SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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[ ] Definitive Proxy Statement
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FARADAY FINANCIAL, INC.
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(Name of Registrant as Specified In Its Charter)
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FARADAY FINANCIAL, INC.
175 South Main, Suite 1240
Salt Lake City, Utah 84111
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
October 20, 2004
NOTICE is hereby given that a Special Meeting of Stockholders of
Faraday Financial, Inc. (the "Company") will be held at 5252 North Edgewood
Drive, Suite 310, Provo, UT 84604, at 11:00 a.m. (local time, SLC) on October
20, 2004, for the following purposes:
1. To Amend the Certificate of Incorporation to change the
Company's name to HomeNet Corporation;
2. To approve the Founders' Stock Option Plan;
3. To approve the 2004 Stock Option Plan; and
4. To transact such other business as may properly come before
such meeting or any adjournments thereof.
The record date for the meeting is the close of business on September
21, 2004 and only the holders of common stock of the Company on that date will
be entitled to vote at such meeting or any adjournment thereof.
By order of the Board of Directors
/s/ Shauna Badger
Secretary
October 4, 2004
Please Return Your Signed Proxy
PLEASE COMPLETE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. THIS
WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE MEETING. IT WILL, HOWEVER,
HELP ASSURE A QUORUM AND AVOID ADDED PROXY SOLICITATION COSTS.
PROXY STATEMENT
FARADAY FINANCIAL, INC.
175 South Main, Suite 1240
Salt Lake City, Utah 84111
SPECIAL MEETING OF STOCKHOLDERS
To Be Held October 20, 2004
INTRODUCTION
This Proxy Statement is being furnished to holders of Faraday
Financial, Inc. (the "Company") common stock (the "Common Stock" or the
"Shares"), par value $0.001 per share, in connection with the solicitation of
proxies by the Company for use at a Special Meeting of stockholders of the
Company (the "Special Meeting") to be held at 5252 North Edgewood Drive, Suite
310, Provo, UT 84604, at 11:00 a.m. (local time, SLC) on October 20, 2004, and
at any adjournment(s) or postponement(s) thereof. This Proxy Statement, the
enclosed Notice and the enclosed form of proxy are being first mailed to
stockholders of the Company on or about October 4, 2004.
VOTING AT THE SPECIAL MEETING
The Board of Directors of the Company (the "Board") has fixed the close
of business on September 21, 2004, as the record date (the "Record Date") for
the determination of stockholders entitled to notice of and to vote at the
Special Meeting. As of the Record Date, there were outstanding approximately
5,082,444 Shares held by approximately 171 holders of record. On the Record Date
there were no Shares of the Company's stock held as treasury stock by the
Company. Holders of record of the Company's Shares on the Record Date are
entitled to cast one vote per Share, exercisable in person or by properly
executed proxy, with respect to each matter to be considered by them at the
Special Meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding Shares is necessary to constitute a
quorum at the Special Meeting.
The Shares will be voted in accordance with the instructions indicated
in a properly executed proxy. If no instructions are indicated, such Shares will
be voted as recommended by the Board. If any other matters are properly
presented to the Special Meeting for action the person(s) named in the enclosed
form(s) of proxy and acting there under will have discretion to vote on such
matters in accordance with their best judgment. Broker non-votes and abstentions
are not treated as votes cast for purposes of any of the matters to be voted on
at the meeting. A stockholder who has given a proxy may revoke it by voting in
person at the meeting, or by giving written notice of revocation or a
later-dated proxy to the Secretary of the Company at any time before the closing
of the polls at the meeting. Any written notice revoking a proxy should be sent
to Faraday Financial, Inc., 175 South Main, Suite 1240, Salt Lake City, Utah
84111, Attention: Ms. Shauna Badger, Secretary.
At the Company's Special Meeting, stockholders will act upon the
matters outlined in the accompanying notice of meeting, including an amendment
to the Company's Certificate of Incorporation and the approval of the Founders'
Stock Option Plan and the 2004 Stock Option Plan. This solicitation is being
made by the Company. The approval of the amendment to the Certificate of
Incorporation requires the vote of a majority of the stockholders that are
entitled to vote thereon. Approval of the stock option plans requires the vote
of a majority of the stockholders that are present at the meeting in person or
by proxy The Board recommends that holders of the Shares vote FOR the proposed
amendment to the Certificate of Incorporation and FOR the approval of the stock
option plans.
1
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
1. Proposal to Amend the Certificate of Incorporation to Change the Company's
name to HomeNet Corporation.
At a meeting held on September 13, 2004, the Board adopted a resolution
to amend, subject to stockholder approval, the Certificate of Incorporation to
change the Company's name to HomeNet Corporation. The primary purpose of
changing the Company's name is so that the name reflects more accurately the
Company's business activities and identifies the Company more closely with its
wholly owned operating subsidiary, HomeNet Communications, Inc.
If this proposal is passes, corresponding changes will be made to the
Company's Bylaws.
THE BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
2. Proposal to Approve the Founders' Stock Option Plan
At the Special Meeting, stockholders will be asked to approve the
Founders' Stock Option Plan. A copy of the Founders' Stock Option Plan is
attached to this Proxy Statement as Appendix A and is incorporated herein by
reference. The description below of the Founders' Stock Option Plan is qualified
in its entirety by reference to the complete text of the Founders' Stock Option
Plan. Terms not defined herein shall have the meanings set forth in the
Founders' Stock Option Plan.
Description of Principal Features of the Founders' Stock Option Plan
The Founders' Stock Option Plan is intended to advance the interests of
the Company and its stockholders by helping the Company obtain and retain the
services of the founders and key employees, officers and directors of HomeNet
Communications, Inc., a Washington corporation, which became a wholly owned
subsidiary of the Company on September 8, 2004. It is anticipated that under the
Founders' Stock Option Plan the following plan benefits will be awarded to the
following individuals.
