As filed with the Securities and Exchange Commission on August 2, 1999
--Registration No. 333-57287
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1 To
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
FiNET.COM, INC.
(Exact name of issuer specified in its charter)
Delaware 94-3115180
(State of incorporation) (I.R.S. Employer Identification No.)
--------------------
3021 Citrus Circle, Suite 150
Walnut Creek, California 94598
(Address of Principal Executive Offices)
1998 STOCK OPTION PLAN, AS AMENDED
(Full Title of the Plan)
Mark L. Korell, Chief Executive Officer
3021 Citrus Circle, Suite 150, Walnut Creek, California 94598
(925) 988-6550
(Name and Address and Telephone Number of Agent of Service)
Copies To:
Roger S. Mertz, Esq.
Severson & Werson
One Embarcadero Center, 26th Floor
San Francisco, California 94111
(415) 398-3344
<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to Be Offering Price Aggregate Offering Registration
to Be Registered Registered(1) Per Share (2) Price (2) Fee
- ------------------- ------------- ---------------- ------------------ ----
Common Stock, $0.01
par value, subject to
outstanding options
with fixed exercise
prices under the
FiNet.com, Inc. 1998
Stock
Option Plan 319,300 $0.75(2) $239,475 $67
361,274 1.03(2) 372,112 103
500,000 1.97(2) 985,000 274
15,000 2.13(2) 31,950 9
350,000 2.25(2) 787,500 219
30,000 4.19(2) 125,700 35
115,000 4.28(2) 492,200 137
92,500 6.69(2) 618,825 172
------ ------- ------- ---
Common Stock, $0.01 6,216,926 (3) $3.23(3) $20,080,671 $5,582
par value, not subject ------------- -------- ----------- ------
to outstanding options
with fixed exercise
prices under the
FiNet.com, Inc. 1998
Stock Option Plan
</TABLE>
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(1) This Registration Statement shall also cover any additional shares of
Common Stock which become issuable under the Registrant's 1998 Stock Option
Plan in order to adjust the number of shares reserved for issuance as the
result of any future stock split, stock dividend, or similar adjustment of
the Registrant's outstanding Common Stock.
(2) Computed pursuant to Rule 457(h) under the Securities Act of 1933, as
amended, based upon the exercise prices of options granted as of the filing
date of this Registration Statement.
(3) Estimated pursuant to Rules 457(c) and 457(h) under the Securities Act of
1933, as amended, solely for purposes of calculating the amount of the
registration fee, based on the average of the bid and asked sale prices of
the Registrant's common stock as reported on the Nasdaq SmallCap Market on
July 28, 1999.
<PAGE>
REOFFER PROSPECTUS
FiNet.com, Inc.
3,017,500 shares
Common Stock
-------------------------
The Selling Shareholders identified in this prospectus are offering
3,017,500 shares of common stock. FiNet.com will not receive any of the proceeds
from the sale of shares by the Selling Shareholders.
FiNet.com's common stock is traded on the Nasdaq SmallCap Market under
the symbol "FNCM." On July 28, 1999, the last reported sale price for the common
stock on the Nasdaq SmallCap Market was $3.25 per share.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4.
-------------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-------------------------
The date of this Prospectus is August 2, 1999
<PAGE>
AVAILABLE INFORMATION
FiNet.com, Inc. files annual, quarterly, and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information on file at
the Commission's public reference room in Washington, D.C. You can request
copies of those documents, upon payment of a duplicating fee, by writing to the
Commission.
We have filed a registration statement on Form S-8 with the Commission.
This prospectus, which forms a part of that registration statement, does not
contain all the information set forth in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete
and you should refer in each instance to the copy of such contract, agreement or
other document filed as an exhibit to the registration Statement, each statement
being qualified in all respects by such reference. You may read and copy all or
any portion of the registration statement or any reports, statements or other
information we file with the Commission at the Commission's public reference
room at 450 Fifth Street, N.W, Washington, D.C. 20549, and at the Commission's
following regional offices: Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048; and Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Our SEC filings and the registration statement can also be reviewed by
accessing the Commission's Internet site at http://www.sec.gov.
We will provide without charge to each person to whom a prospectus is
delivered upon written or oral request of such person, a copy of any document
incorporated herein by reference (not including exhibits to the document that
have been incorporated by reference unless such exhibits are specifically
incorporated by reference in the document which this prospectus incorporates).
Requests should be directed to: Chief Financial Officer, FiNet.com, Inc., 3021
Citrus Circle, Suite 150, Walnut Creek, California 94598, telephone (925)
988-6550.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Commission (File No.
0-18108) are incorporated by reference herein and shall be deemed to be a part
hereof:
(a) Annual Report on Form 10-K for the fiscal year ended April 30, 1999;
(b) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the end of the fiscal year covered by the
Annual Report referred to in (a) above; and
(c) The description of the common stock contained in our Registration
Statement on Form 8-A filed with the Commission on November 9, 1989.
All documents subsequently filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this
prospectus and prior to the termination of this offering will be
incorporated by reference in this prospectus and be a part hereof from
the date of the filing of such documents. Any statement contained in a
document incorporated by reference will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a
statement contained herein or in any other subsequently filed
incorporated document modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
Upon written or oral request of any person to whom a prospectus is delivered,
including any beneficial owner, we will provide, without charge, a copy of the
documents which have been incorporated by reference in this prospectus (other
than exhibits thereto unless such exhibits are specifically incorporated by
reference in any such document that this prospectus incorporates). Requests for
such documents should be directed to: Chief Financial Officer, FiNet.com, Inc.,
3021 Citrus Circle, Suite 150, Walnut Creek, California 94598, telephone (925)
988-6550.
<PAGE>
SUMMARY
This prospectus relates to the offer and sale from time to time by
certain of our executive officers and non-employee directors (collectively, the
"Selling Shareholders") of an aggregate of 3,017,500 shares of common stock (the
"Shares"), par value $0.01 per share. The Shares offered hereby are shares of
common stock that have been or may be acquired by the Selling Stockholders upon
exercise of stock options granted to the Selling Stockholders pursuant to our
1998 Stock Option Plan (the "Plan").
The Company
FiNet.com is a full service, on-line mortgage banker that offers an
easy-to-use, one-stop mortgage source for consumers and mortgage brokers. We
operate one of the first sites on the Internet that enables the consumer to
apply for and receive credit approval on-line, and to electronically search,
analyze and select from a wide variety of mortgage loan products and rates
offered by us and other lenders. We make the mortgage process easier and more
understandable, while maintaining quality service by controlling the consumer's
entire mortgage lending experience. We also provide on-line and e-commerce
technologies and loan process management tools to mortgage broker businesses to
enable them to compete more effectively with on-line and other national lenders
and brokers and help their customers make better informed borrowing decisions.
We generate revenues by providing services to two primary customer
groups: consumers and mortgage broker businesses. We market or intend to market
our mortgage services to consumers primarily through:
branded arrangements, where our services are offered through rapidly
growing websites such as X00M.com and Ask.com, using our Interloan.com
brand;
co-branded arrangements, where our services are offered through
specialty real estate websites such as Homeseekers.com and
Homehunter.com, using both our brand and our partner's brand; and
private label arrangements, where we plan to design and operate
electronic mortgage centers for third party websites using our
partner's brand.
We provide our consumers with a fast and easy to use on-line method to
get their loans approved through our award-winning iQualify.com technology.
Consumers can then use our Interloan.com website technology to search, analyze
and select from a wide variety of mortgage loan products and rates offered by
leading lenders, including our Monument Mortgage subsidiary. We allow each
consumer to choose between automated service and personalized assistance at any
time in the loan process. Consumers are assisted by our mortgage professionals
throughout the loan application process. We recently began offering our
consumers additional choice by allowing them to submit their processed mortgage
loan applications for auction to interested lenders. We refer to these services
to consumers as our business-to-consumer channel.
We offer mortgage broker businesses the opportunity to use the on-line
technology and automated underwriting systems of our full service mortgage
banking operation to expand and improve service to their local customers and
compete with on-line mortgage originators, while maintaining the flexibility to
control their own businesses. As a full service mortgage banker, we fund loans
originated by mortgage brokers, which we then sell to institutional investors in
the secondary mortgage market. We also plan to design private label websites for
mortgage broker businesses that will emphasize user-friendly access to on-line,
automated underwriting systems and other e-commerce services. We refer to these
services to mortgage brokers as our business-to-business channel.
We were incorporated under the laws of the State of Delaware in 1989.
Our principal executive offices are located at 3021 Citrus Circle, Walnut Creek,
California 94598, and our telephone number is (925) 988-6550.
FiNet.com, iQualify.com and Interloan.com are trademarks of FiNet.com.
All other brand names or trademarks appearing in this prospectus are the
property of their respective holders.
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. The risks described below are not the only
ones we face. Additional risks not presently known to us or that we currently
consider immaterial may also materially impair our business operations. If any
of the following risks actually occur, our business, financial condition or
results of operations could be materially adversely affected. In such case, the
trading price of our common stock could decline, and you may lose all or part of
your investment. You should also refer to the other information set forth in
this prospectus, including our consolidated financial statements incorporated
herein by reference.
