exercise had it been the holder
of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock receivable
by it as aforesaid during such period, given effect to all adjustments
called for during such period by this Paragraph 2.
(b) Adjustment for Changes in Common Stock. In the event of
changes in the outstanding Common Stock of the Company by reason of split-
ups, recapitalizations, reclassifications, mergers, consolidations,
combinations or exchanges of shares, separations, reorganizations,
liquidations, or the like, the number and class of shares available under
the
<PAGE> 193
Warrant in the aggregate and the Warrant Price shall be correspondingly
adjusted by the Board of Directors of the Company. The adjustment shall be
such as will give the holder of the Warrant on exercise for the same
aggregate Warrant Price the total number, class, and kind of shares as he
would have owned had the Warrant been exercised prior to the event and had
he continued to hold such shares until after the event requiring
adjustment.
3. No Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any subscription hereunder. In lieu of any
fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market
value of one share of Common Stock on the date of exercise, as determined
by the fair market value of one share of the Company's Common Stock on the
date of exercise as determined in good faith by the Company's Board of
Directors.
4. No Stockholder Rights. This Warrant shall not entitle its holder
to any of the rights of a stockholder of the Company prior to exercise
thereof.
5. Reservation of Stock. The Company covenants that during the period
this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common Stock
upon the exercise of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised by the
registered holder or its registered assigns, in whole or in part, by the
surrender of this Warrant at the principal office of the Company, together
with the form of subscription hereof duly executed, accompanied by payment
in full of the amount of the Warrant Price in the form described in this
Warrant. Upon partial exercise hereof, a new warrant or warrants
containing the same date and provisions as this Warrant shall be issued by
the Company to the registered holder for the number of shares of Common
Stock with respect to which this Warrant shall not have been exercised. A
Warrant shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder
of such shares of record as of the close of business on such date. As
promptly as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of
a share as provided above.
7. Certificate of Adjustment. Whenever the Warrant Price is adjusted
as herein provided, the Company shall promptly deliver to the record holder
of this Warrant a certificate of an officer of the Company setting forth
the relevant Warrant Price or number of shares after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
8. Compliance With Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant and the shares of Common Stock
to be issued upon exercise hereof (or shares of any security into which
such Common Stock may be converted) are being acquired for investment and
that the holder will not offer, sell, or otherwise dispose of this Warrant
and any shares of Common Stock to be issued upon exercise hereof (or shares
of any security into which such Common Stock may be converted) except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Act"). Upon exercise of this Warrant, the holder
hereof shall, if requested by the Company, confirm in writing its
investment purpose and acceptance of the restrictions on transfer of the
shares of Common Stock.
9. Subdivision of Warrant. At the request of the holder of this
Warrant in connection with a transfer or exercise of a portion of the
Warrant, upon surrender of such Warrant for such purpose to the Company,
the Company at its expense (except for any transfer tax payable) will issue
and exchange therefor warrants of like tenor and date representing in the
aggregate the right to purchase such number of shares of such Common Stock
as shall be designated by such holder at
<PAGE> 194
the time of such surrender; provided, however, that the Company's
obligations to subdivide securities under this section shall be subject to
and conditioned upon the compliance of any such subdivision with applicable
state securities laws and with the Act.
10. Notices of Record Date. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the
exercise of the Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any rights to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance
of all or substantially all of the assets of the Company to another
corporation, or
(c) of any voluntary dissolution, liquidation or winding-up of the
Company,
then, and in each such case, the Company will mail or cause to be mailed to
each holder of a Warrant at the time outstanding a notice specifying, as
the case may be, (i) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, or (ii) the date on
which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of
Common Stock or such other stock or securities at the time receivable upon
the exercise of the Warrant shall be entitled to exchange their shares of
Common Stock (or such other stock or securities) for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up.
Such notice shall be mailed at least 30 days prior to the date therein
specified.
11. Loss, Theft, Destruction, or Mutilation of Warrant. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and in case of loss,
theft, or destruction, of indemnity or security reasonably satisfactory to
it, and upon reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor
and dates as of such cancellation, in lieu of this Warrant.
12. Miscellaneous. This Warrant shall be governed by the laws of the
State of California. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a
part hereof. Neither this Warrant nor any term hereof may be changed,
waived, discharged, or terminated orally but only by an instrument in
writing signed by the Company and the registered holder hereof. All
notices and other communications from the Company to the holder of this
Warrant shall be by telecopy or expedited courier service to the address
furnished to the Company in writing by the last holder of this Warrant who
shall have furnished an address to the Company in writing.
13. Exercise Period. The Exercise Period shall mean the period
commencing on October 31, 1997 and ending on October 31, 2002.
ISSUED this October ___, 1997.
<PAGE> 195
FINET HOLDINGS CORPORATION
By_________________________
<PAGE> 196
FORM OF ASSIGNMENT
FINET HOLDINGS CORPORATION
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns, and transfers unto the Assignee named below all of
the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth below.
Name of Assignee Address Number of Shares
and does hereby irrevocably constitute and appoint
________________________________ Attorney to make such transfer on the
books of FINET HOLDINGS CORPORATION maintained for the purpose, with full
power of substitution in the premises.
Dated:______________________
__________________________________
Name of Warrant Holder
Signature: ______________________
Witness:______________________
<PAGE> 197
SUBSCRIPTION FORM
FINET HOLDINGS CORPORATION
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ________________ of the number of shares of
Common Stock of FINET HOLDINGS CORPORATION purchasable with this Warrant,
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant.
Dated:_____________________
________________________________
(Signature of Registered Owner)
________________________________
(Street Address)
________________________________
(City) (State) (Zip Code)
<PAGE> 198
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made and entered into as
of the 30th day of August, 1997, by and between The Real Estate Office
Software Company, a Nevada corporation ("Seller"), with its principal
office located at 800 Southwood, Suite 107, Incline Village, Nevada 89451
and Finet Holdings Corporation, a Delaware corporation ("Buyer"), with its
principal office located at 3021 Citrus Circle, Suite 150, Walnut Creek,
California 94598.
This Agreement is made with reference to the following facts:
A. Seller is engaged in several distinct business enterprises, one of
which is the development, production and sale of computer software products
for use in the residential real estate industry.
B. Finet is in the business of delivering homeownership services,
including loan origination, processing and various settlement services in
the residential real estate industry.
C. Buyer desires to purchase from Seller all of the assets of Seller
which are related to the development, production and sale of computer
software products for use in the residential real estate industry,
including but not limited to all fixtures, tangible and intangible personal
property, inventory, goodwill and other assets, which are more specifically
described herein.
D. Subject to the terms and conditions contained in this Agreement,
Seller desires to sell to Buyer, and Buyer agrees to purchase from Seller,
all of the Software Assets of Seller.
Now therefore, in consideration of the foregoing and of the covenants,
representations and warranties set forth in this Agreement, the parties
hereto, agree as follows:
1. PURCHASE AND SALE OF ASSETS:
A. Seller shall sell, assign, and deliver to Buyer and Buyer shall
purchase and accept, on the Closing Date, as defined in this Agreement all
the assets and properties owned by Seller or in which Seller has any right,
title, or interest, of every kind and description, wherever located, used
by Seller in connection with its real estate software business or products,
including, without limitation, the following (collectively the "Software
Assets"):
(a) All personal property tangible or intangible, furniture, fixtures,
equipment, machinery, parts, accessories, inventory and any other property,
all as is more specifically described and set forth in Exhibit A, which is
attached and incorporated by reference (the "Personal Property").
(b) All accounts receivable, bank accounts, cash, securities, claims,
contract rights, equipment leases, warranties, and other rights or
agreements, whether written or oral, the right to use any and all names
that are associated with the real estate software business engaged in by
Seller, all as is more specifically described and set forth in Exhibit A,
which is attached and incorporated by reference (the "Contracts and
Accounts").
(c) All processes, research and development projects, designs,
patents, copyrights, source codes, tradenames, logos, trademarks,
servicemarks, licenses and goodwill associated with the real estate
software business, all as is more specifically described and set forth in
Exhibit A, which is attached and incorporated by reference (the "Intangible
Software Assets").
<PAGE> 199
B. The Software Assets shall not include, and Buyer shall not acquire
any interest in, the assets of Seller that are not specifically described
herein and specifically those assets and liabilities related to the
business enterprise operated under the fictitious business name "Seminars
in Excellence" ("Excluded Assets and Liabilities").
C. Seller shall convey title to the Software Assets to Buyer free and
clear of all liens, security interests, and encumbrances of any kind or
nature, other than those items specifically described and set forth in
Exhibit B, which is attached and incorporated by reference (the "Permitted
Liens").
D. Seller assumes all risk of loss or damage to the Software Assets
prior to the Closing Date. In the event there is any material loss or
damage to all or any portion of the Software Assets prior to the Closing
Date, Buyer may either terminate this Agreement or negotiate with Seller
for a proportionate reduction in the Purchase Price to reflect any loss or
damage. For the purposes of this section, the term "material loss or
damage" shall mean any loss or damage to the Software Assets with an
aggregate cost of five hundred ($500.00) dollars or more.
2. CONSIDERATION; ASSUMPTION OF LIABILITIES:
In consideration of the sale of the Software Assets under this
Agreement and of all other things done and agreed to be done by Seller,
Buyer shall pay to the Seller, on or before the Closing Date, the Purchase
Price which shall be composed of the following consideration:
A. Cash in the sum of four hundred forty thousand seven hundred
seventy nine ($440,779.00)
dollars ("Cash Payment"), which sum shall be comprised of the following:
(a) Retirement of the Finet Bridge Loan, including the Note dated
March 5, 1997, with all associated interest and costs in the sum of two
hundred eleven thousand seven hundred seventy two ($211,772.00) dollars.
(b) Funds advanced by Buyer to Seller during the calendar year 1997
for real estate software research and development, in the sum of two
hundred twenty nine thousand ($229,000.00) dollars.
B. As additional consideration of the sale of the Software Assets
under this Agreement, Buyer shall provide funds and Seller shall use its
best efforts to settle or retire the itemized research and development
liabilities, the total of which shall not exceed two hundred thousand
($200,000.00) dollars, as is more specifically set forth in Exhibit D,
which is attached and incorporated by reference ("Addititional R & D
Expense"). The remaining balance of the Additional R & D Expense
liabilites, if any shall be "Audit Deductions", settled or retired as part
of the Post-Closing Audit process, as is more specifically described in
Paragraph 2., D., herein below.
However, the liabilities so settled and retired shall not include:
(a) Any liabilities accrued after June 30, 1997, the date of the
Balance Sheet set out in Exhibit C, that were not incurred in the ordinary
course of the real estate software business for research and development.
(b) Any liabilities whenever accrued for federal or state income
taxes, sales taxes or interest or penalties.
(c) Any liabilities not reflected in Exhibit C, for expenses incurred
in connection with the audit of income and payroll tax returns, for
reporting periods prior to June 30,1997.
(d) Any liabilities of any person or firm other than those specified
in this Agreement.
<PAGE> 200
C. As additional consideration of the sale of the Software Assets
under this Agreement, Buyer shall cause to be issued to Seller through an
escrow Retention Account, two hundred thousand shares of the common stock
of Seller, par value $.01 per share which shares shall, for purposes of
this Agreement, be valued at $2.50 per share (" Finet Stock") and subject
to the provisions contained in Paragraphs 2. D., E., and F., herein.
D. Post-Closing Audit Adjustment to Purchase Price:
(a) The Purchase Price to be paid to Seller by Buyer shall be reduced,
as provided herein, to reflect changes in the value and content of the
Software Assets, the value and content of liabilities, including, but not
limited to the remaining balance of the Additional R & D Expense
liabilites, if any and any costs, expenses or claims resulting from the
breach of any provision of this Agreement by Seller, as may be established
by Buyer during the course of conducting a Post-Closing Audit.
(b) Eighty seven thousand five hundred (87,500) shares of the Finet Stock
to be issued to Seller by Buyer for the purchase of the Software Assets
will be escrowed in a Retention Account. While performing the Post-Closing
Audit, Buyer shall provide Seller with two Interim Audit Reports, including
the transfer of an adjusted portion of the escrowed Finet Stock, the first
on April 30, 1998, at which time a maximum of thirty seven thousand five
hundred (37,500) shares of the Finet Stock will be subject to release and
the second on October 31, 1998, at which time a maximum of twenty five
thousand (25,000) shares of the Finet Stock will be subject to release.
The Final Post-Closing Audit Report and the transfer of the remaining
balance of Finet Stock, if any, shall be completed by Buyer not later than
April 30, 1999.
(c) At the time of each of the three Audits, two Interim and one Final,
the Retention Account ledger balance, with an initial value of zero at the
time of the first Interim Audit, shall be adjusted downward for (i) any
adverse change in the value and content of the Software Assets, without
regard to a change in value of the Intangible Software Assets included
therein; (ii) any adverse change in the value and content of the
liabilities including but not limited to the remaining balance of the
Additional R & D Expense liabilites, if any; (iii) any liabilities that are
not reflected on the balance sheets of Seller, provided on the Closing Date
and attached hereto, or are not otherwise disclosed in writing as part of
this Agreement and to cover any and all damages, costs and expenses that
may arise out of the violation(s) by Seller, if any, of its representations
and warranties contained in this Agreement; and (iv) any expenses incurred
for payment of delinquent taxes, additional taxes incurred by Seller as a
result of capital gains associated with the purchase of the Software
Assets, that would not have been assessed in a "Stock Purchase" and/or
other assessments discovered during the preceding period of the Post-
Closing Audit ("Audit Deductions").
(d) Upon the completion of each of the three Audits, the balance of
the Retention Account shall b calculated and, if said balance is negative,
the equivalent number of Finet Stock, valued at $2.50 per share, shall be
deducted from amount of shares then subject to distribution, retained by
Buyer and the remaining shares of Finet Stock, if any, shall be transferred
to Seller. In the event the amount of shares to be deducted exceeds the
amount of shares subject to distribution at the time of an Interim Audit,
the negative balance shall be carried forward to the subsequent audit. It
is understood that for the purpose of the Post-Closing Audit calculations,
as is set forth herein, the same accounting methods currently used by
Seller and Buyer, shall be employed.
E. Seller has requested and Buyer has agreed to provide a mechanism which
will allow Seller to obtain the maximum amount of the escrowed shares of
Finet Stock, by reducing or eliminating Audit Deductions, during the
calculation of each Audit.
(a) As part of the Audit process, Buyer will confer with Seller in an
effort to identify and resolve any items that may be the subject of an
Audit Deduction. In addition, on or before each Audit date, Buyer shall
provide Seller with written notice of each identified Audit Deduction, if
any, which will be included as part of the calculation of the current Audit
Report.
<PAGE> 201
(b) Seller shall have forty five (45) days from the receipt of notice
in which to reduce or settle the reported Audit Deductions, at no cost to
Buyer ("Notice Period"). Buyer shall adjust the amount of the reported
Audit Deductions to reflect the timely receipt of commercially acceptable
written confirmation of reduction or settlement, provided by Seller during
the Notice Period and release the corresponding number of shares of Finet
Stock.
F. Additional Rights and Restrictions:
(a) Seller shall not receive an ownership interest in any of the Finet
Stock escrowed in the Retention Account, unless and until it is released by
Finet in accordance with the Escrow provisions contained herein. Without
limiting the foregoing, Seller shall have no right to "vote" the Finet
Stock until it has been actually received by Seller, at the conclusion of
the Audit process.
(b) Upon the completion of each Audit and the receipt of Finet Stock,
Seller shall be entitled to "Piggy Back" registration rights on
registrations of Finet subject to the right, however, of Finet and its
underwriters to reduce the number of shares proposed to be registered by
Seller in view of market conditions.
3. INSTRUMENTS OF TRANSFER:
The sales, assignments, and deliveries to be made to Buyer pursuant to
this Agreement shall be effected by bills of sale, endorsements, checks,
assignments and other instruments of transfer in such form as Buyer shall
reasonably request. Seller shall prepare appropriate forms of instruments
of transfer and conveyance in conformity with this Agreement and shall
submit them to Buyer for examination on or before the Closing Date. Any
time and from time to time after the Closing Date, on Buyer's request,
Seller will do, execute, acknowledge, and deliver all such further acts,
deeds, assignments, transfers, and powers of attorney as may be required in
conformity with this Agreement for the adequate assigning, transferring,
granting, and confirming to Buyer of the assets and properties sold to
Buyer.
4. ASSIGNMENT OF CONTRACT RIGHTS:
If any contract, license, lease, commitment, or sales or purchase order
assignable to Buyer under this Agreement may not be assigned without the
consent of the other party thereto, Seller will use its best efforts to
obtain the consent of the other party to the assignment. If any such
consent cannot be obtained, the Purchase Price under this Agreement shall
be adjusted downward by the amount allocated to the affected asset(s) in
Exhibit A.
5. ACCOUNTS RECEIVABLE:
After the Closing Date, Buyer shall have the authority to collect all
receivables transferred to Buyer under this Agreement and to endorse
without recourse and without warranties of any kind the name of Seller on
any checks or evidence of indebtedness received by Buyer on account of any
receivables. Seller will transfer and deliver to Buyer any cash or other
property that Seller may receive in respect to any receivables.
6. BOOKS AND RECORDS:
Seller shall have the right to retain minute books, stock books, and
other corporate records of Seller having to do with a corporate
organization or capitalization, as well as the general business operating
and accounting records of Seller. All other records and books of account
of every kind and nature relating to the Software Assets shall be delivered
to, and become the property of Buyer, on or before the Closing Date. At
any time contemplated herein, each party shall have reasonable access to
and the right to make exact copies of all books, records, and documents
referred to in this Agreement that are in the possession of the other
party.
<PAGE> 202
7. CLOSING:
A. Subject to fulfillment of the conditions to Closing specified in
this Agreement and pursuant to the other terms and conditions hereof, the
closing for the purchase and sale of the Software Assets (the "Closing")
shall be held at 3021 Citrus Circle, Suite 150, Walnut Creek, California
94598, on December _____, 1997, at 2:00 PM or at such other time and place
as the parties may mutually agree in writing (the "Closing Date"). At
Closing, Seller shall convey title to the Software Assets to Buyer as
provided in this Agreement, subject only to the Permitted Liens.