Founders' Stock Option Plan
Name and Position Dollar Value ($) (1) Number of Units (2)
----------------- -------------------- -------------------
W. Kelly Ryan (3) 659,771
Frank Gillen -- 0
Michael W. Devine (4) 615,378
Jonathan Moore (5) 100,000
Executive Officers as a Group (4 persons) -- 1,375,149
Directors who are not Executive
Officers (0 persons) -- 0
Employees who are not Executive
Officers (13 persons) (6) 924,851
- ------------------
(1) There is currently no public market for the Company's stock. The
options are expected to vest over a ten year period.
(2) The column represents the number of shares of Common Stock that are
issuable upon exercise of the option.
(3) It is anticipated that options exercisable for 200,000 shares will be
exercisable at $1.00 per share and options exercisable for the
remaining shares will be exercisable at $.01 per share.
(4) It is anticipated that options exercisable for 200,000 shares will be
exercisable at $1.00 per share and options exercisable for the
remaining shares will be exercisable at $.01 per share.
(5) It is anticipated that options exercisable for 50,000 shares will be
exercisable at $1.00 per share and options exercisable for the
remaining shares will be exercisable at $.01 per share.
(6) These options are expected to be exercisable at between $.01 and $1.00
per share. No specific determination has been made as to the specific
exercise price of these options.
It is anticipated that the Founders' Stock Option Plan will afford an
incentive to the identified employees to continue as employees, to devote their
best efforts on behalf of the Company and to align the interests of such persons
with the Company's stockholders to promote the success of the Company's
business. The total number of shares authorized for issuance under the Founders'
Stock Option Plan is 2,300,000.
It is intended that all shares issued pursuant to the exercise of
options under the Founders' Stock Option Plan will be drawn from the authorized
stock. It is not anticipated that any of such shares will be purchased on the
open market or allocated from treasury shares, if any.
3
The Company has no other equity compensation plans in effect. The
Company anticipates, however, that the Founders' Stock Option Plan and the 2004
Stock Option Plan will become effective immediately following this meeting.
Plan Awards
Awards under the Founders' Stock Option Plan are expected to occur in
2004, shortly following the special stockholders' meeting, provided that the
plan is approved by stockholders. It is expected that the grant of options or
awards will vest over a period no longer than one year, if any, and that the
options will be exercisable over a ten year period.
The Founders' Stock Option Plan authorizes the Board to grant
"incentive stock options," ("ISO's") within the meaning of Section 422 of the
Internal Revenue Code (the "Code"), and nonqualified stock options ("NQSO's"),
pursuant to the applicable terms and conditions of the Founders' Stock Option
Plan and of the agreement evidencing such grant. The aggregate fair market value
of the ISO's granted to any one optionee under the Option Plan, or any similar
plan, that first become exercisable in any calendar year may not exceed
$100,000.
The option exercise price per share for an ISO may not be less than the
fair market value of a share of Common Stock on the date on which the option is
granted. There is currently no trading market for the Common Stock. It is
expected that the options granted under the Founders' Stock Option Plan will
have a $1.00 per share exercise price. It is expected that options granted under
the Founders' Stock Option Plan will have a term of ____ years, but will expire
earlier in the event of termination of employment.
Options granted under the Founders' Stock Option Plan will not be
transferable other than by will or by the laws of descent and distribution or to
a beneficiary upon the death of a grantee, and such options that may be
exercisable shall be exercised during the lifetime of the grantee only by the
grantee or his or her guardian or legal representative, except as otherwise
provided in the Founders' Stock Option Plan.
General
The Founders' Stock Option Plan is intended to satisfy the requirements
of Rule 16b-3 promulgated under Section 16 of the Exchange Act ("Rule 16b-3").
These options are not expected to serve as a qualified performance-based
compensation program under Section 162(m) of the Code and may fall outside the
deductibility limitations of Section 162(m) if the Company is successful as
reflected in the Company's stock price and/or income.
The Founders' Stock Option Plan will be administered by the Board or a
Compensation Committee appointed by Board. The Board determines (i) which
employees of the Company and its subsidiaries shall be granted an option to
acquire of Common Stock of the Company; (ii) the number of shares into which the
option is exercisable; (iii) the amount to be paid by a grantee upon exercise of
an option or award; (iv) the time or times and the conditions subject to which
options or awards may be made and become exercisable; and (v) the form of
consideration that may be used to pay for shares issued upon exercise thereof.
The Board is also responsible for other questions involving the administration
and interpretation of the Founders' Stock Option Plan.
The Board may from time to time suspend, terminate, modify or amend the
Founders' Stock Option Plan, but may not, without the approval of the Company's
stockholders, increase the aggregate number of shares of Common Stock subject to
the Founders' Stock Option Plan (except for increases due to certain
adjustments) or adopt any amendment for which stockholder approval is required
under applicable Delaware law.
4
The Board may terminate the Founders' Stock Option Plan at any time.
The termination of the Founders' Stock Option Plan will not alter or impair any
rights or obligations under any option or award previously granted under the
plan.
The selection of the eligible individuals who will receive options
under the Founders' Stock Option Plan, upon approval of the Founders' Stock
Option Plan by stockholders, and the size and type of options is generally to be
determined by the Board in its discretion. It is anticipated that awards under
the Founders' Stock Option Plan will be granted as set forth in the above table
that is captioned "Founders' Stock Option Plan." The Board has not made a
determination as to which awards will be ISOs and which awards will be NQSOs.
The Board reserves the right to make adjustments to the allocations set forth in
the table.
Certain Federal Tax Consequences
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to options granted
under the Option Plan. This summary is not intended to be exhaustive and, among
other things, does not describe state, local or foreign income tax consequences.