If we continue to experience losses in the future, our business, financial
condition and growth prospects could be materially adversely affected.
We have had net losses in each fiscal year since fiscal 1997, and we
expect that we will continue to incur losses for the foreseeable future on both
an annual and quarterly basis. We expect to continue to incur losses because of
our plans to invest over the near term in information systems, sales and
marketing, recruiting and training, customer support and administrative
infrastructure. Because of these expected losses, we may not be able to
implement our business plans, and our business, results of operations, financial
condition and growth prospects could be materially adversely affected.
As of April 30, 1999, we had an accumulated deficit of approximately
$47.9 million. Prior to December 31, 1995, our year-end financial statements
contained a qualification from our independent accountants regarding the
uncertainty of our ability to continue as a going concern. We believe that it is
likely that we will experience losses and accumulate deficits for the
foreseeable future.
We may incur additional losses from the discontinued businesses of Coastal
Federal Mortgage and Mical Mortgage.
In April 1998, we acquired Coastal Federal Mortgage Company, and in May
1998, we acquired Mical Mortgage Inc., both of which have incurred losses since
we acquired them. In April 1999, we discontinued our Coastal and Mical business
units, and we substantially liquidated their assets. We recorded a special
charge to operations of approximately $4.2 million associated with these
discontinued units. We reported a net loss associated with their acquisition and
operation of $16.9 million in fiscal 1999. We may incur additional unanticipated
losses in connection with these discontinued business units.
If our new management is not able to improve and expand our operations, our
business could suffer.
We recently replaced most of our management team by hiring, among
others, Mark Korell, our President and Chief Executive Officer, Gary Palmer, our
Executive Vice President-Chief Financial Officer, Michael Conway, our Executive
Vice President-Capital Markets, Thomas Porter, our Executive Vice
President-Administration, Kevin Gillespie, our Executive Vice President-Sales
and Marketing, and Chris Skeadas, our Executive Vice President-Chief Technology
Officer. These employees have not previously worked together, and we cannot be
sure that they will be able to work together effectively to improve and expand
our operations. If these employees are not able to improve and expand our
operations, our financial condition, profitability and growth prospects could be
materially adversely affected.
The loss of any of our executive officers or key personnel would likely have an
adverse effect on our business.
We believe that our future success will depend to a significant extent
on the continued services of our senior management and other key personnel,
including, among others: Mark Korell, Gary Palmer, Michael Conway, Thomas
Porter, Kevin Gillespie and Chris Skeadas. We do not maintain "key person" life
insurance for any of our personnel. The loss of the services of any of these
employees, or other key employees, could have a material adverse effect on our
business, results of operations and financial condition.
If we are unable to retain and attract qualified personnel, our business could
suffer.
Our ability to grow and our future success depend on our 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 employees is intense, especially in the
e-commerce sector, and there is a risk that we will not be able to successfully
attract, assimilate or retain sufficiently qualified personnel. If we fad to
retain and attract the necessary technical, managerial, sales and marketing,
customer service personnel and experienced professionals, our business, results
of operations and financial condition could be materially adversely effected.
If consumers and mortgage broker businesses do not embrace on-line mortgage
financing and sales, our business will be materially adversely affected.
Our success depends upon the acceptance of on-line mortgage financing
by consumers, mortgage brokers and other real estate service providers. If these
groups do not embrace our model for mortgage finance, our business, results of
operations and financial condition will be materially adversely affected. The
market for electronic mortgage financing, particularly over the Internet, is at
an early stage of development and is evolving rapidly. Rapid growth in the use
of and interest in the Internet is a recent development and we cannot be sure
Internet usage will continue to grow or that a sufficiently broad base of
consumers and businesses will adopt, and continue to use, the Internet as a
medium by which to communicate and obtain services traditionally provided in
person-to-person and paper transactions. Our 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.
We believe that acceptance of our products and services will depend on
the following factors, among others:
the growth of the Internet as a medium for commerce generally, and as
a market for financial products and services in particular;
development of the necessary Internet network infrastructure to
support new technologies and handle the demands placed upon the
Internet;
government regulation of the Internet;
our ability to successfully and efficiently develop on-line products
and services that are attractive to a sufficiently large number of
consumers and mortgage brokers; and
a change in the perception among many consumers and real estate
service providers that obtaining a mortgage on-line is less dependable
than obtaining a mortgage through a more traditional method.
There is a risk that on-line mortgage financing will not gain market
acceptance and that consumers will not significantly increase their use of the
Internet for obtaining loans. If the market for on-line mortgage financing fails
to develop, or develops more slowly than expected, our business, results of
operations and financial condition would be materially adversely affected. In
addition, if there are insufficient communications services to support the
Internet, it could result in slower response times which would adversely affect
usage of the Internet. Even if the Internet gains acceptance, we may be unable,
for technical or other reasons, to develop and introduce new products and
services or enhancements of existing products and services in a timely manner,
and such products and services and enhancements may not gain widespread market
acceptance. Any of these factors could have a material adverse effect on our
business, results of operations and financial condition.
In addition, because the market for on-line mortgage lending is at an
early stage of development, the volume of loans that we originate or sell in any
given period is difficult to predict. If the volume of loans that we originate
or sell falls below our expectations or the expectations of financial analysts,
our business, results of operation and financial condition could be materially
adversely affected.
If there is a recession, natural disaster or other disruption in the California
economy, our business could be materially adversely affected.
Approximately 88% of Monument's loans that we originated and/or funded
in fiscal 1999 were for properties located in California. No other state
represented more than 6% of our loan volume during such period. Because a high
concentration of our business is in California, we are particularly vulnerable
to recessions and conditions affecting the economy of California. Although we
seek to originate more loans in other states, we are likely to continue to be
dependent on originating loans for properties located in California for the
foreseeable future. There have been times in the past, most recently in 1991 and
1992, when the California economy suffered a recession more severe than the rest
of the country. If such a recession were to occur again, our business, results
of operations and financial condition would be materially adversely affected.
In addition, California historically has been vulnerable to natural
disasters, such as earthquakes and mudslides, which are not typically covered by
standard hazard insurance policies that homeowners typically maintain. Uninsured
disasters may reduce a borrower's ability to repay the mortgage loans we close
and sell. A sustained period of increased delinquencies or defaults resulting
from natural disasters could adversely affect the pricing of our future loan
sales and our overall ability to sell loans. The occurrence of any such natural
disasters in California could have a material adverse effect on our business,
results of operations and financial condition.
If there is a decrease in the demand for mortgages, our business could suffer.
Demand for mortgages is typically adversely affected by periods of
economic slowdown or recession, which can be accompanied by rising interest
rates and declining demand for consumer credit, home sales, real estate values
and ability of borrowers to make loan payments. These factors tend to decrease
demand for mortgage loans of the types we originate and could increase the rates
of delinquencies and foreclosures on loans we hold. These changes would likely
have a material adverse effect on our business, results of operations and
financial condition.
Over the last several years we have operated in an environment of
relatively low interest rates, relatively high demand for consumer credit and
increasing home sales and real estate values. We cannot be sure that we will be
able to grow our business in an atmosphere of higher interest rates, lower
consumer credit demand and real estate value and fewer home sales.
If interest rates rise, our results of operations could be materially adversely
affected.
Our residential mortgage business depends upon overall levels of sale
and refinancing of residential real estate as well as on mortgage loan interest
rates. Any fluctuation in interest rates or an adverse change in residential
real estate or general economic conditions, both of which are outside our
control, could have a material adverse effect on our business, results of
operations and financial condition. The residential real estate industry is
highly cyclical. Shifts in the economy and residential real estate values
generally affect the number of home sales and new housing starts. The demand for
mortgage loan financing increases as the number of home sales increases.
Declining interest rates generally increase mortgage loan financing activity
because homeowners refinance existing mortgage loans to obtain more favorable
interest rates. Rising interest rates, in contrast, discourage refinancing
activities and generally reduce the number of home sales that occur.
Approximately 69% of the loans we originated and/or funded in fiscal
1999 were loans to refinance mortgage debt. The effect of interest rate changes
tends to be greater on the market for refinancing loans than it is on the market
for purchase loans, since refinancing a mortgage loan is voluntary and motivated
primarily by a homeowner's desire to lower financing costs, whereas new home
purchasers are motivated by a need or desire for a new home. Accordingly, the
annual volume of new mortgage refinance loans is quite volatile. We cannot
predict future interest rate trends, their impact on our business, or our
ability to manage this business mix.
The value of the loans we make is based, in part, on market interest
rates, and our business, results of operations and financial condition may be
materially adversely affected if interest rates change rapidly or unexpectedly.
If interest rates rise after we fix a price for a loan but before we sell the
loan into the secondary market, the value of that loan will decrease. If we
delay in selling our loans into the secondary market, our interest rate exposure
increases and we could incur a loss on the sale. While we use various hedging
strategies to provide some protection against interest rate risks, no hedging
strategy can protect us completely. The nature and timing of hedging
transactions influences the effectiveness of hedging strategies and poorly
designed strategies or improperly executed transactions may increase rather than
decrease risk. In addition, hedging strategies involve transaction and other
costs. There is a risk that our hedging strategy and the hedges that we make
will not adequately offset the risks of interest rate volatility and that our
hedges will result in losses.