B. The obligations of Buyer to purchase the Software Assets and to
settle or retire, when due, the R & D Expense, and of Seller to sell,
transfer and assign the Software Assets as provided in this Agreement are
subject to the satisfaction, at the Closing (except where specifically
required or permitted to be satisfied prior to or after the Closing), of
all of the respective obligations of Buyer and Seller set forth below:
(1) Delivery of Purchased Software Assets to Buyer. At Closing,
Seller shall deliver the Software Assets, including the source code for all
software which is more specifically described in Paragraph 8. F. herein, by
duly executed Bill of Sale and assignments or other instruments of transfer
and documents which conform to the requirements of the Agreement.
Simultaneously with the consummation of the transfer, Seller, through its
officers, agents, and employees, will put Buyer into full possession and
enjoyment of all Software Assets to be conveyed and transferred by this
Agreement.
(2) Delivery of Purchase Price and Settlement of Liabilities. Buyer
shall deliver to Seller funds in the amount of the Purchase Price and other
appropriate instruments or documents which conform to the requirements of
the Agreement.
C. Certificate from Seller. Seller shall deliver to Buyer a
certificate, dated the Closing Date, signed by two duly authorized officers
of Seller certifying that:
(1) The representations and warranties made by Seller herein or in any
Exhibit or Schedule hereto remain true in all material respects on the
Closing Date as though made on such date except for changes contemplated by
the Agreement.
(2) Seller has performed and complied in all material respects with
all agreements, covenants and conditions required by the Agreement to be
performed or complied with by Seller on or prior to the Closing.
(3) No litigation, proceedings or other actions are pending against or
affecting the Seller which have resulted or reasonably could be expected to
result either in an action to enjoin or the prevention of the successful
consummation of the transactions contemplated by the Agreement.
(4) Seller has received all consents required by the federal
government, any state or local governmental body or any foreign government
to the transactions contemplated by the Agreement, and such consents are in
full force and effect.
(5) That from the date of this Agreement through the Closing Date,
Seller has managed and conducted the Business in the ordinary course as
heretofore managed and conducted as though no change of ownership of the
Business were contemplated, and has used commercially reasonable efforts to
preserve all employee, vendor and customer relationships.
D. Certificate of Buyer. Buyer shall deliver to Seller a certificate,
dated the Closing Date, signed by two duly authorized officers of Buyer
certifying that:
<PAGE> 203
(1) The representations and warranties made by Buyer herein or in any
Exhibit or Schedule hereto remain true in all material respects on the
Closing Date as though made on such date except for changes contemplated by
the Agreement.
(2) Buyer has performed and complied in all material respects with all
agreements, covenants and conditions required by the Agreement to be
performed or complied with by Buyer on or prior to the Closing.
(3) No litigation, proceedings or other actions are pending against or
affecting the Buyer which have resulted or reasonably could be expected to
result either in an action to enjoin or the prevention of the consummation
of the transactions contemplated by the Agreement.
(4) Buyer has received all consents required by the federal
government, any state or local governmental body or any foreign government
to the transactions contemplated by the Agreement, and such consents are in
full force and effect.
E. Corporate Resolutions. Buyer and Seller shall each deliver to the
other certified copies of their respective corporate resolutions, certified
by the appropriate corporate officers, authorizing the execution and
delivery of the Agreement and the consummation of the transactions
contemplated hereby.
F. Other Agreements. Buyer and Seller shall enter into such other
agreements, or execute and deliver such documents or items, as may be
reasonably contemplated by the Agreement to effect the transactions
contemplated hereby.
G. Government Consents. Buyer and Seller shall each deliver to the
other copies of any governmental consents required to be obtained pursuant
to the Agreement.
8. REPRESENTATIONS AND WARRANTIES OF SELLER:
Seller makes the following representations and warranties to Buyer,
each of which is true and correct as of the date of this Agreement, and
shall be true and correct as of the Closing Date:
A. The Real Estate Office Software Company ("Seller or REOS"), is a
corporation duly organized, existing, and in good standing under the laws
of the State of Nevada, and is authorized and entitled to carry on its
business in said state and the State of California. REOS has no
subsidiaries. Its capital stock authorized and outstanding consists of
(i) 2,000,000 shares of Common Stock, $ .01 par value, of which 1,863,419
shares are to be issued and outstanding on the Closing Date; (ii) 80,000
shares of Series A Convertible Preferred Stock, $ 3.20 par value, of which
78,125 shares are to be issued and outstanding on the Closing Date; (iii)
320,000shares of Series B Convertible Preferred Stock, $ 3.20 par value, of
which -0- shares are to be issued and outstanding on the Closing Date. No
other classes of stock have been issued or authorized. All of such issued
shares will have been duly authorized and validly issued and fully paid and
non-assessable, on the Closing Date.
B. The execution and the delivery of this Agreement by REOS, and the
consummation of the transactions contemplated by this Agreement have been
duly authorized by its board of directors and by a majority of its
shareholders. Each Officer of REOS that executes this Agreement, has full
power and authority to enter into this Agreement and to carry out all the
terms and provisions hereof to be carried out by each of them, and all
authorizations and consents necessary for the execution and delivery of
this Agreement by said Officers have been given. This Agreement, assuming
due authorization, execution, and delivery by the Buyer, constitutes a
legal, valid, and binding Agreement of Seller, enforceable against Seller
in accordance with its terms.
<PAGE> 204
C. The financial statements of REOS relating to the twelve months
ending 6/30/97, and the financial statements relating to the twelve months
ending 8/30/97, each prepared by REOS and delivered to and reviewed by
public accountants for Buyer during the course of the negotiations
regarding this Agreement, fairly reflect the financial position of REOS as
of the end of those periods and the result of operations during those
periods.
D. REOS has good and marketable title to all of the personal property
tangible or intangible, furniture, fixtures, equipment, machinery, parts,
accessories, inventory and any other property, all as is more specifically
described and set forth in Exhibit A, the Personal Property, all of which
are free and clear of all mortgages, liens, and encumbrances, except the
Permitted Liens, as is more specifically described and set forth in Exhibit
B.
E. All of the Software Assets that were used in the business of REOS
on the date of this Agreement, or that were reflected in the balance sheet
dated 6/30/97, which are described and set forth in Exhibit C, are owned by
Seller, free and clear of all mortgages, liens, and encumbrances, except
the Permitted Liens, as is more specifically described and set forth in
Exhibit B.
F. REOS is the owner of the real estate office software, with the
exception of those components which are owned by and properly licensed from
third parties and as is more specifically described and set forth in
Exhibit E, which software is commonly known as the "Agent Connector", free
and clear of any liens, encumbrances or claims, except that of Buyer. REOS
has no knowledge of pending or threatened claims of infringement, violation
or interference involving said software.
G. REOS is not a party to any employment agreement, labor union
agreement, agreement for the future purchase of materials, supplies, or
equipment, sales agreement, pension, profit-sharing, or retirement plan or
agreement, distributorship or sales agreement, or lease agreement that
could effect the Software Assets and which relates to any period beyond the
Closing Date, whether written or oral, except as listed in Exhibit F.
Copies of all such written agreements have been supplied to Buyer, and
Buyer has been advised of the terms of all such oral agreements.
H. REOS enjoys a very good relationship with Van Hindorff, employed as
a software engineer, and there have been no significant difficulties
experienced that would indicate that this good relationship will not
continue past the Closing Date. REOS, its Officers, Directors and
Mangement, do not now have, or have ever had, any agreement, arrangement,
or understanding with Van Hindorff with respect to the Software Assets or
the sale of the Software Assets and nothing has been done or said by REOS,
its Officers, Dirctors and Management, to cause Van Hindorff to expect or
require any consideration, as a prerequisite for or a condition to the
performance of REOS under the terms and provisions of this Agreement,
except that which is disclosed and more specifically described and set
forth in Exhibit G, which is attached and incorporated by reference.
I. REOS is not in default under any contract, agreement, lease, or
other document relating to the Software Assets, to which it is a party, and
has complied with all laws, regulations, and ordinances applicable to its
business as of the date of this Agreement and the Closing Date.
J. Since 6/30/97, the date of the balance sheet set out in Exhibit C,
REOS has not issued any stock, bonds, or other corporate securities,
incurred any obligations or liability except current liabilities in the
ordinary course of business, declared or made any payment or distribution
to stockholders, purchased or redeemed any shares of capital stock,
mortgaged or pledged any of its assets, tangible or intangible, sold or
transferred any assets or canceled any debts or claims except in the
ordinary course of business, sold, assigned, or licensed any patents,
trademarks, or tradenames, suffered any extraordinary losses or waived any
rights except in the ordinary course of business, or entered into any other
transaction except in the ordinary course of business.
<PAGE> 205
K. Since 6/30/97, the date of the balance sheet set out in Exhibit C,
there has been no substantial change in the financial policies, account
relations, or marketing activities of REOS.
L. Since 6/30/97, the date of the balance sheet set out in Exhibit C,
there has been no significant change in the accounts payable of REOS, which
for the purposes of this provision shall mean any increase in excess of one
thousand ($1,000.00) dollars.
M. The REOS accounts receivable as reflected in its balance sheet as
of 6/30/97, set forth in Exhibit C, and as thereafter acquired prior to the
Closing Date, will be collectible to the extent that they are so identified
in Exhibit C, prior to Closing.
N. Since 6/30/97, the date of the balance sheet set out in Exhibit C,
there has been no substantial loss of value in any of the physical assets
or properties of REOS which are included in the Software Assets herein,
ordinary wear and tear excepted.
9. INDEMNIFICATION BY SELLER:
Seller shall indemnify, defend and hold harmless Buyer against and in
respect of any and all liabilities, expenses, costs, claims and actions,
including interest, penalties and reasonable attorneys' fees, that Buyer
shall incur or suffer, which arise or result from, or relate to:
(a) Any breach by the Seller of any of its representations or
warranties contained in this Agreement, or the failure of the Seller to
perform any covenant or agreement contained in this Agreement, or in any
schedule, certificate, exhibit or other instrument furnished or to be
furnished by Seller under this Agreement.
(b) Any and all claims of whatever nature, asserted with or without
the commencement of legal action against Buyer with respect to the
Excluded Assets and Liabilities.
10. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS:
The obligations of Buyer under this Agreement are conditioned on the
following all having occurred on or before the Closing Date:
(a) All actions, proceedings, instruments, and documents required of
Seller under this Agreement shall be in a form approved by counsel for
Buyer, provided that such approval shall not be unreasonably withheld.
(b) The representations and warranties made by Seller in this
Agreement shall be substantially correct on the Closing Date, except as
affected by transactions contemplated in this Agreement and changes
occurring in the ordinary course of business, with the same force and
effect as though the representations and warranties had been made on the
Closing Date.
(c) The instruments executed and delivered to Buyer by Seller pursuant
to this Agreement are valid in accordance with their terms and effectively
vest in Buyer good and marketable title to the Software Assets as
contemplated by this Agreement, free and clear of any liabilities,
obligations, and encumbrances, except those liabilities and obligations
which are to be expressly settled or retired by Buyer as provided in this
Agreement.
11. EXPENSES OF NEGOTIATION, SALE AND TRANSFER:
<PAGE> 206
(a) Except as is otherwise specifically set forth herein, each party
shall pay the party's own expenses, taxes, attorney's fees and other costs
incident to or resulting from this Agreement, whether or not the
transactions contemplated herein are consummated.
(b) The costs of Seller shall include the preparation of documents of
transfer and documentary stamp taxes. Buyer's costs shall include fees for
the filing or recording of instruments of transfer.
(c) Upon Closing, Buyer shall pay to attorney's and/or accountants
designated by Seller the sum of fifteen thousand ($15,000.00) dollars, for
services associated with the consummation of the transactions contemplated
herein. Seller shall pay any and all additional fees and costs for
attorney's and/or accountants employed by Seller.
12. ASSIGNMENT:
The respective rights and obligations of the parties to this Agreement
may not be assigned by any party without the prior written consent of the
other, which consent may not be unreasonably withheld or delayed. The
terms and provisions of this Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the parties.
13. ENTIRE AGREEMENT:
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter of this Agreement and supersedes all
prior agreements, oral and written, between the parties with respect to the
subject matter of this Agreement. However, in the event of a breach of
this Agreement by Seller, nothing herein shall limit or effect the rights
and remedies of Buyer contained in the Bridge Financing Agreement, dated as
of March 5, 1997, including the Note, Pledge and Security Agreement and
Personal Guaranty.
14. MODIFICATION AND WAIVER:
This Agreement may not be amended, modified or supplemented except by a
written agreement signed by the party against which the enforcement of such
amendment, modification or supplement is sought. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver
of any other provision. No waiver shall be binding unless executed in
writing by the party making the waiver.
15. ATTORNEY FEES:
If any legal action or other proceeding is brought to enforce the
provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable attorney fees and other costs incurred in the action or
proceeding, in addition to any other relief to which the prevailing party
may be entitled.
16. NOTICES:
All notices, requests, demands, and other communications required by
this Agreement shall be in writing and shall be delivered in person or by
courier, or mailed by first class registered or certified mail, as follows,
or to such other address as a party may designate to the other in writing:
<PAGE> 207
(a) If to Seller:
The Real Estate Office Software Company
800 Southwood, Suite 107
InclineVillage, Nevada 89451
Attn: President
(b) If to Buyer:
Finet Holdings Corporation
3021 Citrus Circle, Suite 150
Walnut Creek, California 94598
Attn: President
The date on which the notice, request, instruction or document is
actually delivered shall be the date on which such Notice is deemed to have
been given for the purposes of this Agreement.
17. HEADINGS:
All paragraph, section, exhibit and title headings contained in this
Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of
this Agreement.
18. COUNTERPARTS:
This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one counterpart has been signed by each party and delivered
to the other party to this Agreement.
19. TIME OF ESSENCE:
Time shall be of the essence with respect to the obligations of the
parties to this Agreement.
20. GOVERNING LAW:
This Agreement shall be governed by and construed under the laws of the
State of California.
21. SEVERABILTY:
In the event any provision of this Agreement is deemed to be invalid,
illegal or unenforceable, all other provisions of the Agreement which are
not affected by such invalidity, illegality or unenforceability shall
remain in full force and effect.
22. CONFIDENTIALITY AND NONDISCLOSURE:
All confidential information which shall have been furnished or
disclosed by Buyer or Seller to the other pursuant to this Agreement shall
be held in confidence and shall not be disclosed to any person other than
their respective employees, directors, legal counsel, accountants or
financial advisors, with a need to have access to such information.
<PAGE> 208
In witness whereof the parties have executed this Agreement as of the
day and year first above written.
SELLER
The Real Estate Office Software Company
By: ______________________ By: _____________________
Jay S. Margulies,
Lionel Pober,
President Secretary
BUYER
Finet Holdings Corporation
By: ______________________ By: ______________________
L. Daniel Rawitch, Jan C. Hoeffel,
Chief Executive Officer Secretary
<PAGE> 209
AGREEMENT OF PURCHASE AND SALE OF STOCK
This agreement is made as of April 30, 1998 at Walnut Creek,
California, among Finet Holdings Corporation, a Delaware corporation
("Buyer"), having its principal office at 3021 Citrus Circle, Suite 150,
Walnut Creek, California 94598, and Stephen R. Cohen, Gerald M. Cohen and
Howard A. Rice ("Shareholders"), each a resident of the state of New
Jersey, and Coastal Federal Mortgage Company, a New Jersey corporation
("Corporation").
RECITALS
Shareholders have represented that they own all of the issued and
outstanding stock of Corporation. Buyer desires to purchase from
Shareholders and Shareholders desire to sell to Buyer all of the
outstanding stock of Corporation (the "Shares"). Corporation desires that
this transaction be consummated. In consideration of the mutual
covenants, agreements, representations, and warranties contained in this
Agreement, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1. Shareholders and Buyer adopt this Agreement as a plan of
reorganization under the Internal Revenue Code Paragraph
368(a)(1)(B).
1.2. Subject to the terms of and conditions set forth in this
Agreement, on the Closing Date, Shareholders will transfer, convey and
deliver the Shares to Buyer, and Buyer will acquire the Shares from
Shareholders.
1.3. Except as may occur in the ordinary course of its business, as of
the Closing Date, none of the assets of the Corporation, as defined below,
and as reflected on the Financial Statements, as defined in Paragraph 3.5
herein below, shall be excluded from the transaction provided for in this
Agreement.
2. CONSIDERATION
2.1. Subject to the terms and conditions set forth in this Agreement,
the consideration to be delivered to Shareholders in exchange for the Stock
shall be 1,250,000 shares of Buyer's common stock, par value $.01 per share
which shares shall, for purposes of this Agreement, be valued at $ 4.00 per
share ("Stock"). The parties acknowledge and agree that for the purposes of
this Agreement, the 1,250,000 shares of Stock shall be equal in value to
five million ($5,000,000) dollars (the "Purchase Price"), and shall be
adjusted as set forth below.
2.2. Subject to the terms and conditions set forth in this Agreement,
at the Closing Buyer will issue and deliver to Shareholders a portion of
the Purchase Price totaling 1,125,000 shares of Stock, equal in value to
four million five hundred thousand ($4,500,000) dollars.