Incentive Stock Options
The Company understands the federal income tax consequences of ISO's to
be generally as follows: an employee receiving an ISO will not be in receipt of
taxable income upon the grant of the ISO or upon its timely excise. Exercise of
an ISO will be timely if made during its term and if the optionee remains an
employee of the Company or its subsidiaries at all times during the period
beginning on the date of the grant of the ISO and ending on the date three
months before the date of exercise (or one year before the date of exercise in
the case of death or disablity). Exercise of an ISO will also be timely if made
at any time (provided it is exercisable by its terms) by the legal
representative of an optionee who dies (i) while in the employ of the Company or
its subsidiaries and (ii) where the exercise occurs within twelve months after
the date of death. Upon ultimate sale of the stock received upon such exercise,
except as noted below, the optionee will recognize capital gain or loss (if the
stock is a capital asset of the optionee) equal to the difference between the
amount realized upon such sale and the option exercise price. The Company, under
these circumstances, will not be entitled to any federal income tax deduction in
connection with either the exercise of the ISO or the sale of such stock by the
optionee.
If, however, the stock acquired pursuant to such exercise of an ISO is
disposed of by the optionee prior to the expiration of two years from the date
of grant of the option or one year from the date that such stock is transferred
to the optionee upon exercise (a "disqualifying disposition"), any gain realized
by the optionee generally will be taxable at the time of such disqualifying
disposition as follows: (i) as ordinary income to the extent of the difference
between the option exercise price and the lesser of the fair market value of the
stock on the date the ISO is exercised and the amount realized on such
disqualifying disposition and (ii) if the stock is a capital asset of the
optionee, as capital gain to the extent of any excess of the amount realized on
such disqualifying disposition over the fair market value of the stock on the
date that governs the determination of his or her ordinary income. In such case,
the Company may claim a federal income tax deduction at the time of such
disqualifying disposition for the amount taxable to the optionee as ordinary
income, provided the Company satisfies certain tax information reporting
requirements.
The amount by which the fair market value of the stock on the exercise
date of an ISO exceeds the option exercise price will constitute an item of tax
preference for purposes of the "alternative minimum tax" set forth in the Code.
5
Nonqualified Stock Options
In the case of NQSO's, the Company understands that the optionee will
not generally be taxed upon grant of any such option. Rather, at the time of
exercise of an NQSO, the optionee will, except as noted below, realize ordinary
income for federal tax purposes in an amount equal to the excess of the fair
market value of the shares purchased over the option exercise price. The Company
will generally be entitled to a tax deduction at such time and in the same
amount that the optionee realizes ordinary income, provided the Company
satisfies certain tax information reporting requirements. If stock so acquired
is later sold or exchanged, then the difference between the sales price and the
fair market value of such stock on the date of exercise of the option is
generally taxable as long-term capital gain or loss if such stock is held for a
sufficient period of time.
THE BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR" APPROVAL OF THE
FOUNDERS STOCK OPTION PLAN.
3. Proposal to Approve the 2004 Stock Option Plan
At the Special Meeting, stockholders will be asked to approve the 2004
Stock Option Plan (the "2004 Option Plan"). A copy of the 2004 Option Plan is
attached to this Proxy Statement as Appendix B and is incorporated herein by
reference. The description below of the 2004 Option Plan is qualified in its
entirety by reference to the complete text of the 2004 Option Plan. Terms not
defined herein shall have the meanings set forth in the 2004 Option Plan.
Description of Principal Features of the 2004 Option Plan
The 2004 Option Plan is intended to afford an incentive to employees,
Board members and consultants of the Company and its subsidiaries to acquire or
increase a proprietary interest in the Company, to become or continue as
employees, Board members or consultants, to devote their best efforts on behalf
of the Company and to align the interests of such persons with the Company's
stockholders to promote the success of the Company's business. Additional
objectives of the 2004 Option Plan are (i) to broaden the share ownership of the
staff of the Company and (ii) to create, in effect, a bonus program for key
personnel which compensates designated individuals with shares of the Company.
The 2004 Option Plan will permit the Company to grant NQSO's and ISO's
to acquire the Company's Common Stock. The total number of shares authorized for
the 2004 Option Plan may be allocated by the Board between NQSO's and ISO's from
time to time, subject to certain requirements of the Code.
A total of 1,000,000 shares will be allocated to the 2004 Option Plan.
Executive officers and all directors of the Company would qualify for awards
under the 2004 Option Plan. No determination has been made, however, if or in
what amounts option grants would be made to any particular person under the 2004
Option Plan.
It is intended that all shares issued pursuant to the exercise of
options under the 2004 Option Plan will be drawn from the authorized stock. It
is not anticipated that any of such shares will be purchased on the open market
or allocated from treasury shares, if any.
6
Plan Awards
The grant of options or awards will be dictated by the achievement of a
mixture of individual and corporate performance goals determined by the Board
or, at the Board's election, a Compensation Committee if the Board appoints such
a committee to administer the plan. Awards under the 2004 Option Plan will be
focused on Company employees, Board members and consultants whose contribution
and achievement can make a difference to Company financial performance and
hence, indirectly, stockholder value creation. As of September 13, 2004, the
Company had four Board members.
Awards under the 2004 Option Plan may begin in 2004, although the Board
has made no determination with respect thereto. The specific structure of the
2004 Option Plan for this and subsequent years will be determined by the Board.
The 2004 Option Plan authorizes the Board to grant ISO's and NQSO's,
pursuant to the applicable terms and conditions of the 2004 Option Plan and of
the agreement evidencing such grant. The aggregate fair market value of the
ISO's granted to any one optionee under the Option Plan, or any similar plan
that first become exercisable in any calendar year may not exceed $100,000.
The option exercise price per share for an ISO may not be less than the
fair market value of a share of Common Stock on the date on which the option is
granted. There are no other minimum requirements with respect to minimum
exercise prices. Each option agreement will provide the exercise schedule for
the option as determined by the Board (which may include a requirement for
achieving performance goals), provided that the Board shall have the authority
to accelerate the exercisability of any outstanding option at such time and
under such circumstances as it, in its sole discretion, deems appropriate. The
exercise period can be up to ten years from the date of the grant of the option
as determined by the Board, provided, however, that in the case of an ISO, such
exercise period shall not exceed ten years from the date of grant of such option
as allowed by the Code. The exercise period shall be subject to early
termination and accelerated vesting as provided in the 2004 Option Plan.