If we are unable to differentiate ourselves from competition in our
industry, our business prospects could be harmed.
The e-commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future. Barriers to entry
are minimal, so our competitors can launch new Internet sites at relatively low
cost. In addition, the residential mortgage loan business is highly competitive.
We currently compete with a variety of other companies offering mortgage
services, including:
various on-line mortgage brokers, including E-LOAN Inc., iOwn.com,
Mortgage.com, Quicken Mortgage.com and Keystroke Financial;
mortgage companies that offer products through on-line search engines,
such as Yahoo! and Microsoft Corporation's Home Advisor website;
mortgage banking companies, commercial banks, savings associations,
credit unions and other financial institutions which still originate
the vast majority of mortgage loans; and
mortgage brokers.
Many of our mortgage banking and mortgage brokerage competitors have
longer operating histories or significantly greater financial, technical,
marketing and other resources than we do. Some of our on-line competitors are
spending substantial funds on mass marketing and branding their mortgage
services. In addition, some of our competitors offer a wider range of services
and financial products to customers and have the ability to respond more quickly
to new or changing opportunities. As a result, many have greater name
recognition and more extensive customer bases and can offer more attractive
terms to customers and adopt more aggressive loan pricing policies. We cannot be
sure that we will be able to compete successfully against current and future
competitors. If we are unable to do so it will have a material adverse effect on
our business, results of operations and financial condition.
If our quarterly revenues and operating results fluctuate significantly, the
price of our common stock is likely to be volatile.
Our quarterly revenues and operating results are likely to continue to
vary substantially from quarter to quarter. Fluctuation in our quarterly results
may cause the price of our common stock to be volatile. We believe that the
following factors, among others, could affect our quarterly results:
fluctuations in mortgage loan interest rates;
seasonal or other economic factors affecting demand for mortgage
credit;
the volume of our mortgage loan originations;
the size and timing of our loan sales;
our ability to offer competitive mortgage rates;
changes in our pricing policies or our competitors' pricing policies
for mortgage origination and processing fees;
the proportion of our mortgage originations which are used to purchase
homes or refinance existing debt;
the introduction of new products and services by us or our
competitors;
the level of consumer interest and confidence in the Internet as a
means of accessing financial products and services;
the timing of releases of enhancements to our products and services;
our ability to upgrade and develop our information systems and
operational infrastructure to accommodate growth;
the timing and rate at which we increase our expenses to support
projected growth;
the cost of compliance with federal and state government laws and
regulations, including any changes in our historic business practices
that could result from legal interpretations;
any termination or restructuring of any strategic alliances or
agreements with key service providers, such as the Federal National
Mortgage Association, commonly known as Fannie Mae, or the Federal
Home Loan Mortgage Corporation, commonly known as Freddie Mae;
our announcement of new marketing initiatives or strategic alliances
with other Internet-based companies, or termination of any such
initiative or alliance;
the volume of business resulting from collaborative marketing efforts
with our strategic partners;
technical difficulties or service interruptions affecting our Internet
websites or operational data processing systems;
changes in our operating expenses and investment in our
infrastructure;
general economic conditions in the United States and economic
conditions which particularly affect e-commerce industries; and
additions or departures of key executives and operating personnel.
These factors make a substantial decline in our stock price possible at
any time. For example, our common stock traded between $0.41 and $18.25 per
share between May 1, 1998 and June 30, 1999.
In addition, the trading prices of Internet and e-commerce stocks have
recently experienced extreme price and volume fluctuations. These fluctuations
often appear to be unrelated or disproportionate to the operating performance of
Internet and e-commerce companies. The valuations of many Internet and
e-commerce stocks are extraordinarily high based on conventional valuation
standards such as price-to-earnings and price-to-sales ratios. These trading
prices and valuations may not be sustained. Any negative change in the public's
perception of the prospects of Internet or e-commerce companies could depress
our stock price regardless of our results. In the past, securities class action
litigation often has been brought against companies following declines in the
market price of their securities. If litigation of this type were brought
against us, it could be very costly and could divert management's attention and
resources from our business plan.
We anticipate that as the on-line mortgage origination industry
matures, our business will also be increasingly susceptible to the same seasonal
and cyclical factors that affect the mortgage industry as a whole. Accordingly,
we believe period-to-period comparisons of our operating results are not
meaningful and our results for any period should not be relied upon as an
indication of future performance. Our operating results may fail to meet our
expectations or those of analysts who follow us. Any such failure could cause
our stock price to decline substantially.
We are aware that from time to time chat groups may develop on the
Internet and that participants in those groups may post statements about us.
These statements may influence the market price of our common stock. We do not
monitor statements about us that appear on the Internet, except for authorized
statements made by us. We undertake no obligation of any kind whatsoever to
monitor, correct, comment on or respond to statements on the Internet or
elsewhere by others, and it is our policy not to monitor, correct, comment on or
respond to such statements.
If we are unable to manage growth in our business, our results of operations may
not improve.
We anticipate that we will need to rapidly expand our employee base,
facilities and infrastructure in order to be able to compete successfully and
take advantage of market opportunities. We expect this expansion to place
significant strain on our management, operational and financial resources. Our
current personnel, systems, procedures and controls are not adequate to support
anticipated growth of our operations. To manage this expected growth, we will
need to improve our mortgage processing, operational and financial systems,
information processing capacity, procedures and controls. We may be unable to
hire, train, retain or manage necessary personnel, or to identify and take
advantage of existing and potential strategic relationships and market
opportunities. If we are unable to manage expansion of our business effectively,
our business, results of operations and financial condition may not improve and
could deteriorate.
Problems and risks related to potential acquisitions and alliances may harm our
business.
Our growth strategy includes acquisitions of or alliances with
companies with complementary services, technologies and businesses. In
connection with any such acquisition, we may fail to successfully integrate the
operations of the acquired company. For example, as described more completely
above under "We may incur additional losses from the discontinued businesses of
Coastal Federal Mortgage and Mical Mortgage," we incurred significant losses
following our acquisitions of Mical and Coastal, and have discontinued their
operations. Any future acquisitions or alliances we pursue may not be completed
or successful. Also, acquisitions or alliances could divert our management's
attention from other business matters, or we could lose key employees of
acquired companies or alliance businesses.
If we lose key mortgage lender relationships, our business could be materially
adversely affected.
We rely on lenders to make loans in cases where we act as a broker.
These lenders are under no obligation to continue their relationships with us or
to make a loan to any potential borrower we present to them. Approximately 65%
of the loans we originated in fiscal 1999 were closed by five lenders. Our
reliance on a small group of lenders makes our origination volume more
susceptible to changes in the rates, services and products such lenders offer.
The loss of our relationship with any of these lenders, or the failure of these
lenders to offer competitive terms, could have a material adverse effect on our
business, results of operations and financial condition.
The discontinuation of federal programs that purchase loans or any change in our
eligibility to participate such programs would have a material adverse effect on
our business.
We fund our mortgage loan operations in part by selling the mortgage
loans that we fund to entities such as Fannie Mae, Freddie Mac and the
Government National Mortgage Association, commonly known as Ginnie Mae, which
pool those mortgage loans into mortgage-backed securities. Our ability to sell
mortgage loans depends upon the continuation of programs administered by these
entities, as well as our continued eligibility to participate in these programs.
If these programs, or our eligibility to participate in them, were terminated or
significantly curtailed, our business, results of operations and financial
condition would be materially adversely affected. In addition, the mortgage
products offered under these federal programs may change from time to time. The
profitability of specific mortgage products may vary depending on a number of
factors, including our administrative costs of originating these products.
We also depend upon private mortgage investors, such as GMAC/RFC, GE
Capital Mortgage and IndyMac, to purchase mortgage loans that we originate which
do not qualify for inclusion in the federal programs described above. If private
investors reduce their purchases of these mortgage loans, the market and price
for such mortgage loans will be adversely affected, which would have a material
adverse effect on our business, results of operations and financial condition.
We depend on automated underwriting and other services offered by
government sponsored and other mortgage investors, including Fannie Mae's
Desktop Underwriter, or DU, Freddie Mac's Loan Prospector, GMAC/RFC's AssetWise
and GE Capital Mortgage's Good Decisions. These services help ensure that our
mortgage services can be offered efficiently and timely. We currently have an
agreement with Fannie Mae that allows us to use their automated underwriting
services and enables us to sell qualified first mortgages to Fannie Mae. During
fiscal 1999, approximately 66% of our loans funded by Monument Mortgage, Inc.
were sold to Fannie Mae. We expect to continue to process a significant portion
of our conforming loans using the Fannie Mae system. However, our agreements
with Fannie Mae and other mortgage investors can be terminated by either party
immediately upon the delivery of a written termination notice. There is a risk
that we will not remain in good standing with Fannie Mae and other mortgage
investors or that Fannie Mae and other mortgage investors will terminate our
relationship. The termination of our agreement with Fannie Mae would materially
adversely impact our ability to originate loans.