2.3. The Purchase Price, in shares of Stock, shall be issued and
delivered to the individual Shareholders in the numbers determined as
follows:
Stephen R. Cohen 43 %
Gerald M. Cohen 42 %
Howard A. Rice 15 %
<PAGE> 210
On the Closing Date, the Buyer shall reserve from the Purchase Price
delivery of 125,000 shares of Stock, which shall constitute the balance of
the Purchase Price, which for the purposes of this Agreement, has a value
of five hundred thousand ($500,000) dollars (the "Reserved Shares"). The
Reserved Shares will be delivered to Shareholders, in accordance with the
provisions of the escrow agreement, a true and correct copy of which is
attached hereto as Exhibit A ("Escrow Agreement"), subject to the
following:
(a) Contingency Reserve for General Management
Representations: The Reserved Shares, (125,000 shares) shall be
decreased, as provided herein, to reflect any overstatement of the
Corporation's assets or understatement of the Corporation's liabilities,
from those provided in the Financial Statements (as defined in Paragraph
3.5). The actual amount of the decrease, if any, to the Reserved Shares
shall be equal to the total amount of any asset overstatements plus
liability understatements, should that total amount exceed fifty thousand
($50,000) dollars ("Reserved Share Verification"). The balance of the
Reserved Shares after any decrease as defined herein, shall be distributed
to Shareholders upon the completion of the first audit report by Reuben E.
Price & Co., or another nationally recognized firm of independent public
accountants chosen by Buyers, which is anticipated to be on or before July
15, 1998.
2.4 Piggy Back Rights: Shareholders shall be entitled to "Piggy Back"
registration rights on registrations of Finet common stock, subject to the
right however, of Finet and its underwriters to reduce the number of
shares proposed to be registered by Shareholders in view of market
conditions. Buyer agrees to use its best efforts to include Shareholder's
Stock, including the Reserved Shares, in its current S-3 Registration.
3. WARRANTIES OF SHAREHOLDERS
Shareholders, jointly and severally, warrant and represent to Buyer as
follows:
3.1. Corporation is duly organized, valid and existing, and in good
standing under the laws of the state of New Jersey and has all necessary
corporate powers to own its properties and operate its businesses now owned
and operated by it. Corporation is also duly organized, validly existing
and in good standing under the laws of each of the states in which it is
currently doing business, and which are set forth in Schedule 3.1 to this
Agreement, except where the failure to be or do so or to hold the licenses,
authorizations, and permits referred to herein, would not have a material
adverse effect on the business of the Corporation. In addition,
Corporation holds all required licenses, authorizations and permits to
conduct its business in each of the states, to the extent disclosed, set
forth in Schedule 3.1.
3.2. The authorized Stock of the Corporation consists of 2,500 shares
of common stock, no par value, of which 2,000 shares (the Shares) are
issued and outstanding. All the Shares are validly issued, fully paid and
not assessable, and such shares have been so issued in full compliance with
all federal and state securities laws. There are no outstanding
subscriptions, options, rights, warrants, convertible securities, or other
agreements or commitments obligating Corporation to issue or to transfer
from treasury any additional shares of its capital stock of any class.
3.3. Shareholders are the owners, beneficially and of record, of all
of the Shares free and clear of all liens, encumbrances, security
agreements, equities, options, claims, charges, and restrictions,
Shareholders have the full power to transfer the Shares to Buyer without
obtaining the consent or approval of any other person or governmental
authority, other than the consent of applicable licensing authorities,
which shall be obtained by the parties prior to the Closing Date and
attached hereto as Schedule 3.3 to this Agreement.
3.4. Corporation does not own, directly or indirectly, any interest
or investment, whether equity or debt, in any corporation, partnership,
business, trust, or other entity.
<PAGE> 211
3.5. Schedule 3.5 (a) to this Agreement sets forth the balance sheets
of the Corporation as of December 31, 1996, audited by Steven Brodsky, CPA.
and December 31, 1997, audited by Richard A. Eisner & Company, LLP and the
related statements of income and retained earnings for the fiscal years
ending on those dates, Corporation's independent public accountants, whose
opinions with respect to those financial statements appear in that
Schedule. Schedule 3.5 (b) to this Agreement sets forth the unaudited first
quarter 1998 compilation, prepared by Steven Brodsky, CPA. and together
with related unaudited statements of income and retained earnings for the
three month period ending on March 31, 1998, certified by the individual
Shareholders as accurately reflecting the financial condition of the
Corporation for those periods and accurately reflecting all information
normally reported to Corporations' independent public accountants for the
preparation of corporation's financial statements. The financial statements
of Schedules 3.5 (a) and (b) are referred to herein as the "Financial
Statements". The Financial Statements have been prepared in accordance
with generally accepted accounting principles consistently followed by
Corporation throughout the periods indicated, and fairly present the
financial position of Corporation on the respective dates of the balance
sheets included in the Financial Statements, and the results of its
operations for the respective periods indicated.
3.6. Since December 31, 1997, there has not been any change in the
financial condition or operations of Corporation, except changes in the
ordinary course of business, or as is set forth in Schedule 3.6 attached
hereto.
3.7. Corporation has no debt, liability, or obligation of any nature,
including threatened or filed litigation, whether accrued, absolute,
contingent, or otherwise, and whether due or to become due, that is not
reflected or reserved against in the Corporation's balance sheet as of
December 31, 1997, included in the Financial Statements or set forth in
Schedule 3.5 (a) (b) to this Agreement, except for (1) those that may have
been incurred after the date of that balance sheet in the ordinary course
of business and (2) those that are not required by generally accepted
accounting principles to be included in a balance sheet. All debts,
liabilities, and obligations incurred after that date were incurred in the
ordinary course of business and are usual and normal in amount both
individually and in the aggregate. All, to the best of their knowledge
threatened or filed litigation shall be specifically identified in Schedule
3.7, including the names of the parties, the nature of the action and the
amount of damages or the relief sought.
3.8. Except as is disclosed in Schedule 3.8, within the times and in
the manner prescribed by law, Corporation has filed all federal, state and
local tax returns required by law and have paid all taxes, assessments, and
penalties due and payable. The Federal and State income tax returns of
Corporation have been prepared and filed by Steven Brodsky, CPA, for the
1996 and 1997 fiscal years, and the results are accurately reflected in the
Financial Statements. The provisions for taxes reflected in Corporation's
balance sheet as of December 31, 1997 are adequate for federal, state,
county, and local taxes for the period ending on the date of that balance
sheet and for all prior periods, whether disputed or undisputed. There are
no present disputes about taxes of any nature payable by Corporation.
Corporation has never filed, and will not file on or before the Closing
Date, any consent under Internal Revenue Code Paragraph 341(f).
Shareholders have paid or deposited, within the period prescribed by law,
all payroll taxes that relate to periods before the Closing Date.
3.9. No assets of the Corporation are excluded from the transfer of
ownership of the Shares provided for in this Agreement and there has been
no sale, encumbrance or other transfer of or lien created on any of the
assets of the Corporation between the date of this Agreement and the
Closing Date, other than in the ordinary course of the Corporation's
business, or as is set forth in Schedule 3.9 attached hereto.
3.10. Corporation owns no real property or any interest in real
property other than as lessee of certain business premises (the "Premises")
under terms of those leases disclosed to Buyer, copies of which have been,
or will prior to the Closing Date be, disclosed to Buyer, or as is set
forth in Schedule 3.10 attached hereto.
3.11. Except as reflected in the Financial Statements described in
Paragraph 3.5, above, the Corporation is not subject to any indebtedness,
obligation or liability, contingent or otherwise, except those arising in
the ordinary course of business subsequent to December 31, 1997.
<PAGE> 212
3.12. Since December 31, 1997, there has not been any of the
following, except as is set forth in Schedule 3.12 attached hereto:
(a) Transaction by Corporation, except in the ordinary course of
business as conducted on that date;
(b) Capital expenditure by Corporation exceeding ten thousand
($10,000) dollars;
(c) Material adverse change in the financial condition, liabilities,
assets, business, or prospects of the Corporation;
(d) Destruction, damage to, or loss of any asset of the Corporation
(whether or not covered by insurance) that materially and adversely affects
the financial condition, business, or prospects of the Corporation;
(e) Labor trouble or other event or condition of any character
materially and adversely affecting the financial condition, business,
assets or prospects of the Corporation;
(f) Change in accounting methods and practices, including, without
limitation, any change in depreciation or amortization policies or rates by
Corporation;
(g) Revaluation by the Corporation of any of its assets;
(h) Declaration, setting aside, or payment of a dividend or any other
distribution in respect of the capital stock of the Corporation, or any
direct or indirect redemption, purchase or other acquisition by Corporation
of any of its shares of capital stock;
(i) Increase in the salary or other compensation payable or to become
payable by the Corporation to any of its officers, directors, or employees,
or the declaration, payment, or commitment, or obligation of any kind for
the payment, by Corporation, of a bonus or other additional salary or
compensation to any such person;
(j) Sale or transfer of any asset of the Corporation except in the
ordinary course of business;
(k) Amendment or termination of any contract, agreement or license to
which Corporation is a party, except in the ordinary course of business;
(l) Loan by Corporation to any person or entity, or guaranty by
Corporation of any loan, except in the ordinary course of business;
(m) Mortgage, pledge, or other encumbrance of any asset of the
Corporation;
(n) Waiver or release of any right or claim of Corporation, except in
the ordinary course of business;
(o) Other event or condition of any character that has, or might
reasonably have a material and adverse effect on the financial condition,
business, assets or prospects of the Corporation;
(p) Issuance or sale by Corporation of any shares of its capital stock
of any class, or of any of its other securities;
(q) Threatened or filed litigation against the Corporation, to the
best of Shareholders knowledge; or
(r) Agreement by Corporation to do any of the things described in the
preceding clauses of this Subsection 3.12.
<PAGE> 213
3.13. No agreement to which the Corporation is a party or due to which
it has any obligation shall be violated or placed into default or breached
by the transaction contemplated by this Agreement, except as is set forth
in Schedule 3.13 attached hereto.
3.14. Schedule 3.14 to this Agreement is a complete and accurate
schedule describing and specifying the location of all equipment,
furniture, supplies, and other tangible personal property, each having an
original retail value of one thousand ($1,000.00) dollars or more, which is
owned by, whether in possession or not of, the Corporation, or used by the
Corporation in connection with its business. The property listed in
Schedule 3.14 constitutes all such tangible personal property necessary for
the conduct by Corporation of its business now conducted, which is subject
to the terms and conditions of this Agreement.. No such property is held
under any lease, security agreement, conditional sales contact, or other
title, retention or security arrangement, or is located other than in the
possession of Corporation, except as disclosed in Schedule 3.14.
3.15. Corporation has disclosed to Buyer and made available for
Buyer's inspection, or will do so prior to Closing Date, all books,
records, files and other documents and information, whether stored by
document, electronically or otherwise, concerning all transactions,
constituting the business of Corporation, including, without limitation,
records of all debts,obligations and liabilities and of all accounts
receivable held by Corporation.
3.16. Schedule 3.16 to this Agreement is a schedule of all trade
names, trademarks, service marks, and copy rights and their registrations,
owned by Corporation or in which it has any rights or licenses, together
with a brief description of each. Shareholders have no knowledge of any
infringement or alleged infringement by others of any tradename, trademark,
service mark, or copyright. To the best of Shareholders knowledge,
Corporation has not infringed, and is not now infringing on any tradename,
trademark, service mark, or copy right belonging to any other person, firm,
or corporation. Except as set forth in Schedule 3.16, Corporation is not a
party to any license, agreement, or arrangement, whether as licensor,
licensee, or franchisor, franchisee, or otherwise, with respect to any
trademarks, service marks, trade names, or applications for them, or any
copyrights. Corporation owns, or holds adequate licenses or other rights to
use, all trademarks, tradenames, service marks, and copy rights necessary
for their respective businesses as now conducted by them (including without
limitation those listed in Schedule 3.16), and to the best of Shareholders
knowledge, that use does not, and will not, conflict with, infringe on, or
otherwise violate any rights of others. Corporation has the right to sell
or assign to Buyer all owned trademarks, tradenames, service marks, and all
such licenses and other rights.
3.17. Schedule 3.17 to this Agreement is a complete list, without
extensive or revealing descriptions, of Corporation's trade secrets,
including all customer lists, processes, know how, computer programs and
routines, and other technical data. The specific location of each trade
secrets' documentation, including its complete description, specifications,
charts, procedures, and other material relating to it, is also set forth in
that Schedule. Each trade secret's documentation is current, accurate, and
sufficient in detail and content to identify and explain it and to allow
its full and proper use by Buyer without reliance on the special knowledge
or memory of others. Corporation is a sole owner of each of these trade
secrets, free and clear of any liens, encumbrances, restrictions, or legal
or equitable claims of others, except as specifically stated in Schedule
3.17. Corporation has taken all reasonable security measures to protect the
secrecy, confidentiality, and value of these trade secrets; to the best of
their knowledge , any of their employees who, either alone or in concert
with others, have knowledge of or access to these secrets, or who have
knowledge of or access to information relating to them, have been put on
notice and, if appropriate, have entered into agreements that these secrets
are proprietary to the Corporation and are not to be divulged or misused.
All these trade secrets are presently valid and protectable and are, to the
best of their knowledge, not part of the public knowledge or literature;
they have not, to Shareholder's knowledge, been used, divulged, or
appropriated for the benefit of any past or present employees or other
persons, or to the detriment of Corporation.
<PAGE> 214
3.18. Corporation has good and marketable title to all their
respective assets and interest in assets, tangible or intangible, with
constitute all the assets and interest in assets that are used in the
businesses of the Corporation. All these assets are free and clear of
restrictions on or conditions to transfer or assignment and free and clear
of mortgages, liens, pledges, charges, encumbrances, equities or
restrictions, except for (1) those disclosed in corporation's balance sheet
as of December 31, 1997, or in Schedules 3.1 through 3.13 to this
Agreement; (2) the lien of current taxes not yet due and payable; and (3)
possible minor matters that, in the aggregate, are not substantial in
amount and do not materially detract from or interfere with the present or
intended use of any of these assets or materially impair business
operations. Corporation is not in default or in arrears in any material
respect under any lease. All premises occupied by Corporation and all of
the tangible personal property of Corporation that is necessary to the
operation of their businesses is in operating condition and repair,
ordinary wear and tear excepted. Corporation is in possession of all
premises leased to them from any third party. Neither Shareholders, nor any
officer, director, or employee of Corporation, nor any spouse, child, or
other relative of any of these persons, owns, or has any interest, directly
or indirectly, in any of the property owned by or leased to Corporation or
any copyrights, patents, trademarks, tradenames, or trade secrets licensed
by Corporation. Corporation does not occupy any real property in violation
of any law, regulation or decree.
3.19. Schedule 3.19 to this Agreement is a description of all
insurance policies held by Corporation concerning its businesses and
properties. All these policies are in their respective principal amounts as
set forth in Schedule 3.19. Corporation has maintained and now maintains
(1) insurance on all of their assets and businesses of a type customarily
insured, covering property damage and loss of income by fire or other
casualty, and (2) adequate insurance protection against all liabilities,
claims and risks against which it is customary to insure. Corporation is
not in default with respect to payment of premiums on any such policy.
Except as set forth in Schedule 3.19, no claim is pending under any such
policy.
3.20. Corporation is not a party to, nor is the Corporation either
bound by, any agreement not entered into in the ordinary course of
business, or any agreement that is unusual in nature, duration, or amount
(except the agreements listed in Schedule 3.6 copies of which have been
furnished to or made available to Buyer.) There is no default or event
that, with notice, a lapse of time, or both, would constitute a default by
any party to any of these agreements. Corporation has not received notice
that any party to any of these agreements intends to cancel or terminate
any of these agreements or to exercise or not exercise any options under
any of these agreements. Corporation is not a party to, nor is the property
of Corporation bound by, any agreement that is materially adverse to the
businesses, properties or financial condition of Corporation.
3.21. Corporation has not received notice of any violation of any
applicable federal, state or local statute, law, or regulation (including
any applicable mortgage lending or servicing law, ordinance or regulation)
affecting its properties or the operation of its business; and to the best
of the knowledge of Shareholders and Corporation there are no such
violations.
3.22. Except as set forth in Schedules 3.6 and 3.12, there is no
pending, or, to the best knowledge of Shareholders and Corporation,
threatened, suit, action, arbitration, or legal, administrative, or other
proceeding or governmental investigation against or materially adversely
affecting Corporation, or any of its businesses, assets or financial
conditions. The matters set forth in Schedules 3.6 and 3.12, if decided
adversely to Corporation, will not result in a material adverse change in
the business, assets, or financial condition of Corporation, except as is
specifically set forth in Schedules 3.6 and 3.12. Shareholders have
furnished or made available to Buyer copies of all relevant court papers
and other documents relating to the matters set forth in Schedules 3.6 and
3.12. Corporation is not in default with respect to any order, writ,
injunction, or decree of any federal, state, local or foreign court,
department, agency, or instrumentality. Except as set forth in Schedules
3.6 and 3.12, neither Corporation nor Shareholders are presently engaged in
any legal action to recover money due to any of them or damages sustained
by any of them.
<PAGE> 215
3.23. Except as is set forth in Schedules 3.1 through 3.22, the
consummation of the transactions contemplated by this Agreement will not
result in or constitute any of the following:
(a) a breach of any term or provision of this Agreement;
(b) a default or an event that, with notice, lapse of time, or both,
would be a default, breach, or violation of the articles of incorporation
or bylaws of Corporation or any lease, license, promissory note,
conditional sales contract, commitment, indenture, mortgage, deed of
trust, or other agreement, instrument, or arrangement to which any
Shareholder or Corporation is a party or by which any of them or the
property of any of them is bound;
(c) an event that would permit any party to terminate any agreement or
to accelerate the maturity of any indebtedness or other obligation of
Corporation; or
(d) the creation or imposition of lien, charge, or encumbrance on any
of the properties of Corporation.
3.24. Shareholders have the rights, power, legal capacity and
authority to enter into and perform their respective obligations under
this Agreement. The execution and delivery of this Agreement by
Corporation shall have been duly authorized by all necessary corporate
action.
3.25. Shareholders have furnished to Buyer for its examination (1)
copies of the articles of incorporation and bylaws of Corporation; (2) the
minute books of Corporation containing all records required to be set forth
of all proceedings, consents, actions, and meetings of the Shareholders and
boards of directors of Corporation; (3) all permits, orders, and consents
issued by any governmental authority of the State of New Jersey regarding
the Corporation, or any security of either of them, and all applications
for such permits, orders, and consents; and (4) the stock transfer books of
Corporation setting forth all transfers of any capital stock.