Generally, it is anticipated that options granted under the 2004 Option Plan
will vest on a basis determined appropriate by the Board, including
consideration of length of service for Company employees.
Options granted under the 2004 Option Plan will not be transferable
other than by will or by the laws of descent and distribution or to a
beneficiary upon the death of a grantee, and such options that may be
exercisable shall be exercised during the lifetime of the grantee only by the
grantee or his or her guardian or legal representative, except as otherwise
provided in the 2004 Option Plan.
General
The Option Plan is intended to satisfy the requirements of Rule 16b-3
promulgated under Section 16 of the Exchange Act ("Rule 16b-3") and, with
respect to ISO's, to generally serve as a qualified performance-based
compensation program under Section 1262(m) of the Code. However, the
compensation received by certain individuals under the Company's 2004 Option
Plan may fall outside the deductibility limitations of Section 162(m) if the
Company is successful as reflected in the Company's stock price and/or income.
Plan administration, termination, modification and amendment of the
Founders' Stock Option Plan, as described above, is substantially similar to the
administration, termination, modification and amendment of the 2004 Option Plan.
The selection of the eligible individuals who will receive options
under the 2004 Option Plan, upon approval of the 2004 Option Plan by
stockholders, and the size and type of options is generally to be determined by
the Board in its discretion. No options or awards have been made or granted
under the 2004 Option Plan, nor are any such options or awards now determinable.
Thus, it is not possible to predict the benefits or amounts that will be
received by or allocated to particular individuals or groups of employees.
7
Certain Federal Tax Consequences
The summary of the principal federal income tax consequences under
current federal income tax laws relating to the Founders' Stock Option Plan at
page five is equally applicable to options granted under the 2004 Option Plan.
THE BOARD HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR" APPROVAL OF THE
2004 OPTION PLAN.
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of September 13, 2004, for: (i) each
person who is known by the Company to beneficially own more than five percent of
the Common Stock, (ii) each of its directors, (iii) each of each Named Executive
Officers, and (iv) all directors and executive officers as a group. For purposes
hereof, the term "Named Executive Officer" means the Company's Chief Executive
Officer and all other executive officers with annual compensation in excess of
$100,000 (determined for the fiscal year ended March 31, 2004). On September 8,
2004 the Company had 5,082,444 shares of Common Stock outstanding.
Shares
Name and Address Beneficially Percentage of
of Beneficial Owner(1) Owned(2) Total(2) Position
---------------------- ------------ ------------- --------
W. Kelly Ryan (3) 414,789 8.1% CEO
Frank J. Gillen (4) 1,005,000 19.8% Director and President
Michael W. Devine (5) 463,626 9.1% Director and CFO
Jonathan Moore 0 * CTO
Shauna Badger (6) 1,094,000 20.4% Secretary
Michael Vanderhoof 0 * Director
Gregory Haerr 0 * Director
Directors and Officers as a 2,977,415 57.4%
Group (7 people)
* Less than 1%.
- -----------------
(1) Except where otherwise indicated, the address of the beneficial owner is
deemed to be the same address as the Company.
(2) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the total number of shares beneficially owned
by the designated person, but are not deemed outstanding for computing the
percentage for any other person. In addition, these columns do not include
options to purchase 2,300,000 shares of common stock that are expected to
be granted to senior management of the Company.
(3) Includes 375,950 shares of Common Stock and stock options exercisable for
38,839 shares of Common Stock at an exercise price of $1.00 per share and
that are vested or vest within the next sixty days. Does not include
options exercisable for 64,739 shares of Common Stock at an exercise price
of $1.00 per share that vest in equal monthly installments from November 7,
2004 through February 7, 2008.
8
(4) Includes 24,000 shares of Common Stock and warrants that are immediately
exercisable for 50,000 shares of Common Stock at $1.50 per share that are
owned by Mr. Gillen. Also includes 865,000 shares of Common Stock, warrants
that are immediately exercisable for 6,000 shares of Common Stock at $1.50
per share and a convertible note that is immediately convertible into
60,000 shares of Common Stock (the note conversion figure does not include
accrued interest that is also convertible into shares of Common Stock) that
are owned by Maven Properties, Ltd., an entity that is controlled by Mr.
Gillen. The convertible notes are convertible into Common Stock at the rate
of one share of Common Stock for every $1.00 of interest and accrued
interest that is owing on the obligations.
(5) Includes 424,787 shares of Common Stock and stock options exercisable for
38,839 shares of Common Stock at an exercise price of $1.00 per share that
are vested or vest within the next sixty days. Does not include options
exercisable for 64,739 shares of Common Stock that are exercisable at $1.00
per share and that vest in equal monthly installments from November 7, 2004
through February 7, 2008.
(6) Includes 174,000 shares of Common Stock and warrants that are immediately
exercisable for 50,000 shares of Common Stock at $1.50 per share that are
owned by Ms. Badger. Also includes 650,000 shares of Common Stock, warrants
that are immediately exercisable for 20,000 shares of Common Stock at $1.50
per share and a convertible note that is immediately convertible into
200,000 shares of Common Stock (the note conversion figure does not include
accrued interest that is also convertible into shares of Common Stock) that
are owned by Badger Investments, LLC, an entity that is controlled by Ms.
Badger. The convertible notes are convertible into Common Stock at the rate
of one share of Common Stock for every $1.00 of interest and accrued
interest that is owing on the obligations.
Changes in Control
On or about August 2, 2004, the Company, HomeNet Communications, Inc.,
formerly Video Internet Broadcasting Corporation ("VIB") , and Homenet Utah,
Inc. ("Homenet"), a wholly owned subsidiary of the Company ("Homenet"), entered
into a Merger Agreement whereby Homenet would be merged into VIB with VIB to be
the surviving corporation. The separate existence of Homenet would cease if the
Merger becomes effective. Consummation of the Merger was subject to a number of
contingencies. On August 23, 2004, the shareholders of VIB approved the Merger
and on September 8, 2004, the Merger was consummated.