If our new marketing relationships are unsuccessful, our loan originations could
suffer.
We have entered into a majority of our marketing relationships within
the past four months. We expect our new marketing relationships to direct a
significant number of prospective customers to our websites. Our agreements with
marketing partners are typically short term, lasting as little as 90 days, and,
in some cases, can be unilaterally terminated by either party. If any of these
agreements were terminated or lapsed without extension, we could lose an
important new source of loan applications.
Among our new marketing relationships are those with Ask.com,
CoxInteractive, GetSmart.com, Homehunter, Homeseekers and XOOM.com. If our
relationship with these marketing partners or future marketing partners are not
successful, or if they are successful but are discontinued for any reason, we
could experience a material reduction in the number of loans we are able to
originate. We cannot predict whether any or all of these agreements will be
terminated or will be renewed or extended past their current expiration dates.
In addition, if we fail to establish relationships with future website operators
or to anticipate and make adjustments in our marketing strategy to access other
potential customers, our business, results of operations and financial condition
could be materially adversely affected.
If we have to repurchase loans originated for or sold to lenders, our operating
results could be materially adversely affected.
Under agreements with some of our lenders, they may require us to
repurchase loans that we originate for them, or they purchase from us, in the
event of material misrepresentations by us or inaccuracies in the borrowers'
loan documents. In fiscal 1999, we were required to repurchase approximately $0,
$9.9 million and $124,000 principal amount of loans sold by Coastal, Mical and
Monument Mortgage, respectively. It is possible that future demands will be made
to repurchase loans sold by these subsidiaries. There is a risk that we will not
have sufficient funds to repurchase loans upon demand or that such repurchases
will have a material adverse effect on our business, results of operations and
financial condition.
As a result of repurchases, we occasionally are required to hold
foreclosed residential real estate in inventory until it can be resold. If
interest rates rise and the economy declines, the rate of mortgage loan
foreclosures may rise. Depending on the circumstances of the transaction, we may
or may not be able to sell the property for more than the outstanding loan
balance. As of April 30, 1999, our Mical Mortgage subsidiary held approximately
$1 million aggregate principal amount of loans in foreclosure. Future
foreclosures could have a material adverse effect on our business, results of
operations and financial condition.
If we lose access to credit facilities to finance our mortgage lending
activities, our growth prospects could be severely limited.
We act as a lender for many of the loans we originate. Because we are
not a bank, we are dependent upon specialized mortgage credit facilities from
other lenders to finance our mortgage lending activities. We previously
maintained warehouse credit facilities with Residential Funding Corporation, and
at times, we have defaulted under such lines of credit. These warehouse lines
have expired; however, we were granted monthly extensions on one of these lines.
The current monthly extension under this line ends on July 31, 1999.
We cannot assure you that financing will continue to be available on
favorable terms or at all. To the extent that we are unable to access adequate
capital to fund loans, we may have to curtail or cease our loan funding
activities entirely. This would have a material adverse effect on our ability to
execute our growth and operating strategies as well as on our business, results
of operations and financial condition.
If there are interruptions or delays in obtaining appraisal, credit reporting,
title searching and other underwriting services from third parties, we may
experience customer dissatisfaction and difficulties closing loans.
We rely on other companies to perform certain aspects of the loan
underwriting process, including appraisals, credit reporting and title searches.
If the provision of these ancillary services were interrupted or delayed, it
could cause delays in the processing and closing of loans for our customers. The
value of the service we offer and the ultimate success of our business are
dependent on our ability to secure the timely provision of these ancillary
services by the third parties with whom we have business relationships. If we
are unsuccessful in securing the timely delivery of these ancillary services we
will likely experience increased customer dissatisfaction and our business,
results of operations and financial condition could be materially adversely
affected.
If we fail to comply with extensive federal and state laws regulating our
industry, we could be subject to penalties, disqualifications, lawsuits or
enforcement actions that could have a material adverse affect our business.
Our operations are subject to extensive regulation by federal and state
authorities. For example, the United States Department of Housing and Urban
Development, or HUD, regulates certain aspects of the mortgage lending business,
as do the Federal Reserve Board and the Federal Trade Commission. The Real
Estate Settlement Procedures Act of 1974, or RESPA, the Truth in Lending Act and
federal statutes require that certain disclosures, such as good faith estimates
of settlement charges, a Truth-in-Lending Statement and a HUD-1 settlement
statement be provided to borrowers and that certain information, such as the HUD
Settlement Costs booklet, also be provided to borrowers. The Federal Fair
Housing Act and the Equal Credit Opportunity Act prohibit discrimination and
various state statutes prohibit unfair and deceptive trade practices, and impose
disclosure and other requirements in connection with the mortgage loan
origination process. If we fail to comply with such regulations, possible
consequences could include loss of approved status, demands for indemnification,
class action lawsuits, and administrative enforcement actions.
In addition, 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, the payment of reasonable
compensation for the provision of goods, services and facilities is generally
not prohibited.
In September 1998, HUD cited Mical for various alleged violations of
HUD/FHA regulations. Thereafter, HUD withdrew Mical's HUD/FHA Title I & II
approvals and imposed a civil penalty against Mical in the amount of $500,000.
In California, regulation and licensing of mortgage brokers and lenders
falls under the California Department of Real Estate or the California
Department of Corporations. Other than banking industry employees and other
persons who are exempt from California Department of Real Estate and California
Department of Corporations licensing requirements, individuals engaged directly
in the origination of loans or the dissemination of certain information are
required to be licensed by the California Department of Real Estate or the
California Department of Corporations. We and some of our subsidiaries are also
required to be licensed in other states in which we have offices or operate.
Although we have the licenses required in California and several other states
and believe that we will be able to obtain licenses required in other states
from time to time, we cannot be sure that we will successfully comply with the
many government regulations and licensing requirements to which we are subject.
If we fail to comply adequately, it could have a material adverse effect on our
business, results of operations and financial condition.
If legislation or regulation surrounding the use of the Internet restricts our
ability to originate mortgages over the Internet, our business would be
materially adversely affected.
Laws and regulations directly applicable to the Internet and e-commerce
may become more prevalent in the future. In the event the Federal Trade
Commission or other governmental authorities adopt or modify laws or regulations
relating to the Internet, our business, results of operations and financial
condition could be materially adversely affected. Such legislation and
regulation could dampen the growth in Internet usage generally and decrease the
acceptance of the Internet as a commercial medium. The laws and regulations
governing the Internet remain largely unsettled, even in areas where there has
been some legislative or regulatory action. It may take years to determine
whether and how existing laws and regulations such as those governing
intellectual property, privacy and taxation apply to the Internet. In addition,
the growth and development of the market for e-commerce may prompt calls for
more stringent consumer protection laws and regulations, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet.
If we are unable to respond to rapid technological change in e-commerce and
improve our products and services, our business could be materially adversely
affected.
The Internet and e-commerce 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 existing technology
and systems obsolete. To remain competitive, we must continue to enhance and
improve the responsiveness, functionality and features of our on-line services.
We have little proprietary computer software, information databases or
applications. We cannot be sure that others will not develop and offer superior
products and services, or, if so offered, that they will not gain a greater
acceptance among potential customers. Our success will depend, in part, on our
ability to both license and internally develop leading technologies useful in
our business, enhance our existing services, develop new services and technology
that address the increasingly sophisticated and varied needs of our customers,
and respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
The development of websites and other proprietary technology entails
significant technical and business risks. There can be no assurance that we will
successfully use new technologies effectively or adapt our websites, technology
and transaction-processing systems to customer requirements or emerging industry
standards. If we are unable, for technical, legal, financial or other reasons,
to adapt in a timely manner to changing market conditions, customer requirements
or emerging industry standards, our business, results of operations and
financial condition could be materially adversely affected.
If our computer systems fail, our business would be materially adversely
affected.
A key element of our strategy is to generate a high volume of traffic
on, and use of, our websites. Accordingly, the satisfactory performance,
reliability and availability of our websites, transaction-processing systems and
network infrastructure are critical to our reputation and ability to attract and
retain customers and maintain adequate customer service levels. Our revenues
depend in part on the number of potential customers who visit our websites. Any
system interruption that results in the unavailability of our websites would
reduce the volume and attractiveness of our product and service offerings. Our
communications hardware and some of our other computer hardware operations are
located at our facilities in Walnut Creek, California. The hardware for our
internal loan and product database, as well as our loan processing operations,
is also maintained in our Walnut Creek facility. Fires, floods, earthquakes,
power losses, telecommunications failures, breaches and similar events could
damage these systems. Computer viruses, electronic breaches or other similar
disruptive problems could also adversely affect our websites. Our business,
results of operations and financial condition could be adversely affected if our
systems were affected by any of these occurrences. Our insurance policies may
not adequately compensate us for losses that may occur in the event of a failure
of our computer systems or other interruptions in our business.