3.26. Schedule 3.26 is a list of the names and addresses of all
officers, directors, employees, agents, and representatives of Corporation
stating the rates of compensation payable to each and the date commenced.
3.27. Schedule 3.27 is a list of all Corporation's material employment
contracts; collective bargaining agreements; and pension, bonus, profit
sharing, stock option or other agreements providing for employee
remuneration or benefits. To the best of Shareholders' knowledge,
Corporation is not in default under any of these agreements. There have
been no claims of defaults, and to the best knowledge of Shareholders,
there are no facts or conditions that if continued, or on notice, will
result in a default under these contracts or arrangements. there is no
pending or, to Shareholders' knowledge, threatened labor dispute, strike,
or work stoppage affecting Corporation's business. To the best of their
knowledge, Corporation has complied with all applicable laws for each of
their respective employee benefit plans, including the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA) if and to the
extent applicable. To the best of Shareholders knowledge, there are no
threatened or pending claims by or on behalf of any such benefit plan, by
or on behalf of any employee covered under any such plan, or otherwise
involving any such benefit plan, that allege a breach of fiduciary duties
or a violation of other applicable state or federal laws; nor is there, to
Shareholders' knowledge, any basis for such a claim. Except as is set forth
in Schedule 3.7, Corporation has not entered into any severance or similar
arrangement with any present or former employee that will result in any
obligation, absolute or contingent, of Buyer or Corporation, to make any
payment to any present or former employee following termination of
employment. Schedule 3.7 contains a complete list of all employee welfare
benefit plans, pension plans, deferred or incentive compensation plans,
bonus plans, stock option plans, employee stock purchase plans, retirement
plans, health plans, insurance plans, travel allowance plans, profit
sharing plans, and any other employee benefit or fringe benefit plan,
agreement, arrangement, or commitment, other than normal payroll practices
and policies concerning holidays, vacations, and salary continuation during
short absences for illness or other reasons, maintained by Corporation.
True and complete copies of all documents relating to each plan or
arrangement described in Schedule 3.7
<PAGE> 216
have been made available by Corporation to Buyer for Buyer's review, or
will be so made available prior to the Closing Date.
3.28. Schedule 3.28 lists (1) the names and addresses of all persons
holding a power of attorney on behalf of Corporation and (2) the names and
addresses of all banks or other financial institutions in which Corporation
has an account, deposit, or safe deposit box, account numbers, with the
names of all person authorized to draw on these accounts or deposits or to
have access to these boxes.
3.29. To the best of Shareholders knowledge, as of the date of this
Agreement and the Closing Date, Corporation is not, and will not be, in
violation of any federal, state or local law, ordinance or regulation
relating to industrial hygiene, soil, water, or environmental conditions
on, under or about any premises occupied or used by Corporation during the
period that Corporation has occupied any such property, there has been no
use, presence, disposal, storage, generation, release, or threatened
release (as those terms are used in the Environmental Laws, and hereinafter
collectively referred to as "Use") of Hazardous Materials on, from or under
such Premises by the Corporation, except as previously disclosed by
Corporation or Shareholders to Buyer in writing. Shareholders have no
knowledge of any use of Hazardous Materials on, from or under such premises
which may have occurred prior to the Corporation taking possession of such
premises, except as previously disclosed to Buyer in writing. To the best
of Shareholders knowledge, during the period that Corporation has occupied
such premises, there has been no enforcement action or litigation brought
or threatened against the Corporation, nor any settlements reached by or
with any party or parties alleging the Use of Hazardous Materials on, from
or under such premises, except as previously disclosed to Buyer in writing.
For purposes hereof, "Environmental Laws," shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
1901 et seq.; the Hazardous Materials Transportation Act, 39 U.S.C. 1801 et
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.;
the Federal Clean Water Act, 33 U.S.C. 1251 et seq.; and any other federal,
state or local law, statute, code, regulation, ordinance or other mode of
governance concerning Hazardous Materials. "Hazardous Materials" shall mean
any and all flammable, explosive, asbestos, radioactive material, hazardous
waste, toxic substance or related material, including but not limited to
those materials and substances defined as "hazardous substances",
"hazardous materials", "hazardous waste" or "toxic substance" in the
Environmental Laws.
3.30. Corporation is not in default under any agreement, lease,
indenture, mortgage, deed of trust or instrument to which it is a party or
by which it may be bound or subject, concerning any premises occupied or in
the possession of Corporation, or to which Corporation holds any rights to
any interest or use. 3.31. None of the warranties or representations made
by Shareholders herein, or made in any certificate or memorandum furnished
or to be furnished by any of them or on their behalf in relation to this
transaction, contains or will contain any untrue statement of a material
fact, or omits to state any material fact necessary to make the statements
made.
4. BUYER'S REPRESENTATIONS AND WARRANTIES
4.1. Buyer represents and warrants to Shareholders that:
(a) Buyer is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware. The execution and
delivery of this Agreement and the consummation of this transaction by
Buyer have been duly authorized, and no further corporate authorization is
necessary on the part of Buyer.
(b) Buyer need make or obtain no consent, approval, or
authorization of, or declaration, filing, or registration with, any federal
or state governmental or regulatory authority in connection with the
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated by this Agreement.
<PAGE> 217
(c) The execution, delivery and performance of this Agreement by
the Buyer and the consummation by the Buyer of the transactions
contemplated hereby will not (i) result in a violation of the Buyer's
Certificate of Incorporation or By-laws or (ii) conflict with or constitute
a default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Buyer or any of its subsidiaries is a
party, or result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the principal market or
exchange on which the Buyer's Common Stock is traded or listed) applicable
to the Buyer or any of its subsidiaries or by which any property or asset
of the Buyer or any of its subsidiaries is bound or affected. Neither the
Buyer nor its subsidiaries is in violation of any term of or in default
under its Certificate of Incorporation or Bylaws or their organizational
charter or by-laws, respectively, or any material contract, agreement,
mortgage, indebtedness, indenture, instrument, judgment, decree or order
or any statute, rule or regulation applicable to the Buyer or its
subsidiaries. The business of the Buyer and its subsidiaries is not being
conducted, and shall not be conducted in violation of any law, ordinance,
regulation of any governmental entity. Except as specifically contemplated
by this Agreement and as required under the 1933 Act and any applicable
state securities laws, to the best of the Buyer's knowledge, the Buyer is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for
it to execute, deliver or perform any of its obligations under or
contemplated by this Agreement. All consents, authorizations, orders,
filings and registrations which the Buyer is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the
date hereof. The Buyer and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(d) Since January 1, 1996, the Buyer had filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing
filed prior to the date hereof and all exhibits included therein and being
hereinafter referred to as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
As of their respective dates, the financial statements of the Buyer
included in the SEC Documents complied as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Buyer as of
the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf
of the Buyer to the Shareholders which is not included in the SEC
Documents, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein,
in the light of the circumstance under which they are or were made, not
misleading.
(e) Except as disclosed in the SEC documents, since December 15,
1997, there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition,
results of operations or prospects of the Buyer or its subsidiaries. The
Buyer has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Buyer
or its subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
<PAGE> 218
(f) There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Buyer or any of
its subsidiaries, threatened against or affecting the Buyer, the Common
Stock or any of the Buyer's subsidiaries, wherein an unfavorable decision,
ruling or finding would (i) have a material adverse effect on the
transactions contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Buyer to perform its
obligations under, this Agreement or any of the documents contemplated
herein or (iii), except as expressly set forth in the SEC Documents, have a
material adverse effect on the business, operations, properties, financial
condition or results of operation of the Buyer and its subsidiaries taken
as a whole.
(g) At the Closing, Buyer knows of no event, liability or material
change in Buyer's business or its prospects that would have a materially
adverse affect on the trading price of Buyer's stock.
(h) Buyer is acquiring the Shares hereunder for its own account
for investment purposes only and not with a view to, or resale in
connection with any public distribution thereof or with any present
intention of selling, distributing or otherwise disposing the Shares.
5. SHAREHOLDER'S OBLIGATIONS BEFORE CLOSING
5.1. Shareholders covenant that, from the date of this Agreement until
the Closing:
(a) Buyer and its counsel, accountants and other representatives
will have full access during normal business hours to all properties,
books, accounts, records, contracts and documents of or relating to
Corporation. Shareholders and Corporation will furnish or cause to be
furnished to Buyer and its representatives all data and information
concerning the business, finances, and properties of Corporation that may
reasonably be requested.
(b) Corporation will carry on its businesses and activities
diligently and in substantially the same manner as they previously have
been carried out and will not institute any unusual or novel method of
operation, business practice, management, accounting or operation that
vary materially from those methods used by Corporation as of the date of
this Agreement.
(c) Except as is set forth in Schedule 3.12, Corporation will use
its best efforts, without making any commitments on behalf of Buyer, to
preserve its respective business organizations intact; to keep available to
Corporation its present officers and employees; and to preserve its present
relationships with lenders, investors, brokers, customers, and others
having business relationships with it.
(d) Except as is set forth in Schedule 3.12, Corporation will not:
(1) amend its articles of incorporation or bylaws;
(2) issue any shares of its capital stock;
(3) issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments under which any
additional shares of its capital stock of any class might be directly or
indirectly authorized, issued, or transferred from treasury; or
(4) agree to do any of the acts listed above.
<PAGE> 219
(e) Corporation will continue to carry its existing insurance,
subject to variations and amounts required by the ordinary operations of
its businesses. At the request of Buyer and at Buyer's sole expense, the
amount of insurance against fire and other casualties that, at the date of
this Agreement, Corporation carries on any of its properties or in respect
of its operations will be increased by the amount or amounts Buyer will
specify.
(f) Except in the ordinary course of business, Corporation will not
agree to:
(1) make any change in compensation payable or to become
payable by it to any officer, employee, sales agent, or representative;
(2) make any change in benefits payable to any officer,
employee, sales agent, or representative under any bonus or pension plan or
other contract or commitment; or
(3) modify any collective bargaining agreement to which it is a
party or by which it may be bound.
(g) Corporation will not agree to do, without Buyer's consent, any
of the following:
(1) enter into any contract, commitment or transaction not in
the usual and ordinary course of its business;
(2) make any capital expenditures in excess of $5,000 for any
single item or enter into any lease of capital equipment or real or
personal property under which the annual lease charge is in excess of
$5,000; or
(3) sell or dispose of any capital asset with a net book value
exceeding $5,000.
(h) Except in the ordinary course of business or as is set forth in
Schedule 3.12, Corporation will not:
(1) declare, set aside, or pay any dividend or make any distribution in
respect of its capital stock;
(2) directly or indirectly purchase, redeem or otherwise acquire any shares
of its capital stock;
(3) enter into any agreement obligating it to do any of the foregoing
prohibited acts.
(i) Except in the ordinary course of business, or as is set fort in
Schedule 3.12, Corporation will not, or will not agree to:
(1) pay any obligation or liability, fixed or contingent, other than a
current liability;
(2) waive or compromise any right or claim; or
(3) cancel, without full payment, any note, loan, or other
obligation owed to Corporation.
(j) Corporation will not, or will not agree to, modify, amend,
cancel or terminate any of its existing contracts or agreements, except in
the ordinary course of business.
<PAGE> 220
6. CONSENTS OF OTHERS
The parties acknowledge and agree that the Shareholders shall have no
responsibility with respect to the transfer, consents or approval of the
Corporation's mortgage lending licenses, as may be required upon transfer
of ownership by applicable regulatory authorities and as disclosed in
Schedule 3.1. However, Shareholders shall exercise their best efforts, and
promptly execute and deliver any documents and instruments that may be
reasonably required, to assist Buyer in obtaining such consents or
approval; provided, however, that Shareholders will not be obligated under
this Paragraph to execute any guarantee, assumption of liability, or other
document or instrument requiring it to assume obligations not contemplated
by this Agreement.
7. WARRANTIES TRUE AT CLOSING
All warranties of Shareholders and Buyer set forth in this Agreement
and in any written statements delivered to Buyer by Shareholders and by
Buyer to Shareholders under this Agreement will also be true and correct on
the Closing Date as if made on that date.
8. BUYER CONFIDENTIALITY
Buyer agrees that, unless and until the Closing has been consummated,
Buyer and its officers, directors and other representatives will hold in
strict confidence, and will not use to the detriment of Shareholders or
Corporation, all data and information about the business of Corporation and
Shareholders (whether or not Closing takes place) obtained in connection
with the transaction or agreement, except as far as the data and
information may be required by law to be disclosed to its shareholders or
other parties. If the transactions contemplated by this Agreement are not
consummated, Buyer will return to Shareholders all that data and the
information that Shareholders may reasonably request, including documents
prepared by or made available to Buyer in connection with this transaction.
9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer to purchase the Shares under this Agreement
are subject to the satisfaction, at or before Closing, of all the
conditions set forth below in this Paragraph 9. Buyer may specifically
waive in writing any or all of these conditions in whole or in part without
prior notice; provided, however, that no such waiver of a condition will
constitute a waiver by Buyer of any of its other rights or remedies, at law
or in equity, if Shareholders or Corporation are in default of any of their
representations, warranties, or covenants under this Agreement.
(a) Except as otherwise permitted by this Agreement, all warranties
by each of the Shareholders in this Agreement, or in any written statement
that will be delivered to Buyer by any of them under this Agreement, must
be true in all material respects on the Closing Date as though made at that
time.
(b) Shareholders must have performed, satisfied and complied in all
material respects with all covenants, agreements, and conditions required
by this Agreement to be performed or complied
with by them, or any of them, by the Closing Date.
(c) During the period from December 31, 1997 to the Closing Date,
there shall not have been any material adverse change in the financial
condition or the results of operations of Corporation, and Corporation will
not have sustained any insured or uninsured loss or damage to its assets
that materially adversely affects its ability to conduct a material part of
its business, except as is set forth in Schedules 3.5 through Schedules
3.13 attached hereto.
<PAGE> 221
(d) Buyer will have received a certificate, dated the Closing Date,
signed and verified by Shareholders and by Corporation's president and its
chief financial officer, certifying, in such detail as Buyer and its
counsel may reasonably request, that to the best of their knowledge the
conditions specified in Paragraphs 3, 5 and 9 of this Agreement have been
fulfilled.
(e) Buyer will have received from Sterns & Weinroth, PC, counsel
for Shareholders, an opinion dated the Closing Date in form and substance
satisfactory to Buyer and its counsel, that:
(i) Corporation is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of New Jersey,
and has all necessary corporate power to own its properties as now owned
and operate its business as now operated.
(ii) The authorized capital stock of Corporation consists of
2,500 shares of capital stock of no par value, of which 2,000 shares are
issued and outstanding. All outstanding shares are validly issued, fully
paid, and non-assessable. That there are no outstanding subscriptions,
options, rights, warrants, convertible securities, or other agreements
or commitments obligating Corporation to issue or transfer from treasury
any additional shares of its stock of any class.
(iii) This Agreement has been duly and validly authorized
and, when executed and delivered by Shareholders, will be valid, binding,
and enforceable against each of them in accordance with its terms, except
as limited by bankruptcy and insolvency laws and other laws and equitable
principles affecting the rights of creditors generally.
(iv) That Shareholders are the record owners of 2,000 shares of
stock of the Corporation. On the transfer and delivery of the Shares to
Buyer in accordance with this Agreement, Buyer will acquire the rights and
the Shares free of any adverse claim, so long as Buyer is a purchaser for
value in good faith and without notice of any adverse claim.
(v) Neither execution or delivery of this Agreement nor the
consummation of the transaction contemplated in this Agreement will
constitute (a) a default or an event that would, with notice, lapse of
time, or both-constitute a default under, or violation or breach of,
Corporation's articles of incorporation or bylaws, or to the best of
counsel's knowledge, any indenture, license, lease, franchise, mortgage,
instrument, or other agreement to which any of the Shareholders or
Corporation is a party or by which they or the properties of Corporation
may be bound; or (b) an event that would permit any party to any agreement
or instrument to terminate it or accelerate the maturity of any
indebtedness or other obligation of Corporation; or (c) an event that would
result in the creation or imposition of any lien, charge, or encumbrance on
any asset of Corporation.
(vi) Except as set forth in Schedules 3.6 and 3.12 to this
Agreement, to the best of counsel's knowledge, there is no suit, action,
arbitration, or legal, administrative or other proceeding or governmental
investigation pending or threatened against or affecting Corporation, or
any of its businesses or properties or financial or other condition.
(f) No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, will have been instituted or
threatened on or before the Closing Date.
(g) Buyer will have received from Corporation's chief financial
officer a letter, which shall be joined in and signed by Shareholders,
dated at the Closing Date, stating that on the basis of a review of the
latest available accounting records of Corporation, consultations with
other responsible officers of Corporation and with Shareholders, and any
other pertinent inquiries that he may deem necessary, he has no knowledge
or reason to suspect that during the
<PAGE> 222
period from December 31, 1997 to a specified date not more than five (5)
business days before the Closing Date, there was any change in the
financial conditions or results of operations of Corporation, except
changes incurred in the ordinary and usual course of its businesses during
that period that in the aggregate are not materially adverse, and any
other changes or transactions contemplated by this Agreement. For purposes
of that letter, "materially adverse" will be deemed to be an increase in
liabilities equal to or greater than fifty thousand dollars ($50,000)
without a corresponding increase in assets, or a reduction in monthly
operating revenue during that period of fifty thousand dollars ($50,000) or
more.
(h) The execution and delivery of this Agreement by Corporation,
and the performance of its covenants and obligations under it, will have
been duly authorized by all necessary corporate action, and Buyer will have
received copies of all resolutions pertaining to that authorization,
certified by the secretary of the Corporation.
(i) All necessary agreements and consents of any parties to the
consummation of the transactions contemplated by this Agreement, or
otherwise pertaining to the matters covered by it, will have been obtained
by Shareholders or Corporation and delivered to Buyer.
(j) The employment agreements with each of the Shareholders, in the
forms set forth in Exhibit B, dated the Closing Date, will have been
executed and delivered by Shareholders to Buyer.