VIB
VIB is a Washington corporation and involved in providing deployed
Internet Protocol (IP) television services. VIB has approximately 4,000 paying
video and data or data only subscribers in Utah and Washington State. VIB is a
service provider for the delivery of video, data, and voice services ("triple
play") to the municipal and government consumer markets.
VIB provides these services over fiber optic systems designed and built
by municipal and governmental entities. VIB has partnered with technology
providers and well capitalized Public Utility Districts (PUDs) and cities to
deploy its services in the initial targeted areas. In each case, the city or the
utility deploys the fiber infrastructure to businesses and residences in their
respective service areas. VIB leases this end-to-end fiber infrastructure from
the utilities, on a per subscriber basis, thereby, it believes, minimizing its
capital expenditures. VIB was recently selected as the initial service provider
for the City of Provo, Utah to deliver video, data, and telephony to its
population of 30,000 households and 3,000 businesses. It is anticipated that
other providers will have the opportunity to "co-locate" on this system in the
future; although VIB has a period of exclusivity while the system is being built
out.
9
The Merger
In the Merger, each share of VIB capital stock that was issued and
outstanding immediately prior to the closing was converted into 1.0903 shares of
the Common Stock and all previously outstanding shares of VIB capital stock is
no longer outstanding and was automatically canceled and ceased to exist. All
other securities convertible into or exercisable for shares of VIB capital
stock, including but not limited to stock options, convertible debt and warrants
issued by VIB prior to the effective date of the Merger, become, without further
action, convertible into or exercisable for the number of shares of Common Stock
determined by using the 1.0903 conversion factor. VIB had 2,184,939 shares of
common stock outstanding, 350,550 shares of Series A Preferred Stock outstanding
and options exercisable for an additional 424,000 shares of stock. The Company
will issue approximately 3,226,731 shares of its Common Stock on a fully diluted
basis in connection with the Merger from the identified securities.
In addition to the VIB securities identified in the prior paragraph,
VIB is indebted to certain persons in what VIB management believes to be the
aggregate principal amount of $273,000; as evidenced by fourteen (14) separate
promissory notes (the "Convertible Notes"). The Convertible Notes are
convertible into VIB Series B Preferred Stock. The holders of the Convertible
Notes also received warrants to purchase an aggregate of 121,565 shares of VIB
Series B Preferred Stock at an exercise price of $1.00 per share. The holders of
four (4) of the Convertible Notes claim to be entitled to receive shares of VIB
Series B Preferred Stock in addition to being paid the principal and accrued
interest on their Convertible Notes ("Disputed Notes"). Immediately prior to the
close of the Merger, VIB had no shares of Series B Preferred Stock outstanding
and the Series B Preferred had not been authorized by the VIB board of
directors.
The individual who negotiated and signed the Disputed Notes on VIB's
behalf was VIB's Interim Chief Financial Officer and was also employed by the
firm acting as the placement agent for the Convertible Notes ("Placement
Agent"). The Disputed Notes were executed on terms not known to, or authorized
by VIB's board of directors. Moreover, certain of the Disputed Notes are held by
affiliates of the Placement Agent/Chief Financial Officer. VIB is engaged in
negotiations with the holders of the Convertible Notes. Under the terms of the
Merger Agreement, the Convertible Notes will be convertible into Common Stock at
the conversion ratio of 1.0903 and any Series B Preferred Stock that may be
issued before the Merger is closed is convertible into Common Stock on the same
basis. However, there is a possibility that the Company may create a class of
preferred stock that would be issued to the holders of Convertible Notes or the
Disputed Notes upon conversion of such notes instead of issuing common stock to
the holders of such notes. The exact number of shares of common or preferred
stock issuable upon exercise of the notes and the rights, preferences and
designations of the preferred stock if preferred stock is authorized for
issuance is still subject to negotiation.
The Placement Agent also claims that it is owed additional placement
fees as a result of its agreement with the VIB. If VIB is able to reach
agreement with the holders of the Convertible Notes, it intends to request that
the Company, in connection with the settlement of the claim, issue up to any
additional 109,030 shares of Common Stock in order to settle the disputed claim
over fees allegedly payable pursuant to a finder's fee agreement ("Finder's Fee
Resolution"). However, there can be no assurance that the Finder's Fee
Resolution will be settled on the stated terms or at all.
Compensation of Directors and Executive Officers
Summary Compensation Table. The following table provides certain
information regarding compensation paid
by the company to the named executive officers.
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SUMMARY COMPENSATION TABLE
Annual Compensation Awards Payouts
---------------------------------- --------------------- --------------------------
Other Annual Restricted Stock LTIP All Other
Name and Salary Compensation Stock Options/ Payouts Compensation
Principal Position Year(1) ($) Bonus ($) ($) Awards($) SAR(#)(4) ($) ($)
------------------ ------- ------ --------- ------------ --------- --------- ------- -------------
W. Kelly Ryan (2) 2004 -- -- -- -- -- -- --
Chief Executive Officer
Frank J. Gillen (3) 2002 -- -- -- -- -- -- --
Director and President 2003 3,000 -- -- -- -- -- --
2004 18,000 -- -- -- -- -- --
- -----------------
(1) Represents fiscal years ending March 31 of each year.
(2) Mr. Ryan joined the Company in September 2004. As a result, he did not earn
any amounts during the last fiscal year. Beginning in September 2004, Mr.
Ryan is entitled to an annual salary of $125,000 per year.
(3) Does not include warrants exercisable for 50,000 shares of the Company's
common stock at $1.50 per share that were issued after March 31, 2004.
Beginning in September 2004, Mr. Gillen is entitled to an annual salary of
$125,000 per year.
(4) Does not include stock options exercisable for 2,300,000 shares of common
stock that are expected to be granted to senior management in 2004.
Compensation of Directors
The Company has made no arrangement with respect to the future
compensation of directors. During the prior two fiscal years the Company did not
pay its director any amounts for service on the board.
Compensation of Officers
Beginning in September, 2004, the Company has agreed to pay Messrs.