Our websites must accommodate a high volume of traffic and deliver
frequently updated information, the accuracy and timeliness of which is critical
to our business. In the past, we have experienced periodic system interruptions,
which we believe will continue to occur from time to time. Any substantial
increase in the volume of traffic on our websites will require us to expand and
upgrade further our technology, transaction-processing systems and network
infrastructure. We cannot be sure that we will be able to accurately project the
rate or timing of increases, if any, in the use of our websites or expand and
upgrade our systems and infrastructure to accommodate such increases in a timely
manner. In addition, our users depend on Internet service providers, on-line
service providers and other website operators for access to our websites. Many
of them have experienced significant outages in the past, and could experience
outage delays and other difficulties due to system failures unrelated to our
systems. Moreover, the Internet infrastructure may not be able to support
continued growth in its use. Any of these problems would materially adversely
affect our business, results of operations and financial condition.
If our electronic security devices are breached, our business would be
materially adversely affected.
The secure transmission of confidential information through e-commerce
is critical to our underwriting process. We rely on certain encryption and
authentication technology licensed from third parties to provide secure
transmission of confidential information, such as consumers' 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 we use to protect
customer transaction data. If any such compromise were to occur, it could have a
material adverse effect on our business, results of operations and financial
condition.
We may be required to spend 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 e-commerce in particular. To the extent that our activities involve the
storage and transmission of proprietary information, such as consumers'
financial statements and profile information, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible liability.
There can be no assurance that our security measures will prevent security
breaches or that a failure to prevent such security breaches will not have a
material adverse effect on our business, financial condition and results of
operations.
If we are unable to successfully address Year 2000 issues, our business could be
materially adversely affected.
Many currently installed computer systems and software programs only
accept two digits to identify the year in any date. Any system or program which
cannot accept four digits to identify the year in any date may not distinguish
dates falling on or after January 1, 2000 from dates falling before January 1,
2000. As a result, many computer systems and software programs may need to
upgraded or replaced to ensure they comply with Year 2000 requirements.
The actual cost we incur to become Year 2000 compliant is subject to
certain risks and uncertainties including, among others, our ability to timely
identify all affected business-critical systems, and the readiness of service
providers, vendors and suppliers, and our financial institutions and significant
customers. If we are unsuccessful in correcting our business-critical systems
and processes affected by the Year 2000 issue, our, business, results of
operations and financial condition could be materially affected. In addition, if
our service providers, vendors and suppliers or our financial institutions and
significant customers are adversely affected by the Year 2000 issue, our
operations could face substantial interruptions and our business, results of
operations and financial condition could be materially and adversely affected.
These third party risks include possible interruptions in our ability to fund
loans utilizing our warehouse facilities, our ability to sell loans to Fannie
Mae and other investors, originate mortgages over the Internet and our hedging
systems' ability to link to financial data.
For additional information regarding Year 2000 issues, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
If previously unregistered shares of our common stock are sold into the market,
it could cause the market price of our common stock to drop.
As of June 30, 1999, we had approximately 90.3 million shares of common
stock, and warrants to purchase approximately 16.6 million shares of common
stock, issued and outstanding. Prior to this offering, we had approximately 27.4
million shares of freely tradable stock outstanding. This prospectus covers
substantially all of the shares of our common stock subject to registration
rights which could not otherwise currently be sold pursuant to Rule 144 of the
Securities Act. Accordingly, the number of shares freely tradable in the open
market following the effective date of this prospectus will increase
significantly. If the holders of these shares sell large numbers of the shares
in the open market, the market price of our common stock could fall sharply. In
addition, the perception that such sales could occur may cause the market price
of our common stock to remain relatively low indefinitely. These factors could
also make it more difficult for us to raise funds through future offerings of
common stock.
Future issuances of additional securities will be dilutive to existing
shareholders.
Pursuant to contractual obligations to file a registration statement
with the SEC covering shares of common stock held by some of our existing
shareholders, we may be obligated to issue additional shares to such
shareholders for failing to file the registration statement within the time
specified in the agreements under which the shares were purchased. If we are
required to issue such additional shares, it will result in dilution to the
interests of our other shareholders.
In addition, Mr. Korell's employment agreement has an anti-dilution
provision pursuant to which he has the right to maintain a four percent equity
position in FiNet.com. The issuance of options to Mr. Korell pursuant to this
provision will result in dilution to the interests of our other shareholders.
We do not intend to pay dividends.
We have not paid any dividends on our common stock since fiscal 1997
and we do not anticipate paying dividends on our common stock in the foreseeable
future. You should take this into account when deciding whether to buy our
stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this prospectus that are
subject to risks and uncertainties. Forward-looking statements include
information concerning our possible or assumed future results of operations.
Also, when we use such words as "believe," "expect," "anticipate," "plan,"
"could," "intend" or similar expressions, we are making forward-looking
statements. You should note that an investment in our securities involves
certain risks and uncertainties that could affect our future financial results.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in "Risk Factors" and elsewhere in this prospectus.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
above, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this prospectus
could materially and adversely affect our business, results of operations and
financial condition.
SELLING SHAREHOLDERS
The Shares are shares of common stock that have been or may be acquired
by the selling shareholders pursuant to the Plans. Each selling shareholder will
receive all of the net proceeds from the sale of his or her respective Shares.
There is no assurance that any of the selling shareholders will sell any or all
of the Shares.
The following table sets forth (i) the name of each selling
shareholder, (ii) the nature of his or her position, office or material
relationship with FiNet.com within the past three years, (iii) the number of
shares of common stock beneficially owned by each selling shareholder as of June
30, 1999, (iv) the number of Shares offered by each selling shareholder
hereunder, and (v) the number of shares and (if one percent or more) the
percentage of common stock to be beneficially owned by each selling shareholder
after this offering. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares subject to options or
warrants held by that person that are currently exercisable or exercisable
within 60 days of June 30, 1999 are deemed outstanding. Such shares, however,
are not deemed outstanding for the purpose of computing the percentage ownership
of each other person. Applicable percentage of ownership for each shareholder is
based on 90,312,005 shares of common stock outstanding as of June 30, 1999.
Shares Owned
after Offering
Number of
Relationship Number Shares
Name with the Company of Shares Offered
Owned Hereby Number %
Mark L. Korell Chairman, 976,909 1,300,000 0 *
President and CEO
Michael G. Conway Executive Vice 90,000 367,500 0 *
President -
Administration
Gary A. Palmer Executive Vice 70,000 350,000 0 *
President and
Chief Financial
Officer
Thomas A. Porter Executive Vice 40,000 300,000 0 *
President -
Administration
Kevin Gillespie Executive Vice 70,000 350,000 0 *
President -
Sales and
Marketing
Christos Skeadas Executive Vice 100,000 350,000 0 *
President -
Chief Technology
Officer
- ----------------------
* Less than 1% of the outstanding shares of common stock
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
Selling Stockholders except for the exercise price of the options underlying
certain of the Shares offered under this prospectus. We intend to use any
proceeds from the exercise of the options for general corporate purposes.
PLAN OF DISTRIBUTION
The Selling Shareholders may offer their Shares at various times in one
or more of the following transactions:
on the Nasdaq SmallCap Market (or any other exchange on which the
shares may be listed);
in the over-the-counter market;
in negotiated transactions other than on such exchanges;
by pledge to secure debts and other obligations;
in connection with the writing of non-traded and exchange-traded call
options, in hedge transactions, in covering previously established
short positions and in settlement of other transactions in
standardized or over-the-counter options; or
in a combination of any of the above transactions.
The Selling Shareholders may sell their shares at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices. The Selling Shareholders may
use broker-dealers to sell their shares. The broker-dealers will either receive
discounts or commissions from the Selling Shareholders, or they will receive
commissions from purchasers of Shares.
Under certain circumstances the Selling Shareholders and any
broker-dealers that participate in the distribution may be deemed to be
"underwriters" within the meaning of the Securities Act. Any commissions
received by such broker-dealers and any profits realized on the resale of Shares
by them may be considered underwriting discounts and commissions under the
Securities Act. The Selling Shareholders may agree to indemnify such
broker-dealers against certain liabilities, including liabilities under the
Securities Act. In addition, FiNet.com has agreed to indemnify the Selling
Shareholders with respect to the shares offered hereby against certain
liabilities, including certain liabilities under the Securities Act.
Under the rules and regulations of the Exchange Act, any person engaged
in the distribution or the resale of Shares may not simultaneously engage in
market making activities with respect to the FiNet.com's common stock for a
period of two business days prior to the commencement of such distribution. The
Selling Shareholders will also be subject to applicable provisions of the
Exchange Act and regulations under the Exchange Act which may limit the timing
of purchases and sales of shares of FiNet.com's common stock by the Selling
Shareholders.
The Selling Shareholders will pay all commissions, transfer taxes, and
other expenses associated with the sale of securities by them. The Shares
offered hereby are being registered pursuant to contractual obligations of
FiNet.com, and FiNet.com has paid the expenses of the preparation of this
prospectus. We have not made any underwriting arrangements with respect to the
sale of Shares offered hereby.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed on for
us by Severson & Werson, San Francisco, California.