(k) The form and substance of all certificates, instruments,
opinions, and other documents delivered to Buyer by Shareholders under this
Agreement will be satisfactory in all reasonable respects to Buyer and its
counsel.
(l) Shareholders will have delivered to Buyer, except as is
otherwise provided in the Shareholders Employment Agreements attached
hereto as Exhibit B, the written resignations of all of the officers and
directors of Corporation, as requested by Buyer and will cause any other
action to be taken with respect to these resignations that Buyer may
reasonably request.
(m) Buyer will have received from Shareholders an investment
letter agreement substantially in the form set forth in Exhibit C.
10. CONDITIONS PRECEDENT TO SHAREHOLDERS' PERFORMANCE
The obligations of Shareholders to sell and transfer the Shares under
this Agreement are subject to the satisfaction, at or before the Closing,
of all the following conditions.
Shareholders may waive any or all of these conditions in whole or in part
without prior notice, provided, however, that no such waiver of a condition
will constitute a waiver by Shareholders of any their other rights or
remedies, at law or in equity, if Buyer should be in default of any of its
representations, warranties or covenants under this Agreement.
(a) All warranties by Buyer contained in this Agreement or in any
written statement delivered by Buyer under this Agreement must be true in
all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of that date.
(b) Buyer must have performed and complied with all covenants and
agreements and satisfied all conditions that it is required by this
Agreement to perform, comply with, or satisfy before or at the Closing.
(c) The board of directors of Buyer will have duly authorized and
approved the execution and delivery of this Agreement and all corporate
action necessary or proper to fulfill Buyer's obligations to be performed
under this Agreement on or before the Closing Date.
<PAGE> 223
(d) The employment agreements with each of the Shareholders, in the
forms set forth in Exhibit B, dated the Closing Date, will have been
executed and delivered by Buyer to Shareholders.
(e) An escrow shall be established with Sterns & Weinroth, PC, the
terms and conditions of which are set forth in Exhibit A, attached hereto
("Escrow"). Shareholders shall pay for all costs and expenses associated
with the Escrow.
(f) Shareholders will have received a certificate, dated the
Closing Date, signed and verified by Buyer's president and its chief
financial officer, certifying, in such detail as Shareholder and its
counsel may reasonably request, that to the best of their knowledge the
conditions specified in Paragraphs 4,10 and 12 of this Agreement have been
fulfilled.
(g) All necessary agreements and consents of any parties to the
consummation of the transactions contemplated by this Agreement, or
otherwise pertaining to the matters covered by it, will have been obtained
by Buyer and delivered to Shareholders.
(h) No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, will have been instituted or
threatened on or before the Closing Date.
11. THE CLOSING
(a) The transfer of the Shares by Shareholders to the Escrow for
Buyer's benefit (the Closing) will take place at the offices of the
Corporation located at 300 Craig Road, Manalapan, New Jersey 07726 at
10:00 a.m. local time, on April 30,1998, or at such other time and place as
the parties may agree to in writing (the Closing Date).
(b) At the Closing, Shareholders must deliver to Buyer the
following instruments, in form and substance satisfactory to Buyer and its
counsel, against delivery of the items specified in Paragraph 12:
(1) a certificate or certificates, into Escrow, representing
the Shares, registered in the name of Shareholders, duly endorsed by
Shareholders for transfer or accompanied by an assignment of the Shares
duly executed by Shareholders, with notorized signatures. On submission of
that certificate or certificates to Corporation for transfer, Corporation
will prepare a certificate representing the Shares, to be registered in the
Buyer's name, in accordance with the terms of the Escrow;
(2) the stock books, stock ledgers, minute books and corporate
seal of the Corporation;
(3) the opinion of counsel as provided in paragraph 9(e);
(4) a report of corporation's independent public accountants or
chief financial officer, as provided for in Paragraph 9(g), dated April 30,
1998;
(5) except as otherwise specified by Buyer, the written
resignations of all of the officers and directors of Corporation;
(6) employment agreements between Shareholders and Corporation
dated the Closing Date, the form set forth in Exhibit , executed by
Shareholders and Corporation;
<PAGE> 224
(7) a certificate executed by Shareholders, dated the Closing
Date, certifying that their respective representations and warranties
in this Agreement are true and correct on the Closing Date, as though each
representation and warranty had been made on that date;
(8) a general release in the form set forth in Exhibit D, in
favor of Corporation, executed by Shareholders, and dated the Closing Date.
12. BUYER'S OBLIGATIONS AT CLOSING
At or prior to the Closing, Buyer must deliver to the Shareholders the
following:
(a) A certificate representing the total number of shares of
Buyer's common stock to be issued and delivered to Shareholders at the
Closing under Paragraph 2.1 against delivery of the items Shareholders are
to deliver as specified in Paragraph 11.
(b) Certified resolutions of Buyer's board of directors,
authorizing the execution and performance of this Agreement and all action
to be taken by Buyer under this Agreement.
(c) Employment Agreements with each of the Shareholders, in the
forms set forth in Exhibit 12, dated the Closing Date, executed by Buyer
and delivered to Shareholders.
(d) A certificate executed by its President certifying that all
Buyer's representations and warranties under this Agreement are true as of
the Closing Date, as though each of those representations and warranties
had been made on that date and the conditions in Paragraphs 10 and 12 have
been fulfilled.
(e) An agreement whereby Buyer shall ensure that the employees of
the Corporation continue to receive those benefits which they currently
enjoy as employees of Corporation, for the remainder of the 1998 calendar
year, at no increase in cost to the employees.
13. SHAREHOLDER'S INDEMNITY
From and after the Closing Date, the Shareholders shall jointly and
severally indemnify, defend, save and hold harmless Buyer, and any of its
affiliates, including, without limitation, its officers, directors,
shareholders, employees, attorneys, agents and representatives ("Buyer's
Affiliates"),and against any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries, judgments or
deficiencies, including interest, penalties, and reasonable attorneys'
fees, that Buyer may incur, sustain or suffer, on or before April 30, 2000,
as a result of any intentional misrepresentation or fraudulent act by
Shareholders, which arises from or relates to, Shareholders
representations, warranties, covenants or agreements in this Agreement or
in any schedule, certificates, exhibit, or other instrument furnished or to
be furnished by Shareholders or Corporation under this Agreement.
14. BUYER'S INDEMNITY
Buyer will indemnify, defend and hold harmless Shareholders against,
and in respect of, claims, losses, expenses, costs, obligations, and
liabilities they may incur by reason of Buyer's breach of or failure to
perform any of its warranties, guaranties, commitments, or covenants in
this Agreement.
<PAGE> 225
15. TERMINATION
This Agreement may be terminated prior to the Closing Date as follows:
15.1. By Shareholders (acting unanimously) or Buyer, if the Closing
has not taken place on or before April 30, 1998, or other mutually agreed
upon date; provided, however, that such termination will not relieve any
party from any liability if such party, as of the termination date, is in
breach of any of the provisions of this Agreement; and provided, further,
that if the delay is caused by the act or omission of a particular party,
such party will not have the right to terminate hereunder; or
15.2. By Buyer, if on the Closing Date any of the conditions set
forth in Paragraph 9 have not been satisfied or
waived by Buyer; or
15.3. By Shareholders (acting unanimously), if on the Closing Date
any of the conditions set forth in Paragraph 10 have not been satisfied or
waived by Shareholders; or
15.4. By mutual agreement of Buyer and Shareholders evidenced by a
writing executed by all parties.
16. PUBLICITY
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement will be jointly planned and
coordinated by and between Buyer and Shareholders. No party will act
unilaterally in this regard without the prior written approval of the
other; however, this approval will not be unreasonably withheld.
17. COSTS
17.1. Each party represents and warrants that it has dealt with no
broker or finder in connection with any transaction contemplated by this
Agreement, and, as far as it knows, no broker or other person is entitled
to any commission or finder's fee in connection with any of these
transactions. Shareholders and Buyer will indemnify and hold one another
harmless against any loss, liability, damage, costs, claim, or expense
incurred by reason of any brokerage, commission or finder's fee alleged to
be payable because of any act, omission or statement of the indemnifying
party.
17.2. Each party will pay all costs and expenses incurred or to be
incurred by it in negotiating and preparing this Agreement and in Closing
and carrying out the transactions contemplated by this Agreement.
18. ASSIGNMENT
This Agreement will be binding on, and will inure to the benefit of,
the parties to it and their respective heirs, legal representatives,
successors, and assigns; provided, however, the Buyer may not assign any of
its rights under this Agreement, except to a wholly owned subsidiary
corporation of Buyer, except that Buyer shall remain responsible to perform
its obligations hereunder and that Shareholders shall not be entitled to
assign any of their rights or obligations under this Agreement, jointly or
severally, without prior written consent of Buyer, which consent may be
withheld in Buyer's sole discretion.
19. ARBITRATION
Any controversy or claim arising out of, or relating to, this
Agreement, or the making, or performance, or interpretation of it, will be
settled by arbitration in San Francisco, California, under the commercial
arbitration rules of the American Arbitration Association then existing,
and judgment on the arbitration award may be entered in any court
<PAGE> 226
having jurisdiction over the subject matter of the controversy.
Arbitrator(s) will be persons experienced in negotiating, making and
consummating acquisition agreements. Absent fraud, collusion or willful
misconduct by the arbitrator, the award shall be final. In making the
decision and award, the arbitrator shall apply applicable substantive law.
If a court, applying applicable substantive law, would be authorized to
award punitive or exemplary damages, then the arbitrator shall have the
same power, but the arbitrator shall not otherwise award punitive or
exemplary damages. Questions regarding whether a claim must be arbitrated
or whether a claim involves a legally protected right shall be determined
by the arbitrator.
20. LITIGATION COSTS
If any legal action or any arbitration or other proceeding is brought
for the enforcement or interpretation of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
or parties will be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled.
21. PARTIES IN INTEREST
Nothing in this Agreement, whether expressed or implied, is intended
to confer any rights or remedies under or by reason of this Agreement on
any persons other than the parties to it and their respective successors
and assigns. Nothing in this Agreement is intended to relieve or
discharge the obligations or liability of any third person to any party to
this Agreement. No provision gives any third person any right of
subrogation or action against any party to this Agreement.
22. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior
and contemporaneous agreements, representations, and understandings of
the parties. No supplement, modification, or amendment of this Agreement
will be binding unless executed in writing by all of the parties. No waiver
of any of the provisions of this Agreement will constitute a waiver of any
other provision, whether or not similar, nor will any waiver constitute a
continuing waiver. No waiver will be binding unless executed in writing by
the party making the waiver.
23. SURVIVAL OF WARRANTIES AND REPRESENTATIONS
The representations, warranties and covenants set forth or
incorporated by reference in this Agreement shall survive the Closing Date.
All representations and warranties contained in this Agreement (including
the attached exhibits and schedules, or in any certificates delivered with
respect hereto will be deemed to be representations and warranties) shall
remain in full force and effect until April 30, 2000; provided, however,
that all such representations and warranties described above shall survive
after the applicable survival period with respect to any claim made prior
to the expiration thereof until, and shall expire when, such claim is
finally resolved.
24. FORM OF AGREEMENT
The subject headings of the sections and paragraphs of this Agreement
are included for convenience only and will not affect the construction or
interpretation of any its provisions.
<PAGE> 227
25. WORD USAGE
Unless the context clearly requires otherwise:
(a) Plural and singular numbers will each be considered to include
the other;
(b) The masculine, feminine and neuter genders will each be
considered to include the other;
(c) "shall," "will," "must," "agree," and "covenants" are each
mandatory;
(d) "may" is permissive;
(e) "or" is not exclusive; and
(f) "includes" and "including" are not limiting.
26. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which will be considered an original, but all of
which together will constitute one and the same instrument.
27. GOVERNING LAW
This Agreement will be construed in accordance with, and governed by,
the laws of the state of California as applied to contracts that are
executed and performed in California.
28. SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of final jurisdiction, it is the intent of the parties that all
other provisions of this Agreement be construed to remain fully valid,
enforceable, and binding on the parties.
29. NOTICES
All notices, request, demands and other communications under this
Agreement must be in writing and will be considered to have been duly given
on the date of service if served personally on the party to whom notice is
to be given, or on the date of delivery if delivered by Federal Express or
other similar courier service which provides a written document evidencing
date of delivery, or on the third day after mailing if mailed to the party
to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and, in each case, properly addressed as
follows:
To Buyer:
President
Finet Holdings Corporation
3021 Citrus Circle, Suite 150
Walnut Creek, CA 94598
<PAGE> 228
To Shareholders:
Stephen R. Cohen
2562 Heathrow Lane
Manasquan, NJ 08736
Gerald M. Cohen
156 Gravel Hill Rd.
Manalapan, NJ 07726
Howard A. Rice
5 Shield Rd.
Englishtown, NJ 07726
IN WITNESS WHEREOF, the parties to this Agreement have duly
executed it on the date and year first above written.
BUYER:
Finet Holdings Corporation
By:
/s/ Wayne Repich
Wayne Repich,
Chief Operating Officer
SHAREHOLDERS:
/s/ Stephen R. Cohen
Stephen R. Cohen
/s/ Gerald M. Cohen
Gerald M. Cohen
/s/ Howard A. Rice
Howard A. Rice
CORPORATION:
Coastal Federal Mortgage Company
By:
/s/ Stephen R. Cohen
Stephen R. Cohen,
President
By:
Gerald M. Cohen
Gerald M. Cohen,
Secretary
<PAGE> 229
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of May 19, 1998 at Walnut Creek, California,
among Finet Holdings Corporation, a Delaware corporation ("Buyer") and John
E. Railey, individually and as Trustee utd 10/28/93, Harve L. Lubin,
individually and as Trustee utd 2/22/90 and Joseph E. Gistaro, individually
and as Trustee utd 8/15/89 (collectively "Shareholders") and MICAL
Mortgage, Inc., a California corporation ("Corporation").
RECITALS
Shareholders have represented that they own all of the issued and
outstanding stock of Corporation. Buyer desires to purchase from
Shareholders and Shareholders desire to sell to Buyer all of the
outstanding stock of Corporation (the "Shares"). Corporation desires that
this transaction be consummated.
In consideration of the mutual covenants, agreements, representations,
and warranties contained in this Agreement, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1. Tax-Free Reorganization. Shareholders and Buyer adopt this
Agreement as a plan of reorganization under the Internal Revenue Code
Section 368(a)(1)(B).
1.2. Purchase and Sale of Shares. Subject to the terms of and
conditions set forth in this Agreement, on the Closing Date, Shareholders
will transfer, convey and deliver the Shares to Buyer, and Buyer will
acquire the Shares from Shareholders. At Closing Buyer will execute and
deliver to Shareholders an irrevocable proxy to vote the Shares for all
purposes until such time as all state licensing requirements applicable to
the conduct of the Corporation's business as contemplated by the Buyer have
been complied with by the parties hereto.
2. CONSIDERATION
2.1. Purchase Price. The purchase price to be paid by Buyer to
Shareholders in exchange for the Shares shall be 552,430 shares of Buyer's
common stock (the "Purchase Price Stock"), adjusted as set forth below.
2.2. Payment of Purchase Price. Subject to the Pledge as provided in
Section 2.3, the Buyer will issue and deliver an aggregate of 552,430
shares of the Purchase Price Stock to the Shareholders (as defined in
Section 11) in the amounts set forth on Exhibit A hereto according to a
deferred payment schedule to be mutually agreed upon by the parties. Of
such shares, 100,000 will be pledged by Shareholders as provided in Section
2.3 below.
2.3. Pledge. As security for Shareholders' obligations set forth in
Section 13.3 hereof, Shareholders shall execute and deliver to Buyer at the
Closing a pledge and security agreement in the form of Exhibit B hereto
(the "Pledge Agreement"), giving Buyer a first security interest in 100,000
shares of the Purchase Price Stock as provided in the Pledge Agreement.
2.4. Adjustment to Purchase Price. The Purchase Price Stock shall be
subject to an adjustment in the amount of 20,460 shares (the "Reserved
Shares") pending resolution of an action by the California Department of
Transportation ("CalTrans"), among others, requiring Corporation to make
certain improvements to the drainage system at 5151 Murphy Canyon Road (the
"CalTrans Action"). In the event the CalTrans Action is settled or the
property remediated for an
<PAGE> 230
amount that is less than $70,000, the amount of Reserved Shares to be
issued and delivered shall be reduced by the settlement or remediation
amount. In the event the CalTrans Action is settled or the property
remediated for an amount that is more than $70,000, none of the Reserved
Shares will be issuable. For purposes of this adjustment, the Reserved
Shares shall be valued at an amount equal to the average Closing price of
Buyer's common stock over the immediately preceding ten (10) trading days
prior to adjustment. The Closing price on any trading day shall be the last
reported Closing bid quotation for such day of the stock on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ").
All Purchase Price adjustments shall be applied pro rata to the Sellers in
accordance with their percentage ownership set forth in Exhibit A hereto.
2.5. Registration Rights. Buyer agrees to provide Shareholders with
registration rights covering the Purchase Price Stock pursuant to a
registration rights agreement in the form of Exhibit C hereto (the
"Registration Rights Agreement").
3. WARRANTIES OF SHAREHOLDERS
Shareholders, jointly and severally, warrant and represent to Buyer as
follows:
3.1. Due Organization; Good Standing. Corporation is duly organized,
valid and existing, and in good standing under the laws of the state of
California, has all necessary corporate powers, licenses, authorizations,
and permits to own its properties, and to conduct its businesses now owned
and operated by it, and is duly qualified to do intrastate business and is
in good standing in those jurisdictions set forth on Schedule 3.1 hereto.
These are the only jurisdictions in which the nature of the Corporation's
business or of its properties makes such qualification necessary.
3.2. Capitalization. The authorized Stock of the Corporation consists
of five thousand (5,000) shares of common stock, having a par value of
$100.00 per share, of which one thousand two hundred sixty seven (1,267)
shares (the Shares) are issued and outstanding. All the Shares are validly
issued, fully paid and not assessable, and such shares have been so issued
in full compliance with all federal and state securities laws. There are no
outstanding subscriptions, options, rights, warrants, convertible
securities, or other agreements or commitments obligating Corporation to
issue or to transfer from treasury any additional shares of its capital
stock of any class.