Ryan, Gillen, Devine and Moore annual salaries of $125,000. The Company is in
the process of preparing employment agreements for these individuals.
Equity Compensation Plans
Other than the proposed Founders' Stock Option Plan and the 2004 Stock
Option Plan, the Company has no equity compensation plans.
4. Other Matters
Discretionary Authority
At the time of mailing of this proxy statement, the Board was not aware
of any other matters which might be presented at the meeting. If any matter not
described in this Proxy Statement should properly be presented, the persons
named in the accompanying proxy form will vote such proxy in accordance with
their judgment.
Notice Requirements
Any stockholder who desires to have a proposal included in the
Company's proxy soliciting material relating to the Company's 2005 Annual
Meeting of Stockholders should send to the Secretary of the Company a signed
notice of intent. This notice, including the text of the proposal, must be
received no later than February 15, 2005.
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Expenses and Methods of Solicitation
The expenses of soliciting proxies will be paid by the Company. In
addition to the use of the mails, proxies may be solicited personally, or by
telephone or other means of communications, by directors, officers and employees
of the Company and its subsidiaries, who will not receive additional
compensation therefore. Arrangements will also be made with brokerage firms and
other custodians, nominees and fiduciaries for the forwarding of proxy
solicitation material to certain beneficial owners of the Company's Common
Stock, and the Company will reimburse such forwarding parties for reasonable
expenses incurred by them.
By order of the Board of Directors,
By /s/ Shauna Badger
Shauna Badger, Secretary
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APPENDIX A
HOMENET CORPORATION
FOUNDERS' STOCK OPTION PLAN
1. Purpose; Effectiveness of the Plan.
(a) The purpose of this Plan is to advance the interests of the Company
and its stockholders by helping the Company obtain and retain the services of
the founders and key employees, officers and directors of HomeNet
Communications, Inc., a Washington corporation, which became a wholly owned
subsidiary of the on September 8, 2004.
(b) This Plan will become effective on the date of its adoption by the
Board, provided this Plan is approved by the stockholders of the Company
(excluding holders of shares of Stock issued by the Company pursuant to the
exercise of options granted under this Plan) within twelve (12) months before or
after that date. If this Plan is not so approved by the stockholders of the
Company, any options granted under this Plan will be rescinded and will be void.
This Plan will remain in effect until it is terminated by the Board under
Section 9 hereof or until the ten year anniversary of Board approval of the
Plan, whichever is earlier, except that no ISO will be granted after the tenth
anniversary of the date of this Plan's adoption by the Board and no option
granted hereunder shall expire by reason of the termination of the Plan. This
Plan will be governed by, and construed in accordance with, the laws of the
State of Delware.
2. Certain Definitions. Unless the context otherwise requires, the following
defined terms (together with other capitalized terms defined elsewhere in this
Plan) will govern the construction of this Plan, and of any stock option
agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth in
Section 424(d) of the Code at the time he or she is granted an Option, stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of the Company and/or of its subsidiaries;
(b) "1933 Act" means the Federal Securities Act of 1933, as amended;
(c) "Board" means the Board of Directors of the Company;
(d) "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections of
the Code as enacted at the time of this Plan's adoption by the Board and as
subsequently amended, or to any substantially similar successor provisions of
the Code resulting from recodification, renumbering or otherwise);
(e) "Company" means HomeNet Corporation, a Delaware corporation;
(f) "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code;
(g) "Eligible Participants" means persons who, at a particular time,
are employees, officers, consultants (but only if such consultant is a natural
person who provides bona fide services to the Company which services are not in
connection with a capital raising transaction and who does not directly or
indirectly promote the Company's stock), or directors of HomeNet Communications,
Inc. or the Company;
(h) "Fair Market Value" means, with respect to the Stock and as of the
date an ISO is granted hereunder, the market price per share of such Stock
determined by the Board, consistent with the requirements of Section 422 of the
Code and to the extent consistent therewith, as follows:
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(i) If the Stock was traded on a stock exchange on the date in
question, when the Fair Market Value will be equal to the closing price
reported by the applicable composite-transactions report for the day
preceding such date;
(ii) If the Stock was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value will be equal to the last-transaction price quoted by the
NASDAQ system for the day preceding such date;
(iii) If the Stock was traded over-the-counter on the date in
question but was not classified as a national market issue, then the
Fair Market Value will be equal to the average of the last reported
representative bid and asked prices quoted by the NASDAQ system for the
day preceding such date; and
(iv) If none of the foregoing provisions is applicable, then
the Fair Market Value will be determined by the Board in good faith on
such basis as it deems appropriate.
(i) "ISO" has the same meaning as "incentive stock option," as defined
in Section 422 of the Code;
(j) "Just Cause Termination" means a termination by the Company of an
Optionee's employment by and/or service to the Company (or if the Optionee is a
director, removal of the Optionee from the Board by action of the stockholders
or, if permitted by applicable law and the bylaws of the Company, the other
directors), in connection with the good faith determination of the Company's
board of directors (or of the Company's stockholders if the Optionee is a
director and the removal of the Options from the Board is by action of the
stockholders, but in either case excluding the vote of the Optionee if he or she
is a director or a stockholder) that the Optionee has engaged in any acts
involving dishonesty or moral turpitude or in any acts that materially and
adversely affect the business, affairs or reputation of the Company or its
subsidiaries;
(k) "NSO" means any option granted under this Plan whether designated
by the Board as a "non-qualified stock option," a "non-statutory stock option"
or otherwise, other than an option designated by the Board as an ISO, or any
option so designated but which, for any reason, fails to qualify as an ISO
pursuant to Section 422 of the Code and the rules and regulations thereunder;
(l) "Option" means an option granted pursuant to this Plan entitling
the option holder to acquire shares of Stock issued by the Company pursuant to
the valid exercise of the option;
(m) "Option Agreement" means an agreement between the Company and an
Optionee, in form and substance satisfactory to the Board in its sole
discretion, consistent with this Plan;
(n) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the Option Stock
called for under such Option;
(o) "Option Stock" means Stock issued or issuable by the Company
pursuant to the valid exercise of an Option;
(p) "Optionee" means an Eligible Participant to whom Options are
granted hereunder, and any transferee thereof pursuant to a Transfer authorized
under this Plan;
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(q) "Plan" means this Founders' Stock Option Plan of the Company;
(r) "QDRO" has the same meaning as "qualified domestic relations order"
as defined in Section 414(p) of the Code;
(s) "Stock" means shares of the Company's common stock, par value $.001
per share;
(t) "subsidiary" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(f) of the Code; and
(u) "Transfer," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer, conveyance,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy of
such Option Stock.