EXPERTS
Our consolidated financial statements at April 30, 1999 and for the
year in the period ended April 30, 1999 included in our Annual Report on Form
10-K for the fiscal year ended April 30, 1999, and incorporated by reference in
this prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report which is herein
incorporated by reference, and are incorporated in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
Our consolidated financial statements, except with respect to Coastal
Federal Mortgage, for the fiscal years ended April 30, 1998 and 1997 were
audited by Reuben E. Price & Co., independent certified accountants, as set
forth in their report which is herein incorporated by reference, and are
incorporated in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
<PAGE>
<TABLE>
<S> <C>
===================================================== ===============================================
You may rely on the information contained
in this prospectus. We have not authorized anyone
to provide information different from that
contained in this prospectus. Neither the delivery
of this prospectus nor sale of common stock means
that information contained in this prospectus is
correct after the date of this prospectus. This
prospectus is not an offer to sell or solicitation 3,017,500 shares
of an offer to buy these shares of common stock in
any circumstances under which the solicitation is
unlawful.
Common Stock
-------------------------
TABLE OF CONTENTS _________________________
Page PROSPECTUS
-------------------------
Available Information...........................1
Incorporation of Certain Documents
by Reference...............................1
Prospectus Summary..............................3
Risk Factors....................................4 August 2, 1999
Selling Stockholders...........................18
Use of Proceeds................................20
Plan of Distribution...........................20
Legal rs.......................................21
Experts........................................21
===================================================== ===============================================
</TABLE>
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
This Registration Statement relates to the FiNet.com, Inc. 1998
Employee Stock Option Plan (the "Plan"), which was adopted the Board of
Directors on February 18, 1998 and approved by the shareholders at the 1998
Annual Meeting. 2,000,000 shares of the Company's Common Stock were originally
authorized for issuance under the Plan. The Plan was amended by the Board on
October 22, 1998 to increase the number of shares available under the Plan from
2,000,000 to 4,000,000, which aggregate amount was approved by the shareholders
on November 24, 1998. On May 19, 1998 the Board approved an increase from
4,000,000 to 10,000,000 shares. The shareholders will vote on the increase in
the Plan's authorized shares at the 1999 Annual Meeting, to be held September
30, 1999. This Registration Statement covers the increase of 2,000,000 shares of
Common Stock issuable under the Plan, bringing the total number of authorized
shares to 10,000,000.
Item 3. Incorporation Of Documents By Reference.
The following documents are incorporated by reference in this
Registration Statement:
(a) Registrant's Annual Report on Form 10-K for the fiscal year ended
April 30, 1999, filed pursuant to Section 13(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act");
(b) All other reports, if any, filed by the Company pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 since the end of
the fiscal year ended April 30, 1999;
(c) The description of the Company's Common Stock contained in the
Registration Statement on Form 8-A filed with the Commission on November 9, 1989
under Section 12(g) of the Exchange Act, including any amendment or report filed
for the purpose of updating such description.
All documents filed by the Registrant pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934 after the date of
this Registration Statement and prior to the filing of a post-effective
amendment to this Registration Statement which indicates that all securities
offered hereunder have been sold, or which deregisters all securities then
remaining unsold under this Registration Statement, shall be deemed to be
incorporated by reference in this Registration Statement and to be a part hereof
from the date of filing of such documents.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
Item 6. Indemnification of Directors and Officers.
Pursuant to the General Corporation Law of Delaware (the "DGCL"), the
Company's Certificate of Incorporation excludes personal liability on the part
of its directors to the Company for monetary damages based upon any violation of
their fiduciary duties as directors, except as to liability for any breach of
the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, acts in violation of
Section 174 of the General Corporation Law of Delaware, or any transaction from
which a director receives an improper personal benefit. This exclusion of
liability does not limit any right which a director may have to be indemnified.
The Company's Certificate of Incorporation and its Bylaws provide for
indemnification of directors and officers of the Company to the fullest extent
permitted by the DGCL for claims against them in their official capacities,
including stockholders' derivative actions.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended, may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the SEC, such indemnification is against
the public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Item 7. Exemption From Registration Claimed.
With respect to the 1,783,074 restricted shares of Common Stock being
reoffered by the selling stockholders pursuant to this Registration Statement,
the issuance of these shares by the Company to the selling stockholders was
effected in reliance upon an exemption from this registration under Section 4(2)
of the Securities Act as transactions by an issuer not involving a public
offering.
Item 8. Exhibits.
5 Opinion of Severson & Werson, A Professional Corporation
23.1 Consent of Ernst & Young LLP
23.2 Consent of Reuben E. Price & Co.
23.3 Consent of Richard A. Eisner & Company, LLP
23.4 Consent of Counsel (contained in Exhibit 5)
24 Power of Attorney (See Page II-4).
99 FiNet.com, Inc. 1998 Stock Option Plan, as amended
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Walnut Creek, State of California, on August 2,
1999.
FINET.COM, INC.
By: /s/ Mark L. Korell
---------------------------
Mark L. Korell
Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Mark L. Korell and Gary A. Palmer, and
each of them, his true and lawful attorney-in-fact and agent, each with full
power of substitution for him in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, hereby ratifying and confirming all that
each of said attorneys-in-fact or his substitutes, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ------------------------------------------------------------------------------
Chairman of the Board, President and
/s/ Mark L. Korell Chief Executive Officer (Principal August 2, 1999
- --------------------- Executive Officer)
Mark L. Korell
/s/ L. Daniel Rawitch Vice Chairman August 2, 1999
- ---------------------
L. Daniel Rawitch
/s/ Gary A. Palmer Executive Vice President-Chief August 2, 1999
- --------------------- Financial Officer (Principal
Gary A. Palmer Financial and Accounting Officer)
/s/ Jan C. Hoeffel Director August 2, 1999
- ---------------------
Jan C. Hoeffel
/s/ S. Lewis Meyer Director August 2, 1999
- ---------------------
S. Lewis Meyer
/s/ Stephen J. Sogin Director August 2, 1999
- ---------------------
Stephen J. Sogin
/s/ Richard E. Wilkes Director August 2, 1999
- ---------------------
Richard E. Wilkes
/s/ Antonio P. Falcao Director August 2, 1999
- --------------------
Antonio P. Falcao
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
5 Opinion of Severson & Werson, A Professional Corporation
23.1 Consent of Ernst & Young, LLP
23.2 Consent of Reuben E. Price & Co.
23.3 Consent of Richard A. Eisner & Company, LLP
23.4 Consent of Counsel (contained in Exhibit 5)
24 Power of Attorney (see page II-4)
99 FiNet.com, Inc. 1998 Stock Option Plan, as amended
EXHIBIT 5
SEVERSON & WERSON
A PROFESSIONAL CORPORATION
One Embarcadero Center, Suite 2600
San Francisco, CA 94111
Telephone (415) 398-3344
Facsimile: (415) 956-0439
July 29, 1999
FiNet.com, Inc.
3021 Citrus Circle, Suite 150
Walnut Creek, California 94598
Gentlemen:
You have requested our opinion with respect to certain matters in
connection with the filing by FiNet.com, Inc. (the "Company") of a Registration
Statement on Form S-8 (the "Registration Statement") with the Securities and
Exchange Commission covering the registration of up to an additional 8,000,000
shares of the Company's Common Stock (the "Shares") pursuant to the Company's
1998 Stock Option Plan, as amended (the "Plan").
In connection with this opinion, we have examined and relied upon the
Registration Statement, the Company's Certificate of Incorporation and Bylaws,
as amended, and such other records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below. We have assumed the genuineness and
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies thereof, and the due
execution and delivery of all documents where due execution and delivery are a
prerequisite to the effectiveness thereof.
We are admitted to practice law in the State of California. Our opinion
is rendered solely with respect to California law, Delaware General Corporation
Law, and federal law. On the basis of the foregoing, and in reliance thereon, we
are of the opinion that the additional Shares of Common Stock of the Company to
be issued pursuant to the terms of the Plan are validly authorized and,
assuming: (a) no change occurs in the applicable law or the pertinent facts: (b)
the pertinent provisions of such Blue Sky securities laws as may be applicable
have been complied with; (c) the Shares are issued in accordance with the terms
of the Plan; and (d) the Shares have been duly delivered against payment
therefor as contemplated by the Plan, the Shares of Common Stock issuable will
be validly issued, fully paid and nonassessable.
<PAGE>
This opinion is intended solely for your benefit and is not to be made
available to or be relied upon by any other person, firm or entity without our
prior written consent. We consent to the filing of this opinion as an Exhibit to
the Registration Statement.
SEVERSON & WERSON
A Professional Corporation
By: /s/ Roger S. Mertz
---------------------------
Roger S. Mertz
A Member of the Firm
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Post-Effective Amendment No. 1 to Form S-8 No.
333-57287) pertaining to the 1998 Stock Option Plan, as amended, of FiNet.com,
Inc. and subsidiaries and to the incorporation by reference therein of our
report dated June 11, 1999 (except Note 19, as to which the date is June 28,
1999), with respect to the consolidated financial statements and schedules of
FiNet.com, Inc. and subsidiaries included in its Form 10-K for the year ended
April 30, 1999, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Francisco, California
July 29, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Post-Effective Amendment No. 1 to Form S-8 No.