3.3. Title to and Ownership of Shares. Shareholders are the owners,
beneficially and of record, of all of the Shares free and clear of all
liens, encumbrances, security agreements, equities, options, claims,
charges, and restrictions. Shareholders have the full power to transfer the
Shares to Buyer without obtaining the consent or approval of any other
person or governmental authority.
3.4. Subsidiaries and Investments. Corporation does not own, directly
or indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, business, trust, or other entity.
3.5. Financial Statements. Schedule 3.5(i) hereto sets forth the
balance sheets of the Corporation as of April 30, 1996, and April 30, 1997,
and the related statements of income and retained earnings for the fiscal
years ending on those dates, audited by Peat Marwick, Corporations'
independent public accountants, whose opinions with respect to those
Financial Statements appear in that schedule. Schedule 3.5(ii) hereto sets
forth the unaudited balance sheets of the Corporation as of February 28,
1998 together with related unaudited statements of income and retained
earnings for eleven month period ending on that date, certified by the
individual Shareholders as accurately reflecting the financial condition of
the Corporation for those periods and accurately reflecting all information
normally reported to Corporations' independent public accountants for the
preparation of Corporation's Financial Statements. The Financial Statements
of Schedules 3.5(i) and 3.5(ii) as well as the Closing Balance Sheet
(defined herein) are collectively referred to herein as the "Financial
Statements". The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently followed by
Corporation throughout the periods indicated, and fairly present
<PAGE> 231
the financial position of Corporation on the respective dates of the
balance sheets included in the Financial Statements, and the results of its
operations for the respective periods indicated.
3.6. No Change in Financial Condition. Since February 28, 1998, there
has not been any change in the financial condition or operations of
Corporation, except changes in the ordinary course of business, or as is
set forth in Schedule 3.6 hereto.
3.7. Audited Closing Balance Sheet; Closing Date Stockholders' Equity.
As soon as practicable after the Closing Date, Buyer shall cause Reuben E.
Price & Co., or another nationally recognized firm of independent public
accountants, to audit the books and records of the Corporation as of April
30, 1998 ("Closing Balance Sheet"). The Closing Balance Sheet shall (i)
present fairly, in accordance with GAAP, consistently applied, the
financial position of the Corporation as of the Closing Date, and (ii) make
adequate provisions for all reserves, liabilities and obligations (fixed or
contingent) of the Corporation as of the Closing Date, to the extent such
liabilities, alone or in the aggregate, are required to be reflected or
reserved against in accordance with GAAP, consistently applied. Such
Closing Balance Sheet shall be prepared and delivered not later than June
30, 1998.
3.8. No Liabilities. Corporation has no debt, liability, or obligation
of any nature, whether accrued, absolute, contingent, or otherwise, and
whether due or to become due, that is not reflected or reserved against in
the Corporation's balance sheet as of February 28, 1998, included in the
Financial Statements or set forth in Schedule 3.8 hereto, except for (1)
those that may have been incurred after the date of that balance sheet and
(2) those that are not required by generally accepted accounting principles
to be included in a balance sheet. All debts, liabilities, and obligations
incurred after that date were incurred in the ordinary course of business
and are usual and normal in amount both individually and in the aggregate.
3.9. Taxes. Within the times and in the manner prescribed by law,
Corporation has filed all federal, state and local tax returns required by
law and have paid all taxes, assessments, and penalties due and payable.
All such tax returns were true, correct and complete in all material
respects. The provisions for taxes reflected in Corporation's Closing
Balance Sheet are adequate for federal, state, county, and local taxes for
the period ending on the date of that balance sheet and for all prior
periods, whether disputed or undisputed. There are no present disputes
about taxes of any nature payable by Corporation. Corporation has never
filed, and will not file on or before the Closing Date, any consent under
Internal Revenue Code Section 341(f). Corporation has paid or deposited,
within the period prescribed by law, all payroll taxes that relate to
periods before the Closing Date.
3.10. Title. Except where Corporation uses any properties and assets
pursuant to contracts and other agreements with third parties in the
ordinary course of its business, Corporation has good and marketable title
to, or a valid leasehold interest in, all of its properties and assets (the
"Assets"), including, without limitation, all assets and property of
Corporation reflected on its Closing Balance Sheet, referred to in Section
3.5, and all assets and property thereafter acquired by Corporation before
the Closing Date, except those assets disposed of in the ordinary course of
its business. All such Assets are now and will be free and clear of
restrictions on or conditions to transfer or assignment and free and clear
of mortgages, liens, pledges, charges, encumbrances, equities or
restrictions, except for (1) those disclosed in Corporation's balance sheet
as of February 28, 1998, or in Schedule 3.14 hereto; (2) the lien of
current taxes not yet due and payable; and (3) possible minor matters that,
in the aggregate, are not substantial in amount and do not materially
detract from or interfere with the present or intended use of any of the
Assets or materially impair business operations.
3.11. Real Property. Corporation owns no real property other than as
set forth on Schedule 3.11. Schedule 3.11 lists all real property leased or
subleased to Corporation (the "Premises") under terms of those leases set
forth in Schedule 3.11 hereto, copies of which have been, or will prior to
the Closing Date be, disclosed to Buyer. Corporation is not in default or
in arrears in any material respect under any lease, except as is set forth
in Schedule 3.11. All premises occupied by Corporation and all of the
tangible personal property of Corporation that is necessary to the
operation of
<PAGE> 232
their businesses is in good operating condition and repair, ordinary wear
and tear excepted. Corporation is in possession of all Premises leased to
it from others. Neither Shareholders, nor any officer, director, or
employee of Corporation, nor any spouse, child, or other relative of any of
these persons, owns, or has any interest, directly or indirectly, in any of
the property owned by or leased to Corporation or any copyrights, patents,
trademarks, tradenames, or trade secrets licensed by Corporation except as
is set forth on Schedule 3.11. Corporation does not occupy any real
property in violation of any law, regulation or decree.
3.12. Absence of Specified Changes. Since February 28, 1998, there
has not been any of the foregoing, except as is set forth in Schedule 3.12
hereto:
(a) Transaction by Corporation, except in the ordinary course of
business as conducted on that date;
(b) Capital expenditure by Corporation exceeding ten thousand
($10,000) dollars;
(c) Material adverse change in the financial condition,
liabilities, assets, business, or prospects of the Corporation;
(d) Destruction, damage to, or loss of any asset of the Corporation
(whether or not covered by insurance) that materially and adversely affects
the financial condition, business, or prospects of the Corporation;
(e) Labor trouble or other event or condition of any character
materially and adversely affecting the financial condition, business,
assets or prospects of the Corporation;
(f) Change in accounting methods and practices, including, without
limitation, any change in depreciation or amortization policies or rates by
Corporation;
(g) Revaluation by the Corporation of any of its assets;
(h) Declaration, setting aside, or payment of a dividend or any
other distribution in respect of the capital stock of the Corporation, or
any direct or indirect redemption, purchase or other acquisition by
Corporation of any of its shares of capital stock;
(i) Increase in the salary or other compensation payable or to
become payable by the Corporation to any of its officers, directors, or
employees, or the declaration, payment, or commitment, or obligation of any
kind for the payment, by Corporation, of a bonus or other additional salary
or compensation to any such person;
(j) Sale or transfer of any asset of the Corporation except in the
ordinary course of business;
(k) Amendment or termination of any contract, agreement or license
to which Corporation is a party, except in the ordinary course of business;
(l) Loan by Corporation to any person or entity, or guaranty by
Corporation of any loan;
(m) Mortgage, pledge, or other encumbrance of any asset of the
Corporation;
(n) Waiver or release of any right or claim of Corporation, except
in the ordinary course of business;
(o) Other event or condition of any character that has, or might
reasonably have a material and adverse effect on the financial condition,
business, assets or prospects of the Corporation;
<PAGE> 233
(p) Issuance or sale by Corporation of any shares of its capital
stock of any class, or of any of its other securities; or
(q) Agreement by Corporation to do any of the things described in
the preceding clauses of this Section 3.12.
3.13. Agreement Will Not Cause Violation. Except as set forth on
Schedule 3.13 hereto, the consummation of the transactions contemplated by
this Agreement will not result in or constitute any of the following: (i) a
breach of any term or provision of this Agreement; (ii) a default of an
event that, with notice or lapse of time or both, would be a default,
breach, or violation of the Articles of Incorporation or bylaws of
Corporation or any lease, license, promissory note, conditional sales
contract, commitment, indenture, mortgage, deed of trust of other
agreement, instrument, or arrangement to which Shareholders, Corporation or
any Subsidiary is a party or by which any of them or the property of any of
them is bound; (iii) an event that would permit any party to terminate any
agreement or to accelerate the maturity of any indebtedness or other
obligation of Corporation; or (iv) the creation or imposition of any lien,
charge, or encumbrance on any of the properties of Corporation. Except as
set forth in Schedule 3.13 hereto, neither Corporation nor Shareholders
needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any authority in order for the
parties to consummate the transactions contemplated by this Agreement.
3.14. Equipment, Furniture, etc. Schedule 3.14 hereto is a complete
and accurate schedule describing and specifying the location of all
equipment, furniture, supplies, and other tangible personal property owned
by, whether in possession or not of, the Corporation, or used by
Corporation in connection with its business. The property listed in
Schedule 3.14 constitutes all such tangible personal property necessary for
the conduct by Corporation of its business now conducted. No such property
is held under any lease, security agreement, conditional sales contact, or
other title, retention or security arrangement, or is located other than in
the possession of Corporation, except as disclosed in Schedule 3.14.
3.15. Books and Records. Corporation has disclosed to Buyer and made
available for Buyer's inspection, or will do so prior to Closing Date, all
books, records, files and other documents and information, whether stored
by document, electronically or otherwise, concerning all transactions,
constituting the business of Corporation, including, without limitation,
records of all debts, obligations and liabilities and of all accounts
receivable held by Corporation.
3.16. Tradenames, Trademarks, etc. Schedule 3.16 hereto is a schedule
of all trade names, trademarks, service marks, and copy rights and their
registrations, owned by Corporation or in which it has any rights or
licenses, together with a brief description of each. Corporation and
Shareholders have no knowledge of any infringement or alleged infringement
by others of any tradename, trademark, service mark, or copyright.
Corporation has not infringed, and is not now infringing on any tradename,
trademark, service mark, or copy right belonging to any other person, firm,
or corporation. Except as set forth in Schedule 3.16, Corporation is not a
party to any license, agreement, or arrangement, whether as licensor,
licensee, or franchisor, franchisee, or otherwise, with respect to any
trademarks, service marks, trade names, or applications for them, or any
copyrights. Corporation owns, or holds adequate licenses or other rights to
use, all trademarks, tradenames, service marks, and copy rights necessary
for its respective businesses as now conducted by it (including without
limitation those listed in Schedule 3.16), and that use does not, and will
not, conflict with, infringe on, or otherwise violate any rights of others.
Corporation has the right to sell or assign to Buyer all owned trademarks,
tradenames, service marks, and all such licenses and other rights.
3.17. Trade Secrets. Schedule 3.17 hereto is a complete list, without
extensive or revealing descriptions, of Corporation's trade secrets,
including all customer lists, processes, know how, computer programs and
routines, and other technical data. The specific location of each trade
secrets' documentation, including its complete description, specifications,
charts, procedures, and other material relating to it, is also set forth in
that schedule. Each trade secret's documentation is current, accurate, and
sufficient in detail and content to identify and explain it and to allow
its full and proper use by Buyer without reliance on the special knowledge
or memory of others. Corporation is a sole owner of each of these trade
secrets, free and clear of any liens, encumbrances, restrictions, or legal
or equitable claims of others, except as specifically stated in Schedule
3.17. Corporation has taken all reasonable security measures to protect the
secrecy, confidentiality, and value of these trade secrets; any of their
employees and other persons who, either alone or in concert with others
have knowledge of or access to these secrets, or who have knowledge of or
access to information relating to them, have been put on notice and, if
appropriate, have entered into agreements that these secrets are
proprietary to the Corporation and are not to be divulged or misused. All
these trade secrets are presently valid and protectable and are not part of
the public knowledge or literature; they have not, to Shareholder's
knowledge, been used, divulged, or appropriated for the benefit of any past
or present employees or other persons, or to the detriment of Corporation.
3.18. [Reserved]
3.19. Insurance Policies. Schedule 3.19 hereto is a description of all
insurance policies held by Corporation concerning its businesses and
properties. All these policies are in their respective principal amounts as
set forth in Schedule 3.19. Corporation has maintained and now maintains
(1) insurance on all of its assets and businesses of a type customarily
insured, covering property damage and loss of income by fire or other
casualty, and (2) adequate insurance protection against all liabilities,
claims and risks against which it is customary to insure. Corporation is
not in default with respect to payment of premiums on any such policy.
Except as set forth in Schedule 3.19, no claim is pending under any such
policy.
3.20. Burdensome Agreements. Corporation is not a party to, nor is
the Corporation either bound by, any agreement not entered into in the
ordinary course of business, or any agreement that is unusual in nature,
duration, or amount (except the agreements listed in Schedule 3.20, copies
of which have been furnished to or made available to Buyer.) There is no
default or event that, with notice, a lapse of time, or both, would
constitute a default by any party to any of these agreements. Corporation
has not received notice that any party to any of these agreements intends
to cancel or terminate any of these agreements or to exercise or not
exercise any options under any of these agreements. Corporation is not a
party to, nor is the property of Corporation bound by, any agreement that
is materially adverse to the businesses, properties or financial condition
of Corporation.
3.21. Compliance with Laws. Corporation has not received notice of any
violation of any applicable federal, state or local statute, law, or
regulation (including any applicable building, zoning, environmental
protection, or other law, ordinance or regulation) affecting its properties
or the operation of its business; and to the best of the knowledge of
Shareholders and Corporation there are no such violations.
3.22. Litigation. Except as set forth in Schedule 3.22, there is no
pending, or, to the best knowledge of Shareholders and Corporation,
threatened, suit, action, arbitration, or legal, administrative, or other
proceeding or governmental investigation against or affecting Corporation,
or any of its businesses, assets or financial conditions. The matters set
forth in Schedule 3.22, if decided adversely to Corporation, will not
result in a material adverse change in the business, assets, or financial
condition of Corporation, except as is set forth in Schedule 3.22 attached
hereto. Shareholders have furnished or made available to Buyer copies of
all relevant court papers and other documents relating to the matters set
forth in Schedule 3.22. Corporation is not in default with respect to any
order, writ, injunction, or decree of any federal, state, local or foreign
court, department, agency, or instrumentality. Except as set forth in
Schedule 3.22, neither Corporation nor Shareholders are presently engaged
in any legal action to recover money due to any of them or damages
sustained by any of them.
3.23. Agreement Will Not Cause Breach or Violation. The consummation
of the transactions contemplated by this Agreement will not result in or
constitute any of the following:
(a) a breach of any term or provision of this Agreement;
<PAGE> 235
(b) a default or an event that, with notice, lapse of time, or
both, would be a default, breach, or violation of the articles of
incorporation or bylaws of Corporation or any lease, license, promissory
note, conditional sales contract, commitment, indenture, mortgage, deed of
trust, or other agreement, instrument, or arrangement to which any
Shareholder or Corporation is a party or by which any of them or the
property of any of them is bound;
(c) an event that would permit any party to terminate any agreement
or to accelerate the maturity of any indebtedness or other obligation of
Corporation; or
(d) the creation or imposition of lien, charge, or encumbrance on
any of the properties of Corporation.
3.24. Power of Shareholders. Shareholders have the rights, power,
legal capacity and authority to enter into and perform their respective
obligations under this Agreement; and no approvals or consent of any
persons other than Shareholders are necessary in connection with it, other
than as may be listed on Schedule 3.13, and which have been obtained by the
Closing Date. This Agreement is, and as of the Closing Date, the other
agreements will be, the legal, valid and binding obligations of
Shareholders enforceable in accordance with their respective terms.
3.25. Authority to Execute and Perform Agreements; Due
Authorization; Enforceability. Corporation has all requisite power,
authority and approvals required to enter into, execute and deliver this
Agreement, and all other agreements executed and delivered in connection
herewith, and to perform fully its obligations hereunder and thereunder.
The execution and delivery of this Agreement by Corporation shall have been
duly authorized by all necessary corporate action. This Agreement is, and
as of the Closing Date, the other agreements will be, the legal, valid and
binding obligations of Corporation enforceable in accordance with their
respective terms
3.26. Corporate Records. Shareholders have furnished to Buyer for its
examination: (1) copies of the articles of incorporation and bylaws of
Corporation; (2) the minute books of Corporation containing all records
required to be set forth of all proceedings, consents, actions, and
meetings of the Shareholders and boards of directors of Corporation; (3)
all permits, orders, and consents issued by any governmental authority of
the State of California regarding the Corporation, or any security of
either of them, and all applications for such permits, orders, and
consents; and (4) the stock transfer books of Corporation setting forth all
transfers of any capital stock.
3.27. Officers, Directors, Employees and Agents. Schedule 3.27 is a
list of the names and addresses of all officers, directors, employees, and
agents of Corporation stating the rates of compensation payable to each,
and their dates of hiring.