3. Eligibility. The Company may grant Options under this Plan only to persons
who are Eligible Participants as of the time of such grant. Subject to the
provisions of Sections 4(c), 5 and 6 hereof, there is no limitation on the
number of Options that may be granted to an Eligible Participant.
4. Administration.
(a) General. The Board will administer this Plan.
(b) Authority and Discretion of Board. The Board will have full and
final authority in its discretion, at any time and from time to time, subject
only to the express terms, conditions and other provisions of the Company's
Articles of Incorporation, Bylaws and this Plan, and the specific limitations on
such discretion set forth herein:
(i) to select and approve the persons who will be granted
Options under this Plan from among the Eligible Participants, and to
grant to any person so selected one or more Options to purchase such
number of shares of Option Stock as the Board may determine;
(ii) to determine the period or periods of time during which
Options may be exercised, the Option Price and the duration of such
Options, and other matters to be determined by the Board in connection
with specific Option grants and Option Agreements as specified under
this Plan; and
(iii) to interpret this Plan, to prescribe, amend and rescind
rules and regulations relating to this Plan, and to make all other
determinations necessary or advisable for the operation and
administration of this Plan.
(c) Designation of Options. Except as otherwise provided herein, the
Board will designate any Option granted hereunder either as an ISO or as an NSO.
To the extent that the Fair Market Value (determined at the time the Option is
granted) of Stock with respect to which all ISOs are exercisable for the first
time by any individual during any calendar year (pursuant to this Plan and all
other plans of the Company and/or its subsidiaries) exceeds $100,000, such
option will be treated as an NSO. Notwithstanding the general eligibility
provisions of Section 3 hereof, the Board may grant ISOs only to persons who are
employees of the Company and/or its subsidiaries.
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(d) Option Agreements. Options will be deemed granted hereunder only
upon the execution and delivery of an Option Agreement by the Optionee and a
duly authorized officer of the Company. Options will not be deemed granted
hereunder merely upon the authorization of such grant by the Board.
5. Shares Reserved for Options.
(a) Option Pool. The aggregate number of shares of Option Stock that
may be issued pursuant to the exercise of Options granted under this Plan will
not exceed 2,300,000 shares of Stock (the "Option Pool"), provided that such
number will be increased by the number of shares of Option Stock that the
Company subsequently may reacquire through repurchase or otherwise. Shares of
Option Stock that would have been issuable pursuant to Options, but that are no
longer issuable because all or part of those Options have terminated or expired,
will be deemed not to have been issued for purposes of computing the number of
shares of Option Stock remaining in the Option Pool and available for issuance.
(b) Adjustments Upon Changes in Stock. In the event of any change in
the outstanding Stock of the Company as a result of a stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification,
appropriate proportionate adjustments will be made in: (i) the aggregate number
of shares of Option Stock in the Option Pool that may be issued pursuant to the
exercise of Options granted hereunder; (ii) the Option Price and the number of
shares of Option Stock called for in each outstanding Option granted hereunder;
and (iii) other rights and matters determined on a per share basis under this
Plan of any Option Agreement hereunder. Any such adjustments will be made only
by the Board, and when so made will be effective, conclusive and binding for all
purposes with respect to this Plan and all Options then outstanding. No such
adjustments will be required by reason of the issuance or sale by the Company
for cash or other consideration of additional shares of its Stock or securities
convertible into or exchangeable for shares of its Stock.
6. Terms of Stock Option Agreements. Each Option granted pursuant to this Plan
will be evidenced by an agreement (an "Option Agreement") between the Company
and the person to whom such Option is granted, in form and substance
satisfactory to the Board in its sole discretion, consistent with this Plan.
Without limiting the foregoing, each Option Agreement (unless otherwise stated
therein) will be deemed to include the following terms and conditions:
(a) Covenants of Optionee. At the discretion of the Board, the person
to whom an Option is granted hereunder, as a condition to the granting of the
Option, must execute and deliver to the Company a confidential information
agreement approved by the Board. Nothing contained in this Plan, any Option
Agreement or in any other agreement executed in connection with the granting of
an Option under this Plan will confer upon any Optionee any right with respect
to the continuation of his or her status as an employee of, consultant or
independent contractor to, or director of, the Company or its subsidiaries.
(b) Vesting Periods. Except as otherwise provided herein, each Option
Agreement may specify the period or periods of time within which each Option or
portion thereof will first become exercisable (the "Vesting Period") with
respect to the total number of shares of Option Stock called for thereunder (the
"Total Award Option Stock"). Such Vesting Periods will be fixed by the Board in
its discretion, and may be accelerated or shortened by the Board in its
discretion.
(c) Exercise of the Option.
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(i) Mechanics and Notice. An Option may be exercised to the
extent exercisable (1) by giving written notice of exercise to the
Company, specifying the number of full shares of Option Stock to be
purchased and accompanied by full payment of the Option Price thereof
and the amount of withholding taxes pursuant to Subsection 6(c)(ii)
below; and (2) by giving assurances satisfactory to the Company that
the shares of Option Stock to be purchased upon such exercise are being
purchased for investment and not with a view to resale in connection
with any distribution of such shares in violation of the 1933 Act and
that such exercise does not otherwise violate the provisions of the
1933 Act or any state securities laws; provided, however, that in the
event the Option Stock called for under the Option is registered under
the 1933 Act, or in the event resale of such Option Stock without such
registration would otherwise be permissible, this second condition will
be inoperative if, in the opinion of counsel for the Company, such
condition is not required under the 1933 Act, or any other applicable
law, regulation or rule of any governmental agency.