333-57287) pertaining to the 1998 Stock Option Plan, as amended, of FiNet.com,
Inc. and subsidiaries and to the incorporation by reference therein of our
report dated August 12, 1998 with respect to the consolidated financial
statements and schedules of FiNet.com, Inc. and subsidiaries included in its
Form 10-K for the year ended April 30, 1999, filed with the Securities and
Exchange Commission.
/s/ REUBEN E. PRICE & CO.
San Francisco, California
July 29, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Post Effective Amendment No.
1 to Form S-8 Registration Statement, relating to the registration of shares of
common stock under the FiNet.com, Inc. 1998 Stock Option Plan, of our report
dated July 9, 1998 (with respect to Note C July 31, 1998) with respect to our
audit of the financial statements (not included in the registration statement)
of Coastal Federal Mortgage Company, a wholly owned subsidiary of FiNet.com, as
of and for each of the years in the two year period ended April 30, 1998.
/s/ RICHARD A. EISNER & COMPANY, LLP
Florham Park, New Jersey
July 29, 1999
EXHIBIT 99
FINET HOLDINGS CORPORATION
1998 STOCK OPTION PLAN
(as amended through May 19, 1999)
Date of Board Approval: February 18,1998
Date of Shareholder Approval: November 24, 1998
Amendment Approved by Board: May 19, 1999
Amendment Approved by Shareholders: __________
1. Purpose and Scope. The purposes of this Plan are to induce persons
of outstanding ability and potential to join and remain with Finet Holdings
Corporation (the "Company"), to provide an incentive for such employees as well
as for non-employee consultants to expand and improve the profits and prosperity
of the Company by enabling such persons to acquire proprietary interests in the
Company, and to attract and retain key personnel through the grant of Options to
purchase shares of the Company's common stock. As used herein, the term "Option"
includes both Incentive Stock Options and Non-Qualified Stock Options. 2.
Definitions. Each term set forth in this Section 2 shall have the meaning set
forth opposite such term for purposes of this Plan unless the context otherwise
requires, and for the purposes of such definitions, the singular shall include
the plural and the plural shall include the singular: (a) "Affiliate" shall mean
any parent corporation or subsidiary corporation of the Company as those terms
are defined in Sections 424(e) and (f) respectively of the Internal Revenue Code
of 1986, as amended. (b) "Board" shall mean the Board of Directors of the
Company. (c) "Committee" shall have the meaning set forth in Section 3 hereof.
(d) "Company" shall mean Finet Holdings Corporation, a Delaware corporation. (e)
"Code" shall mean the Internal Revenue Code of 1986, as amended. (f) "Fair
Market Value" for a share of Stock means the price that the Board or the
Committee acting in good faith determines, through any reasonable valuation
method (including but not limited to reference to prices existing in any
established market in which the Stock is traded), to be the price at which a
share of Stock might change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell and both having reasonable
knowledge of the relevant facts. (g) "Option" shall mean a right to purchase
Stock granted pursuant to the Plan. (h) "Exercise Price" shall mean the purchase
price for Stock under an Option, as determined in Sections 7 - "Incentive Stock
Options" - and 8 - "Non-Incentive Stock Options" - below. (i) "Participant"
shall mean an employee or non-employee consultant to the Company to whom an
Option is granted under the Plan. (j) "Plan" shall mean this Finet Holdings
Corporation 1998 Stock Option Plan. (k) "Stock" shall mean the $0.01 par value
common stock of the Company. (l) "1934 Act" means the Securities Exchange Act of
1934, as amended.
3. Administration.
The Plan shall be administered (i) with respect to individuals who
receive options under the Plan and who are or become subject to the reporting
requirements and short-swing liability provisions of Section 16 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") ("Reporting
Persons") by a committee consisting of at least two members of the Board of
Directors of the Company (the "Board"), each of whom is a non-employee director
(as such term is defined under Rule 16b-3 of the 1934 Act) (the "Reporting
Persons Committee") and (ii) with respect to all individuals who receive Options
under the Plan and are who are not Reporting Persons, by a committee which
consists of at least two members of the Board (the "Stock Option Committee").
For purposes of this Plan, references to the "Committee" shall mean the
Reporting Persons Committee, the Stock Option Committee, or both, as the context
may require.
The Committee shall have full authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to grant Options,
to determine the Exercise Price and term of each Option, the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares of Stock to be covered by each Option; to interpret the Plan; to
prescribe, amend, and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the option agreements (which need not be
identical) entered into in connection with the grant of Options under the Plan;
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. The Board may delegate to one or more of their
members, or to one or more agents, such administrative duties as it may deem
advisable, and the Board or any person to whom it has delegated duties as
aforesaid may employ one or more persons to render advice with respect to any
responsibility the Board or such person may have under the Plan. The Board may
employ attorneys, consultants, accountants, or other persons, and the Board
shall be entitled to rely upon the advice, opinions, or valuations of such
persons. All actions taken and all interpretations and determinations made by
the Board in good faith shall be final and binding upon all Participants, the
Company, and all other interested persons. No member of the Board shall be
personally liable for any action, determination, or interpretation made in good
faith with respect to the Plan; and all members of the Board shall be fully
protected by the Company in respect of any such action, determination, or
interpretation.
4. Shares Subject to the Plan. Subject to adjustment under the
provisions of Section 14 - "Effect of Change in Stock Subject to Plan" - of the
Plan, the maximum number of shares of Stock that may be optioned or sold under
the Plan is Ten Million (10,000,000). Such shares may be authorized but unissued
shares of Stock of the Company, or issued shares of Stock reacquired by the
Company, or shares purchased in the open market expressly for use under the
Plan. If for any reason any shares of Stock as to which an Option has been
granted cease to be subject to purchase thereunder, then (unless the Plan shall
have been terminated) such shares shall become available for subsequent awards
under this Plan in the discretion of the Board. The Company shall, at all times
while the Plan is in force, reserve such number of common shares as will be
sufficient to satisfy the requirements of all outstanding Options granted under
the Plan.
5. Eligibility; Factors to be Considered in Granting Options.
(a) Options may be granted to: (i) any regular full-time employee
(including officers and directors) of either the Company or any affiliate of the
Company; and (ii) any non-employee consultant of the Company.
(b) In determining to whom options shall be granted and the
number of shares of Stock to be covered by each Option, the Board shall take
into account the nature the participants' duties, their present and potential
contributions to the success of the Company, and such other factors as it shall
deem relevant in connection with accomplishing the purposes of the Plan. The
Board shall also determine the time(s) of grant, the type and term of Option
granted, and the time(s) of exercise, in whole or part. A Participant who has
been granted an Option under the Plan may be granted new Options, which may be
in addition to prior Options granted under the Plan or may be in exchange for
the surrender and cancellation of prior Options having a higher or lower
Exercise Price and containing such other terms as the Board may deem
appropriate.
6. Terms and Conditions of Options.
(a) General. Options granted pursuant to the Plan shall be
authorized by the Board and shall be evidenced by agreements ("Option
Agreements") in such form as the Board from time to time shall approve. Such
Option Agreements shall comply with and be subject to the following general
terms and conditions, and shall also comply with and be subject to the
provisions of Section 7 relating to Incentive Stock Options or Section 8
relating to Non-Qualified Stock Options, as applicable, as well as such other
terms and conditions as set forth in this Plan and as the Board may deem
desirable, not inconsistent with the Plan.
(b) Employment Agreement. The Committee may, in its discretion,
include in any Option granted under the Plan a condition that the Participant
shall agree to remain in the employ of, and/or to render services to, the
Company for a period of time (specified in the Option Agreement) following the
date the Option is granted. No such Option Agreement shall impose upon the
Company any obligation to employ and/or retain the Participant for any period of
time.
(c) Manner of Exercise. A Participant may exercise an Option by
giving written notice of such exercise to the Company at its principal office,
attention to the Secretary, and paying the Exercise Price either (i) in cash in
full at the time of exercise, or (ii) in the discretion of the Board:
(i) by delivery of other previously outstanding common stock
of the Company,
(ii) by an approved deferred payment schedule or other
arrangement, which arrangement shall be contained in writing in the Option
Agreement, in which event an interest rate will be stated which is not less than
the rate then specified which will prevent any imputation of higher interest
under Section 483 of the Code,
(iii) by retention by the Company of some of the Stock as to
which the Option is then being exercised, in which case the Optionee's notice of
exercise shall include a statement (1) directing the Company to retain so many
shares that would otherwise have been delivered by the Company upon exercise of
this Option as equals the number of shares that would have been surrendered to
the Company if the purchase price had been paid with previously outstanding
stock of the Company, and (2) confirming the aggregate number of shares as to
which this Option is being thus exercised and therefore surrendered, or
(iv) in any other form of legal consideration acceptable to
the Committee at the time of grant or exercise.