3.28. Employment Agreements. Schedule 3.28 is a list of all
Corporation's material employment contracts; collective bargaining
agreements; and pension, bonus, profit sharing, stock option or other
agreements providing for employee remuneration or benefits. To the best of
Shareholders' knowledge, Corporation is not in default under any of these
agreements. There have been no claims of defaults, and to the best
knowledge of Corporation or Shareholders, there are no facts or conditions
that if continued, or on notice, will result in a default under these
contracts or arrangements. There is no pending or, to Corporation's or
Shareholders' knowledge, threatened labor dispute, strike, or work stoppage
affecting Corporation's business. Corporation has complied with all
applicable laws for each of their respective employee benefit plans,
including the provisions of the Employee Retirement Income Security Act of
1974 (ERISA) if and to the extent applicable. There are no threatened or
pending claims by or on behalf of any such benefit plan, by or on behalf of
any employee covered under any such plan, or otherwise involving any such
benefit plan, that allege a breach of fiduciary duties or in violation of
other applicable state or federal laws; nor is there, to Shareholders'
knowledge, any basis for such a claim. Except as is set forth in Schedule
3.28, Corporation has not entered into any deferred compensation
arrangement or any severance or similar arrangement with any present or
former employee that will result in any obligation, absolute or contingent,
of Buyer or Corporation, to make any payment to any present or former
employee following termination of employment. Schedule 3.28 contains a
complete list of all employee welfare benefit
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plans, pension plans, deferred or incentive compensation plans, bonus
plans, stock option plans, employee stock purchase plans, retirement plans,
health plans, insurance plans, travel allowance plans, profit sharing
plans, and any other employee benefit or fringe benefit plan, agreement,
arrangement, or commitment, other than normal payroll practices and
policies concerning holidays, vacations, and salary continuation during
short absences for illness or other reasons, maintained by Corporation.
True and complete copies of all documents relating to each plan or
arrangement described in Schedule 3.28 have been made available by
Corporation to Buyer for Buyer's review, or will be so made available prior
to the Closing Date.
3.29. Powers of Attorney; Bank Accounts. Schedule 3.29 hereto lists:
(1) the names and addresses of all persons holding a power of attorney on
behalf of Corporation and (2) the names, and addresses of all banks or
other financial institutions in which Corporation has an account, deposit,
or safe deposit box, with the account numbers and the names of all person
authorized to draw on these accounts or deposits or to have access to these
boxes.
3.30. Environmental Matters. As of the date of this Agreement and the
Closing Date, Corporation is not, and will not be, in violation of any
federal, state or local law, ordinance or regulation relating to industrial
hygiene, soil, water, or environmental conditions on, under or about any
premises occupied or used by Corporation during the period that Corporation
has occupied any such property, there has been no use, presence, disposal,
storage, generation, release, or threatened release (as those terms are
used in the Environmental Laws, and hereinafter collectively referred to as
"Use") of Hazardous Materials on, from or under such premises, except as
previously disclosed by Corporation or Shareholders to Buyer in writing.
Shareholders have no knowledge of any use of Hazardous Materials on, from
or under such premises which may have occurred prior to the Corporation
taking possession of such premises, except as previously disclosed to Buyer
in writing. During the period that Corporation has occupied such premises,
there has been no enforcement action or litigation brought or threatened
against the Corporation, nor any settlements reached by or with any party
or parties alleging the Use of Hazardous Materials on, from or under such
premises, except as previously disclosed to Buyer in writing. For purposes
hereof, "Environmental Laws," shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. 1901 et seq.;
the Hazardous Materials Transportation Act, 39 U.S.C. 1801 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq.; the Federal
Clean Water Act, 33 U.S.C. 1251 et seq.; and any other federal, state or
local law, statute, code, regulation, ordinance or other mode of governance
concerning Hazardous Materials. "Hazardous Materials" shall mean any and
all flammable, explosive, asbestos, radioactive material, hazardous waste,
toxic substance or related material, including but not limited to those
materials and substances defined as "hazardous substances", "hazardous
materials", "hazardous waste" or "toxic substance" in the Environmental
Laws.
3.31. No Defaults. Corporation is not in default under any agreement,
lease, indenture, mortgage, deed of trust or instrument to which it is a
party or by which it may be bound or subject, concerning any premises
occupied or in the possession of Corporation, or to which Corporation holds
any rights to any interest or use.
3.32. Full Disclosure. None of the warranties or representations made
by Shareholders herein, or made in any certificate or memorandum furnished
or to be furnished by any of them or on their behalf in relation to this
transaction, contains or will contain any untrue statement of a material
fact, or omits to state any material fact necessary to make the statements
made.
4. BUYER'S REPRESENTATIONS AND WARRANTIES
4.1. Buyer represents and warrants that:
(a) Buyer is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware. The execution and
delivery of this Agreement and the consummation of this transaction by
Buyer have been duly
<PAGE> 237
authorized, and no further corporate authorization is necessary on the part
of Buyer.
(b) Buyer need make or obtain no consent, approval, or authorization
of, or declaration, filing, or registration with, any federal or state
governmental or regulatory authority in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement.
(c) At the Closing, Buyer knows of no event, liability or material
change in Buyer's business or its prospects that would have a materially
adverse affect on the trading price of Buyer's stock.
(d) Buyer is acquiring the Shares hereunder for its own account for
investment purposes only and not with a view to, or resale in connection
with any public distribution thereof or with any present intention of
selling, distributing or otherwise disposing the Shares.
5. SHAREHOLDER'S OBLIGATIONS BEFORE CLOSING
5.1. Shareholders covenant that, from the date of this Agreement until
the Closing:
(a) Buyer and its counsel, accountants and other representatives
will have full access during normal business hours to all properties,
books, accounts, records, contracts and documents of or relating to
Corporation. Shareholders and Corporation will furnish or cause to be
furnished to Buyer and its representatives all data and information
concerning the business, finances, and properties of Corporation that may
reasonably be requested.
(b) Corporation will carry on its businesses and activities
diligently and in substantially the same manner as they previously have
been carried out and will not institute any unusual or novel method of
operation, business practice, management, accounting or operation that vary
materially from those methods used by Corporation as of the date of this
Agreement.
(c) Corporation will use its best efforts, without making any
commitments on behalf of Buyer, to preserve its respective business
organizations in tact; to keep available to Corporation its present
officers and employees; and to preserve its present relationships with
lenders, investors, brokers, customers, and others having business
relationships with it.
(d) Corporation will not: (1) amend its articles of incorporation
or bylaws; (2) issue any shares of its capital stock; (3) issue or create
any warrants, obligations, subscriptions, options, convertible securities,
or other commitments under which any additional shares of its capital stock
of any class might be directly or indirectly authorized, issued, or
transferred from treasury; or (4) agree to do any of the acts listed above.
(e) Corporation will continue to carry its existing insurance,
subject to variations and amounts required by the ordinary operations of
its businesses. At the request of Buyer and at Buyer's sole expense, the
amount of insurance against fire and other casualties that, at the date of
this Agreement, Corporation carries on any of its properties or in respect
of its operations will be increased by the amount or amounts Buyer will
specify.
(f) Corporation will not agree to: (1) make any change in
compensation payable or to become payable by it to any officer, employee,
sales agent, or representative; (2) make any change in benefits payable to
any officer, employee, sales agent, or representative under any bonus or
pension plan or other contract or commitment; or (3) modify any collective
bargaining agreement to which it is a party or by which it may be bound.
(g) Corporation will not agree to do, without Buyer's consent, any
of the following: (1) enter into any contract, commitment or transaction
not in the usual and ordinary course of its business; (2) make any capital
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expenditures in excess of $5,000 for any single item or enter into any
lease of capital equipment or real or personal property under which the
annual lease charge is in excess of $5,000; or (3) sell or dispose of any
capital asset with a net book value exceeding $5,000.
(h) Corporation will not: (1) declare, set aside, or pay any
dividend or make any distribution in respect of its capital stock; (2)
directly or indirectly purchase, redeem or otherwise acquire any shares of
its capital stock; (3) enter into any agreement obligating it to do any of
the foregoing prohibited acts.
(i) Corporation will not, or will not agree to: (1) pay any
obligation or liability, fixed or contingent, other than a current
liability; (2) waive or compromise any right or claim; or (3) cancel,
without full payment, any note, loan, or other obligation owed to
Corporation.
(j) Corporation will not, or will not agree to, modify, amend,
cancel or terminate any of its existing contracts or agreements, except in
the ordinary course of business.
6. CONSENTS OF OTHERS
As soon as reasonably practicable after the execution and delivery of this
Agreement, and in any event on or before the Closing Date, Shareholders
will obtain the written consent of the persons described in Schedule 3.13
to this Agreement and will furnish to Buyer an executed copy of those
consents. Buyer will exercise its best efforts, and promptly execute and
deliver any documents and instruments that may be reasonably required, to
assist Shareholders in obtaining such consents; provided, however, that
Buyer will not be obligated under the Section to execute any guarantee,
assumption of liability, or other document or instrument requiring it to
assume obligations not contemplated by this Agreement.
7. REPRSENTATIONS AND WARRANTIES TRUE AT CLOSING
All representations and warranties of Shareholders and the Corporation set
forth in this Agreement and in any written statements delivered to Buyer by
Shareholders under this Agreement will also be true and correct on the
Closing Date as if made on that date.
8. BUYER CONFIDENTIALITY
Whether or not the Closing takes place, Shareholders waive any cause of
action, right, or claim arising out of the access of Buyer or its
representatives to any trade secrets or other confidential business
information of Corporation from the date of this Agreement until the
Closing Date, except for the intentional competitive misuse by Buyer or its
representatives of such trade secrets or their confidential business
information if the Closing does not take place. Buyer agrees that, unless
and until the Closing has been consummated, Buyer and its officers,
directors and other representatives will hold in strict confidence, and
will not use to the detriment of Shareholders or Corporation, all data and
information about the business of Corporation obtained in connection with
the transaction or agreement, except as far as the data and information may
be required by law to be disclosed to its shareholders or other parties. If
the transactions contemplated by this Agreement are not consummated, Buyer
will return to Shareholders all that data and the information that
Shareholders may reasonably request, including documents prepared by or
made available to Buyer in connection with this transaction.
9. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer to purchase the Shares under this Agreement are
subject to the satisfaction, at or before Closing, of all the conditions
set forth below in this Section 9. Buyer may specifically waive in writing
any or all of these conditions in whole or in part without prior notice;
provided, however, that no such waiver of a condition will constitute
<PAGE> 239
a waiver by Buyer of any of its other rights or remedies, at law or in
equity, if Shareholders or Corporation are in default of any of their
representations, warranties, or covenants under this Agreement.
(a) Except as otherwise permitted by this Agreement, all warranties by
each of the Shareholders in this Agreement, or in any written statement
that will be delivered to Buyer by any of them under this Agreement, must
be true in all material respects on the Closing Date as though made at that
time.
(b) Shareholders must have performed, satisfied and complied in all
material respects with all covenants, agreements, and conditions required
by this Agreement to be performed or complied
with by them, or any of them, by the Closing Date.
(c) During the period from February 28, 1998 to the Closing Date,
there shall not have been any material adverse change in the financial
condition or the results of operations of Corporation, and Corporation will
not have sustained any insured or uninsured loss or damage to its assets
that materially affects its ability to conduct a material part of its
business, except as is set forth in Schedule 3.12 attached hereto.
(d) Buyer will have received a certificate in the form of Exhibit G
hereto, dated the Closing Date, signed and verified by Shareholders and by
Corporation's president and its chief financial officer, certifying, in
such detail as Buyer and its counsel may reasonably request, that to the
best of their knowledge the conditions specified in Sections 3, 5 and 9 of
this Agreement have been fulfilled.
(e) Buyer will have received from Shareholders' counsel an opinion
dated the Closing Date in form and substance satisfactory to Buyer and its
counsel and attached hereto as Exhibit H, that:
(i) Corporation is a corporation duly incorporated, validly
existing, and in good standing under the laws of the State of California,
and has all necessary corporate power to own its properties as now owned
and operate its business as now operated.
(ii) Corporation is duly qualified or licensed as a foreign
corporation in good standing in each jurisdiction where the nature of its
activities or of its properties owned or leased makes such qualification or
licensing necessary and failure to be so qualified or licensed would have a
material adverse impact on its business.
(iii) The authorized capital stock of Corporation consists of five
thousand (5,000) shares of capital stock of $100.00 par value, of which,
one thousand two hundred sixty seven (1,267) shares are issued and
outstanding. All outstanding shares are validly issued, fully paid, and non-
assessable. That there are no outstanding subscriptions, options, rights,
warrants, convertible securities, or other agreements or commitments
obligating Corporation to issue or transfer from treasury any additional
shares of its stock of any class.
(iv) This Agreement has been duly and validly authorized and, when
executed and delivered by Shareholders, will be valid, binding, and
enforceable against each of them in accordance with its terms, except as
limited by bankruptcy and insolvency laws and other laws and equitable
principles affecting the rights of creditors generally.
(v) That Shareholders are the record owners of one thousand two
hundred sixty seven (1,267) shares of stock of the Corporation, which
comprise all of the Corporation's issued and outstanding shares at Closing.
On the transfer and delivery of the Shares to Buyer in accordance with this
Agreement, Buyer will acquire the rights and the Shares free of any adverse
claim, so long as Buyer is a purchaser for value in good faith and without
notice of any adverse claim.
<PAGE> 240
(vi) Neither execution or delivery of this Agreement nor the
consummation of the transaction contemplated in this Agreement will
constitute (a) a default or an event that would, with notice, lapse of
time, or both-constitute a default under, or violation or breach of,
Corporation's articles of incorporation or bylaws, or to the best of
counsel's knowledge, any indenture, license, lease, franchise, mortgage,
instrument, or other agreement to which any of the Shareholders or
Corporation is a party or by which they or the properties of Corporation
may be bound; or (b) an event that would permit any party to any agreement
or instrument to terminate it or accelerate the maturity of any
indebtedness or other obligation of Corporation; or (c) an event that would
result in the creation or imposition of any lien, charge, or encumbrance on
any asset of Corporation.
(vii) Except as set forth in Schedule 3.22 to this Agreement, to
the best of counsel's knowledge, there is no suit, action, arbitration, or
legal, administrative or other proceeding or governmental investigation
pending or threatened against or affecting Corporation, or any of its
businesses or properties or financial or other condition.
(f) No action, suit, or proceeding before any court or any
governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, will have been instituted or
threatened on or before the Closing Date.
(g) Buyer will have received from Corporation's chief financial
officer a letter in the form of Exhibit I hereto, which shall be joined in
and signed by Shareholders, dated at the Closing Date, stating that on the
basis of a review of the latest available accounting records of
Corporation, consultations with other responsible officers of Corporation
and with Shareholders, and any other pertinent inquiries that he may deem
necessary, he has no knowledge or reason to suspect that during the period
from February 28, 1998 to a specified date not more than five (5) business
days before the Closing Date, there was any change in the financial
conditions or results of operations of Corporation, except changes incurred
in the ordinary and usual course of their respective businesses during that
period that in the aggregate are not materially adverse, and any other
changes or transactions contemplated by this Agreement, except as is set
forth in Schedule 3.12 to this Agreement. For purposes of that letter,
"materially adverse" will be deemed to be an increase in liabilities equal
to or greater than Fifty Thousand Dollars ($50,000) without a corresponding
increase in assets, or a reduction in monthly operating revenue during that
period of Fifty Thousand Dollars ($50,000) or more.
(h) The execution and delivery of this Agreement by Corporation, and
the performance of its covenants and obligations under it, will have been
duly authorized by all necessary corporate action, and Buyer will have
received copies of all resolutions pertaining to that authorization,
certified by the secretary of Corporation.
(i) Buyer will have received corporation tax clearance certificates,
as of a date no more than 10 days before the Closing Date, of the
California Franchise Tax Board for Corporation.
(j) Borrower will have received a certificate of release from the
California Employment Development Department stating that, as of a date not
more than 10 days before the Closing Date, no contributions, interest or
penalties are due to the Employment Development Department from
Corporation.
(k) All necessary agreements and consents of any parties to the
consummation of the transactions contemplated by this Agreement, or
otherwise pertaining to the matters covered by it, will have been obtained
by Shareholders or Corporation and delivered to Buyer.
(l) Employment agreements with each of the Shareholders, in the forms
set forth in Exhibit D, dated the Closing Date, will have been executed and
delivered by Shareholders to Buyer.
(m) The form and substance of all certificates, instruments, opinions,
and other documents delivered by Shareholders to Buyer under this Agreement
will be satisfactory in all reasonable respects to Buyer and its counsel.
<PAGE> 241
(n) Shareholders will have delivered to Buyer, except as otherwise
requested by Buyer, the written resignations of all of the officers and
directors of Corporation and will cause any other action to be taken with
respect to these resignations that Buyer may reasonably request.
(o) Buyer will have received from Shareholders an investment letter
agreement substantially in the form set forth in Exhibit E hereto.
10. CONDITIONS PRECEDENT TO SHAREHOLDERS' PERFORMANCE
The obligations of Shareholders to sell and transfer the Shares under this
Agreement are subject to the satisfaction, at or before the Closing, of all
the following conditions. Shareholders may waive any or all of these
conditions in whole or in part without prior notice, provided, however,
that no such waiver of a condition will constitute a waiver by Shareholders
of any their other rights or remedies, at law or in equity, if Buyer should
be in default of any of its representations, warranties or covenants under
this Agreement.
(a) All warranties by Buyer contained in this Agreement or in any
written statement delivered by Buyer under this Agreement must be true in
all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of that date.
(b) Buyer must have performed and complied with all covenants and
agreements and satisfied all conditions that it is required by this
Agreement to perform, comply with, or satisfy before or at the Closing.
(c) The board of directors of Buyer will have duly authorized and
approved the execution and delivery of this Agreement and all corporate
action necessary or proper to fulfill Buyer's obligations to be performed
under this Agreement on or before the Closing Date.
11. THE CLOSING
(a) The transfer of the Shares by Shareholders to Buyer (the
"Closing") will take place at the offices of Buyer located at 3021 Citrus
Circle, Suite 150, Walnut Creek, California 94598 at 10:00 a.m. local time,
on that day when all of the conditions set forth in Section 9 have been
satisfied or waived, but not later than June 1, 1998, or at such other time
and place as the parties may agree to in writing (the "Closing Date").