(d) Time of exercise. Promptly after the exercise of an Option
and the payment of the Exercise Price, either in full or pursuant to the
approved payment schedule, the Participant shall be entitled to the issuance of
a stock certificate evidencing ownership of the appropriate number of shares of
Stock. A Participant shall have none of the rights of a shareholder until shares
are issued to him/her, and no adjustment will be made for dividends or other
rights for which the record date has occurred prior to the date such stock
certificate is issued.
(e) Number of shares. Each Option shall state the total number of
shares of Stock to which it pertains.
(f) Option Period and Limitations on Exercise. The Board may, in
its discretion, provide that an Option may not be exercised in whole or part for
any period(s) of time specified in the Option Agreement, except that the right
to exercise must be at the rate of at least 20% per year over five years from
the date the Option is granted, subject to the further conditions of the Plan
and the Option Agreement such as continued employment. However, in the case of
an Option granted to officers, directors, or non-employee consultants of the
Company or any of its affiliates, the Option may become fully exercisable,
subject to the further conditions of the Plan and the Option Agreement, at any
time or during any period established by the Company or its affiliates. The
exercise period shall be stated in the Option Agreement. No Option may be
exercised after the expiration of ten years from the Grant Date. No Option may
be exercised as to less than one hundred (100) shares at any one time, or the
remaining shares covered by the Option if less than one hundred (100).
7. Incentive Stock Options. The Board may grant Incentive Stock Options
("ISOs") which meet the requirements of Section 422 of the Code, as amended from
time to time.
(a) ISOs may be granted only to employees of the Company or its
affiliates.
(b) Each ISO granted under the Plan must be granted within 10
years from the date the Plan is adopted or is approved by the shareholders of
the Company, whichever is earlier.
(c) The purchase price shall not be less than the Fair Market
Value of the common shares at the time of grant, except that the purchase price
shall be 110% of the Fair Market Value in the case of any person who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its affiliates at the time of grant.
(d) No ISO granted under the Plan shall be exercisable more than
10 years from the date of grant, except that in the case of any person who owns
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or its affiliates at the time of grant, no ISO shall be
exercisable more than five years from the date of grant.
(e) To the extent that the aggregate Fair Market Value of stock
(determined at the time of grant) with respect to which ISOs are exercisable for
the first time by any individual during any calendar year under all plans of the
Company and its subsidiaries exceeds $100,000, such options shall be treated as
Non-Qualified stock options, but only to the extent of such excess. Should it be
determined that an entire option or any portion thereof does not qualify for
treatment as an ISO by reason of exceeding such maximum, or for any other
reason, such option or portion shall be considered a Non-Qualified stock option.
8. Non-Qualified Stock Options. The Board may grant Non-Qualified Stock
Options ("NSOs") under the Plan in addition to or in lieu of Incentive Stock
Options. NSOs are not intended to meet the requirements of Section 422 of the
Code, and shall be subject to the following terms and conditions:
(a) NSOs may be granted to any eligible Participant.
(b) The purchase price of the shares shall be determined by the
Board in its absolute discretion, but in no event shall such purchase price be
less than 85% of the Fair Market Value of the shares at the time of grant. In
the case of any person who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or its affiliates
at the time of grant, the price shall be 110% of the Fair Market Value.
(c) NSOs shall not be exercisable more than ten years from the
date of grant.
9. Transferability. Options granted under this Plan shall not be
transferable other than by will or by the laws of descent and distribution, and
during a Participant's life shall be exercisable only by such Participant.
Options granted under this Plan shall not be subject to execution, attachment or
other process.
10. Termination of Employment. Options held by employees, including
directors, shall terminate three months after termination of employment with the
Company or affiliate, unless:
(a) If employment is terminated for cause, as such term is
defined by California law, the employer's contract of employment or the Option
Agreement, the Option shall immediately terminate.
(b) If termination is due to the employee's permanent and total
disability within the meaning of Section 22(e)(3) of the Code, the Option may be
exercised at any time within one year following termination.
(c) The Option Agreement by its terms specifies whether it shall
terminate later than three (3) months after termination of employment. If the
Option may be exercised later than three months following termination, any
portion exercised beyond three months shall be a non-qualified stock option.
This paragraph shall not be construed to extend the term of any Option nor to
permit anyone to exercise the Option after expiration of its term.
(d) Options granted under this Plan shall not be affected by any
change of duties or position of the Participant so long as Participant continues
to be a regular, full-time employee of the Company. Any Option, or any rules and
regulations relating to the Plan, may contain such provisions as the Board shall
approve with reference to the determination of the date employment terminates.
Nothing in the Plan or in any Option granted pursuant to the Plan shall confer
upon any Participant any right to continue in the employ of the Company or shall
interfere in any way with the right of the Company to terminate such employment
at its will at any time.
11. Rights in the Event of Death. If an employee dies during the term
of this Option, his/her legal representative or representatives, or the person
or persons entitled to do so under the employee's last will and testament or
under applicable intestate laws, shall have the right to exercise this Option,
but only for the number of shares as to which the employee was entitled to
exercise this Option on the date of his death, and such right shall expire and
this Option shall terminate six (6) months after the date of Grantee's death or
on the expiration date of this Option, whichever date is sooner. In all other
respects, this option shall terminate upon such death.
12. Leaves of Absence. For purposes of the Plan, an employee on
approved leave of absence from the Company shall be considered as currently
employed for 90 days following beginning the leave or for so long as his/her
right to reemployment is guaranteed by statute or contract, whichever is longer.
13. Effect of Change in Stock Subject to Plan.
(a) In the event that outstanding common shares are hereafter
changed by reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination of shares, stock dividends and the
like, the Board shall make adjustments as it deems appropriate in the aggregate
number of shares advisable under the Plan and the number and price subject to
outstanding option. Any adjustment shall apply proportionately and only to the
unexercised portion of options granted.
(b) In the event the Company dissolves or liquidates or another
entity succeeds to its assets, or in the event of a merger or consolidation in
which the Company is not the surviving entity, or in the event of a reverse
merger in which the Company survives but its common stock immediately preceding
the merger is converted into other property by virtue of the merger, then the
surviving entity shall assume the outstanding Options or substitute similar
Options for those outstanding.
14. Agreement and Representation of Employees.
(a) Acquiring stock for investment purposes. As a condition to
the exercise of any Option, the Company may require the person exercising such
Option to represent and warrant at the time of such exercise that any shares of
Stock acquired at exercise are being acquired only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
Company's counsel, such representation is required or desirable under the
Securities Act of 1933 or any other applicable law, regulation, or rule of any
governmental agency.
(b) Withholding. With respect to the exercise of any Option
granted under this Plan, each Participant shall fully and completely consent to
whatever the Board directs to satisfy the federal and state tax withholding
requirements, if any, which the Board in its discretion deems applicable to such
exercise.
(c) Delivery. The Company is not obligated to deliver any common
shares until there has been qualification under or compliance with all state or
federal laws, rules and regulations deemed appropriate by the Company. The
Company will use all reasonable efforts to obtain such qualification and
compliance.
15. Amendment and Termination of Plan. The Board, by resolution, may
terminate, amend, or revise the Plan with respect to any shares as to which
Options have not been granted; provided however, that any amendment that would:
(a) increase the aggregate number of shares of common stock that may be issued
under the Plan, (b) materially increase the benefits accruing to Participants,
or (c) materially modify the requirements as to eligibility for participation in
the Plan, shall be subject to shareholder approval within 12 months before or
after adoption. It is expressly contemplated that the Board may amend the Plan
in any respect necessary to provide employees with the maximum benefits
available under and/or to satisfy the requirements of or amendments to Section
422 of the Code.
No termination, modification or amendment of the Plan may however,
alter or impair the rights conferred by an Option previously granted without the
consent of the individual to whom the Option was previously granted.
Unless sooner terminated, the Plan shall remain in effect for a period
of ten years from the date of the Plan's adoption by the Board. Termination of
the Plan shall not affect any Option previously granted.
16. Use of Proceeds. The proceeds from the sale of shares pursuant to
Options granted under the Plan shall constitute general funds of the Company.
17. Effective Date of Plan. The Effective Date of this Plan is February
18, 1998, the date it was adopted by the Board, provided the shareholders of the
Company approve this Plan within twelve (12) months after such effective date.
Any Options granted under this Plan prior to the date of shareholder approval
shall be deemed to be granted subject to such approval. Should shareholder
approval not be obtained within twelve (12) months, any Options granted pursuant
to the Plan shall be null and void.
18. Indemnification of Committee. In addition to such other rights of
indemnification as they may have and subject to limitations of applicable law,
the members of the Committee shall be indemnified by the Company against all
costs and expenses reasonably incurred by them in connection with any action,
suit or proceeding to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or any
rights granted thereunder and against all amounts paid by them in settlement
thereof or paid by them in satisfaction of a judgment of any such action, suit
or proceeding, the Board or Committee member or members shall notify the Company
in writing, giving the Company an opportunity at its own cost to defend the same
before such Committee member or members undertake to defend the same on their
own behalf.
19. Information Requirements. The Company shall provide each
participant with annual financial statements.
20. Governing Law. The Plan shall be governed by, and all questions
arising hereunder, shall be determined in accordance with the laws of State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within California.