(b) At the Closing, Shareholders shall deliver to Buyer the following
instruments, in form and substance satisfactory to Buyer and its counsel,
against delivery of the items specified in Section 12: (1) a certificate or
certificates representing the Shares, registered in the name of
Shareholders, duly endorsed by Shareholders for transfer or accompanied by
an assignment of the Shares duly executed by Shareholders, with signatures
guaranteed by a member of the New York Stock Exchange or by a bank or trust
company, and with all required document and stock transfer stamps affixed
or accompanied by Shareholders' personal checks for the amount of these
stamps. On submission of that certificate or certificates to Corporation
for transfer, Corporation will issue to Buyer a certificate representing
the Shares, registered in the Buyer's name; (2) the stock books, stock
ledgers, minute books and corporate seal of the Corporation; (3) the
opinion of counsel as provided in Section 9(e); (4) a report of
Corporation's independent public accountants or chief financial officer, as
provided for in Section 9(g), dated as of the Closing Date; (5) except as
otherwise specified by Buyer, the written resignations of all of the
officers and directors of Corporation; (6) employment agreements between
Shareholders and Corporation dated the Closing Date, in the form set forth
in Exhibit C, executed by Shareholders and Corporation; (7) a certificate
executed by Shareholders, dated the Closing Date, certifying that their
respective representations and warranties in this Agreement are true and
correct on the Closing Date, as though each representation and warranty had
been made on that date; (8) a general release in the form set forth in
Exhibit F, in favor of Corporation,
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executed by Shareholders, dated the Closing Date; and (9) a Pledge and
Security Agreement, dated the Closing Date, between the Shareholders and
Corporation, in the form set forth in Exhibit B.
12. BUYER'S OBLIGATIONS AT CLOSING
At the Closing, Buyer shall deliver to Shareholders the following:
(a) Certified resolutions of Buyer's board of directors, authorizing
the execution and performance of this Agreement and all action to be taken
by Buyer under this Agreement and
(b) A certificate executed by its president certifying that all
Buyer's representations and warranties under this Agreement are true as of
the Closing Date, as though each of those representations and warranties
had been made on that date.
(c) An irrevocable proxy to vote the Shares for all purposes until
such time as all state licensing requirements applicable to the conduct of
the Corporation's business as contemplated by the Buyer have been complied
with by the parties hereto.
13. SHAREHOLDERS INDEMNITY
13.1. Shareholders will indemnify, defend, and hold harmless Buyer,
its officers, directors, shareholders, employees, attorneys, agents and
representatives, against and in respect of all claims, demands, losses,
costs, expenses, obligations, liabilities, damages, recoveries, and
deficiencies, including interest, penalties, and reasonable attorneys'
fees, that they may incur or suffer, which arise, result from or relate to
any breach of, or failure by Corporation to perform, any of its
representations, warranties, covenants or agreements in this Agreement or
in any schedule, certificates, exhibit, or other instrument furnished or to
be furnished by Shareholders or Corporation under this Agreement.
13.2. Jones v. MICAL Litigation. In addition to the indemnification
provided for in Section 13.1, from and after the Closing Date, the Sellers
shall jointly and severally indemnify, defend, save and hold harmless Buyer
and any and all of Buyer's Affiliates from and against any and all Losses
incurred or sustained by Buyer or any of Buyer's Affiliates, up to a
maximum amount set forth herein, which shall arise out of or result from
that certain action filed in the United States District Court for the
Middle District of Georgia entitled Jones v. MICAL Mortgage, Inc. and all
matters relating thereto. The maximum amount that Shareholders shall be
obligated to indemnify Sellers under this Section 13.2 shall be the cash
equivalent value of 100,000 shares of Buyer's common stock as valued in
this Section 13.2. For purposes of this indemnification provision, the
Buyer's common shares shall be valued at an amount equal to the average
Closing price of Buyer's common stock over the immediately preceding ten
(10) trading days prior to indemnification. The Closing price on any
trading day shall be the last reported Closing bid quotation for such day
of the stock on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"). All amounts indemnified pursuant to this
Section 13.2 shall be applied pro rata to the Sellers in accordance with
their percentage ownership set forth in Exhibit A hereto. As security for
Shareholders' indemnity under this Section 13.2, Shareholders shall deliver
to Buyer at Closing a Pledge and Security Agreement providing for the grant
by Shareholders to Buyer of a first position security interest in 100,000
shares of Buyer's common stock delivered to Shareholders pursuant to this
Agreement, all on the terms and in the form set forth in Exhibit 13.
14. BUYER'S INDEMNITY
Buyer will indemnify and hold harmless Shareholders against, and in respect
of, claims, losses, expenses, costs, obligations, and liabilities they may
incur by reason of Buyer's breach of or failure to perform any of its
warranties, guaranties, commitments, or covenants in this Agreement.
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15. TERMINATION
This Agreement may be terminated prior to the Closing Date as follows:
15.1. By Shareholders (acting unanimously) or Buyer, if the Closing
has not taken place before June 1, 1998; provided, however, that such
termination will not relieve any party from any liability if such party, as
of the termination date, is in breach of any of the provisions of this
Agreement; and provided, further, that if the delay is caused by the act or
omission of a particular party, such party will not have the right to
terminate hereunder; or
15.2. By Buyer, if on the Closing Date any of the conditions set
forth in Section 9 have not been satisfied or waived by Buyer; or
15.3. By Shareholders (acting unanimously), if on the Closing Date
any of the conditions set forth in Section 10 have not been satisfied or
waived by Shareholders; or
15.4. By mutual agreement of Buyer and Shareholders evidenced by a
writing executed by all parties.
16. PUBLICITY
All notices to third parties and all other publicity concerning the
transactions contemplated by this Agreement will be jointly planned and
coordinated by and between Buyer and Shareholders. No party will act
unilaterally in this regard without the prior written approval of the
other; however, this approval will not be unreasonably withheld.
17. COSTS
17.1. Except as set forth in Section 17.2, each party represents and
warrants that it has dealt with no broker or finder in connection with any
transaction contemplated by this Agreement, and, as far as it knows, no
broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions. Shareholders and Buyer will
indemnify and hold one another harmless against any loss, liability,
damage, costs, claim, or expense incurred by reason of any brokerage,
commission or finder's fee alleged to be payable because of any act,
omission or statement of the indemnifying party.
17.2. Shareholders and Corporation have identified United Financial,
Inc. ("UFI") as the only party entitled to receive an agency, brokerage or
finders fee in connection with this transaction. Buyer agrees to
accommodate payment of a broker's fee to UFI by delivering to UFI, on the
Closing Date, a number of shares of Buyer's stock equal in value to six
percent (6%) of the value of the shares delivered to Shareholders on the
Closing Date; and shall deliver to UFI, on the Delivery Date, that number
of shares of Buyer's common stock equal in value to six percent (6%) of the
value of Buyer's stock delivered to Shareholders on the Delivery Date, all
such shares being valued as of the average Closing price of Buyer's common
stock on the Closing Date, as described in Section 2. Except as set forth
in this Section 17.2, Buyer shall have no responsibility with respect to
the payment of agency, brokerage or finder's fees payable to any party in
connection with this transaction.
17.3. Each party will pay all costs and expenses incurred or to be
incurred by it in negotiating and preparing this Agreement and in Closing
and carrying out the transactions contemplated by this Agreement.
18. ASSIGNMENT
This Agreement will be binding on, and will inure to the benefit of, the
parties to it and their respective heirs, legal representatives,
successors, and assigns; provided, however, the Buyer may not assign any of
its rights under this
<PAGE> 244
Agreement, except to a wholly owned subsidiary corporation of Buyer and
that Shareholders shall not be entitled to assign any of their rights or
obligations under this Agreement, jointly or severally, without prior
written consent of Buyer, which consent may be withheld in Buyer's sole
discretion.
19. ARBITRATION
Any controversy or claim arising out of, or relating to, this Agreement, or
the making, or performance, or interpretation of it, will be settled by
arbitration in San Francisco, California, under the commercial arbitration
rules of the American Arbitration Association then existing, and judgment
on the arbitration award may be entered in any court having jurisdiction
over the subject matter of the controversy. Arbitrators will be persons
experienced in negotiating, making and consummating acquisition agreements.
Absent fraud, collusion or willful misconduct by the arbitrator, the award
shall be final. In making the decision and award, the arbitrator shall
apply applicable substantive law. If a court, applying applicable
substantive law, would be authorized to award punitive or exemplary
damages, then the arbitrator shall have the same power, but the arbitrator
shall not otherwise award punitive or exemplary damages. Questions
regarding whether a claim must be arbitrated or whether a claim involves a
legally protected right shall be determined by the arbitrator.
20. LITIGATION COSTS
If any legal action or any arbitration or other proceeding is brought for
the enforcement or interpretation of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
or parties will be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled.
21. PARTIES IN INTEREST
Nothing in this Agreement, whether expressed or implied, is intended to
confer any rights or remedies under or by reason of this Agreement on any
persons other than the parties to it and their respective successors and
assigns. Nothing in this Agreement is intended to relieve or discharge the
obligations or liability of any third person to any party to this
Agreement. No provision gives any third person any right of subrogation or
action against any party to this Agreement.
22. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes all prior
and contemporaneous agreements, representations, and understandings of the
parties, including, but not limited to, the Conditional Stock Purchase
Agreement dated March 16, 1998 and the Agreement of Purchase and Sale of
Stock dated March 20, 1998. No supplement, modification, or amendment of
this Agreement will be binding unless executed in writing by all of the
parties. No waiver of any of the provisions of this Agreement will
constitute a waiver of any other provision, whether or not similar, nor
will any waiver constitute a continuing waiver. No waiver will be binding
unless executed in writing by the party making the waiver.
23. SURVIVAL OF WARRANTIES AND REPRESENTATIONS
The representations, warranties and covenants set forth or incorporated by
reference in this Agreement shall survive the Closing Date. All
representations and warranties contained in this Agreement (including the
attached exhibits and schedules, or in any certificate delivered with
respect hereto will be deemed to be representations and warranties shall
remain in full force and effect until sixty (60) days after the expiration
of any applicable statute of limitations; provided, however, that all such
representations and warranties described above shall survive after the
applicable survival period
<PAGE> 245
with respect to any claim made by Buyer prior to the expiration thereof
until, and shall expire when, such claim is finally resolved. All
covenants, representations, warranties and agreements made by Sellers shall
be unaffected by any investigation made by Buyer or by any knowledge
obtained as a result thereof or otherwise.
24. FORM OF AGREEMENT
The subject headings of the sections and Sections of this Agreement are
included for convenience only and will not affect the construction or
interpretation of any its provisions.
25. WORD USAGE
Unless the context clearly requires otherwise:
(a) Plural and singular numbers will each be considered to include the
other;
(b) The masculine, feminine and neuter genders will each be
considered to include the other;
(c) "shall," "will," "must," "agree," and "covenants" are each
mandatory;
(d) "may" is permissive;
(e) "or" is not exclusive; and
(f) "includes" and "including" are not limiting.
26. COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which will be considered an original, but all of which together
will constitute one and the same instrument.
27. GOVERNING LAW
This Agreement will be construed in accordance with, and governed by, the
laws of the state of California as applied to contracts that are executed
and performed in California.
28. SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of final jurisdiction, it is the intent of the parties that all other
provisions of this Agreement be construed to remain fully valid,
enforceable, and binding on the parties.
29. NOTICES
All notices, request, demands and other communications under this Agreement
must be in writing and will be considered to have been duly given on the
date of service if served personally on the party to whom notice is to be
given, or on the date of delivery if delivered by Federal Express or other
similar courier service which provides a written document evidencing date
of delivery, or on the third day after mailing if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid, and, in each case, properly addressed as follows:
To Buyer:
Finet Holdings Corporation
3021 Citrus Circle, Suite 150
Walnut Creek, CA 94598
Attention: President
<PAGE> 246
To Corporation:
Mical Mortgage, Inc.
5151 Murphy Canyon Road, Suite 220
San Diego, CA 92123
Attention: President
To Shareholders:
John E. Railey, individually and as Trustee utd 10/28/93
5151 Murphy Canyon Road, Suite 220
San Diego, CA 92123
Harve L. Lubin, individually and as Trustee utd 2/22/90
5151 Murphy Canyon Road, Suite 220
San Diego, CA 92123
Joseph E. Gistaro,
individually and as Trustee utd 8/15/89
5151 Murphy Canyon Road, Suite 220
San Diego, CA 92123
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it on the date and year first above written.
BUYER:
FINET HOLDINGS CORPORATION
By:
/s/ Jan C. Hoeffel
Jan C. Hoeffel, President
SHAREHOLDERS:
/s/ John E. Railey
John E. Railey, individually and as Trustee utd 10/28/93
/s/ Harve L. Lubin
Harve L. Lubin, individually and as Trustee utd 2/22/90
/s/ Joseph E. Gistaro
Joseph E. Gistaro, individually and as Trustee utd 8/15/89
CORPORATION:
MICAL Mortgage, Inc., a California corporation
By:
/s/ John E. Railey
John E. Railey, President
<PAGE> 247
By:
/s/ Harve L. Lubin
Harve L. Lubin, Secretary
EXHIBITS AND SCHEDULES
Exhibits Description
Exhibit A Shareholders and Shares
Exhibit B Pledge and Security Agreement
Exhibit C Registration Rights Agreement
Exhibit D Employment Agreement
Exhibit E Investment Letter
Exhibit F General Release
Exhibit G Shareholders' and President's Certificates re Absence of
Changes
Exhibit H Shareholders' Counsel's Opinion
Exhibit I Chief Financial Officer's Certificate re Absence of Changes
Schedules Description
Schedule 3.1 Jurisdictions in which Qualified to do Business
Schedule3.5(i) Financial Statements as of April 30, 1996 and 1997
Schedule3.5(ii) Financial Statements as of February 28, 1998
Schedule3.6 Changes in Financial Condition
Schedule 3.8 Undisclosed Liabilities
Schedule 3.10 Mortgages, Liens, Encumbrances, etc.
Schedule 3.11 Real Property
Schedule 3.12 Absence of Specified Changes
Schedule 3.13 Notice Filings and Third Party Consents
Schedule 3.14 Equipment, Furniture, etc.
Schedule 3.16 Trademarks
Schedule 3.17 Trade Secrets
Schedule 3.19 Insurance Policies
Schedule 3.22 Litigation
Schedule 3.27 Officers, Directors, Employees and Agents
Schedule 3.28 Employment Agreements
Schedule 3.29 Powers of Attorney; Bank Accounts
<PAGE> 248
EXHBIT A
Shareholders and Shares
<TABLE>
Shares to be delivered
at Closing including Shares to
Shareholders Shares Owned Pledged Shares be pledged
- - ----------------- ------------- ----------------------- ----------
<S> <C> <C> <C>
John E. Railey 475.125 207,161 37,500
Harve L. Lubin 475.125 207,161 37,500
Joseph E. Gistaro 316.750 138,107 25,000
Total 1,267,000 552,430 100,000
</TABLE>
<PAGE> 249
<TABLE>
<CAPTION>
ENTITY LEGAL STATUS
STATUS
- - ---------------------------------- ----------------------------------------
- - -------
<S> <C>
<C>
Coastal Federal Mortgage Company a New Jersey corporation
active
Coastal Federal Mortgage Company d/b/a CFM Mortgage Company: NY, SC
active
Coastal Federal Mortgage Company d/b/a Freeway Funding: NY, PA, NC, FL
active
Finet Corporation a California corporation
dormant
Finet Corporation d/b/a Finet Mortgage
dormant
Finet Correspondent, Inc. a California corporation
dormant
Finet Holdings Corporation <F1> a Delaware Corporation
active
FWC Shell Company a California corporation
dormant
iQualify a California corporation
active
Mical Mortgage, Inc. a California corporation
active
Monument Mortgage, Inc. a California corporation
active
Monument Mortgage, Inc. d/b/a Capital Mortgage, CA, NV
dormant
Monument Mortgage, Inc. d/b/a Finet Direct
active
Monument Mortgage, Inc. d/b/a Finet Mortgage: MA
active
Monument Mortgage, Inc. d/b/a Interloan
active
Monument Mortgage, Inc. d/b/a Monument Acceptance Corporation
active
Monument Mortgage, Inc. d/b/a PAMN: WA
dormant
Monument Mortgage, Inc. d/b/a Politzer Group
dormant
PreferenceAmerica Mortgage Network a California Corporation
dormant
PreferenceAmerica Mortgage Network d/b/a American Mortgage Benefits Network
dormant
Property Transaction Network a California corporation
active
<FN>
<F1>
FWC Shell Corporation, Inc., a wholly owned Finet subsidiary, has three
wholly owned subsidiaries: RPM Mortgage, Inc., RPM Fremont, Inc. and RPM
Affiliates, Inc, each a dormant California corporation.
<?FN>
</TABLE>
<PAGE> 250
CONSENT OF REUBEN E. PRICE & CO., INDEPENDENT AUDITORS
We consent to the incorporation by reference in:
SEC Registration Number 333-57287 on Form S-8 dated June 19, 1998
SEC Registration Number 333-53855 on Form S-3 MEF dated May 28, 1998
SEC Registration Number 333-50833 on Form S-3 dated April 23, 1998
of our report dated August 12, 1998, with respect to the consolidated
financial statements and schedules of Finet Holdings Corporation included
in its Annual Report on Form 10-KSB for the fiscal year ended April 30,
1998, filed with the Securities and Exchange Commission.
/s/ RUEBEN E. PRICE & CO.
San Francisco, California
August 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's audited financial reports and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<CASH> 1,993,000
<SECURITIES> 0
<RECEIVABLES> 26,245,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 96,750,000
<PP&E> 3,295,000
<DEPRECIATION> 1,854,000
<TOTAL-ASSETS> 101,468,000
<CURRENT-LIABILITIES> 92,609,000
<BONDS> 0
0
0
<COMMON> 386,000
<OTHER-SE> 2,973,000
<TOTAL-LIABILITY-AND-EQUITY> 101,468,000
<SALES> 0
<TOTAL-REVENUES> 12,561,000
<CGS> 0
<TOTAL-COSTS> 18,539,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,175,000
<INCOME-PRETAX> (9,153,000)
<INCOME-TAX> 226,000
<INCOME-CONTINUING> (9,379,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,379,000)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