(ii) Withholding Taxes. As a condition to the issuance of the
shares of Option Stock upon full or partial exercise of an NSO granted
under this Plan, the Optionee will pay to the Company in cash, or in
such other form as the Board may determine in its discretion, the
amount of the Company's tax withholding liability required in
connection with such exercise. For purposes of this Subsection
6(c)(ii), "tax withholding liability" will mean all federal and state
income taxes, social security tax, and any other taxes applicable to
the compensation income arising from the transaction required by
applicable law to be withheld by the Company.
(d) Payment of Option Price. Each Option Agreement will specify the
Option Price with respect to the exercise of Option Stock thereunder, to be
fixed by the Board in its discretion, but in no event will the Option Price for
an ISO granted hereunder be less than the Fair Market Value (or, in case the
Optionee is a 10% Stockholder, one hundred ten percent (110%) of such Fair
Market Value) of the Option Stock at the time such ISO is granted. The Option
Price will be payable to the Company in United States dollars in cash or by
check or, such other legal consideration as may be approved by the Board, in its
discretion.
(i) For example, the Board, in its discretion, may permit a
particular Optionee to pay all or a portion of the Option Price, and/or
the tax withholding liability set forth in Subsection 6(c)(ii) above,
with respect to the exercise of an Option either by surrendering shares
of Stock already owned by such Optionee or by withholding shares of
Option Stock, provided that the Board determines that the fair market
value of such surrendered Stock or withheld Option Stock is equal to
the corresponding portion of such Option Price and/or tax withholding
liability, as the case may be, to be paid for therewith.
(e) Termination of the Option. Except as otherwise provided herein,
each Option Agreement will specify the period of time, to be fixed by the Board
in its discretion, during which the Option granted therein will be exercisable,
not to exceed ten (10) years from the date of grant in the case of an ISO (the
"Option Period"); provided that the Option Period will not exceed five (5) years
from the date of grant in the case of an ISO granted to a 10% Stockholder. To
the extent not previously exercised, each Option will terminate upon the
expiration of the Option Period specified in the Option Agreement; provided,
however, that each ISO will terminate, if earlier: (i) ninety (90) days after
the date that the Optionee ceases to be an Eligible Participant for any reason,
other than by reason of death or Disability or a Just Cause Termination; or (ii)
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twelve (12) months after the date that the Optionee ceases to be an Eligible
Participant by reason of such person's death or Disability. In the event of a
merger or consolidation or other reorganization (a "Corporate Transaction") in
which the Company is not the surviving corporation, or in which the Company
becomes a subsidiary of another corporation, then notwithstanding anything else
herein, the right to exercise all then outstanding Options will vest immediately
prior to such Corporate Transaction and will terminate immediately after such
Corporate Transaction; provided, however, that if the Board, in its sole
discretion, determines that such immediate vesting of the right to exercise
outstanding Options is not in the best interests of the Company, then the
successor corporation must agree to assume the outstanding Options or substitute
therefor comparable options of such successor corporation or a parent or
subsidiary of such successor corporation.
(f) Options Nontransferable. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and distribution, or in
the case of an NSO, pursuant to a QDRO. During the lifetime of the Optionee, the
Option will be exercisable only by him or her, or the transferee of an NSO if it
was transferred pursuant to a QDRO.
(g) Qualification of Stock. The right to exercise an Option will be
further subject to the requirement that if at any time the Board determines, in
its discretion, that the listing, registration or qualification of the shares of
Option Stock called for thereunder upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of or in connection with the
granting of such Option or the purchase of shares of Option Stock thereunder,
the Option may not be exercised, in whole or in part, unless and until such
listing, registration, qualification, consent or approval is effected or
obtained free of any conditions not acceptable to the Board, in its discretion.
(h) Restrictions on Transfer of Option Stock. By accepting Options
and/or Option Stock under this Plan, the Optionee will be deemed to represent,
warrant and agree as follows:
(i) Securities Act of 1933. The Optionee understands that the
shares of Option Stock have not been registered under the 1933 Act, and
that such shares are not freely tradeable and must be held indefinitely
unless such shares are either registered under the 1933 Act or an
exemption from such registration is available. The Optionee understands
that the Company is under no obligation to register the shares of
Option Stock. The Optionee further understands that the certificates
evidencing the Option Stock will bear a legend describing the
restrictions on transfer and shall be in a form determined by the Board
in its sole discretion.
(ii) Investment Intent. (1) Upon exercise of any Option, the
Optionee will purchase the Option Stock for his or her own account and
not with a view to distribution within the meaning of the 1933 Act,
other than as may be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (2) no one else will have
any beneficial interest in the Option Stock; and (3) he or she has no
present intention of disposing of the Option Stock at any particular
time.
(i) Additional Restrictions on Exercise and Transfer. The Optionee
further understands that exercise of the Option and/or Transfer of the Option
Stock requires full compliance with the provisions of all applicable laws.
(j) Compliance with Law. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, the Option Stock may be
issued pursuant to the exercise thereof by an Optionee, only after there has
been compliance with all applicable federal and state securities laws, and all
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of the same will be subject to this overriding condition. The Company will not
be required to register or qualify Option Stock with the Securities and Exchange
Commission or any State agency, except that the Company will register with, or
as required by local law, file for and secure an exemption from such
registration requirements from, the applicable securities administrator and
other officials of each jurisdiction in which an Eligible Participant would be
granted an Option hereunder prior to such grant.
(k) Stock Certificates. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all legends required by law
and necessary to effectuate this Plan's provisions. The Company may place a
"stop transfer" order against shares of the Option Stock until all restrictions
and conditions set forth in this Plan and in the legends referred to in this
Section 6(k) have been complied with.
(l) Market Standoff. To the extent requested by the Company and any
underwriter of securities of the Company in connection with a firm commitment
underwriting, no holder of any shares of Option Stock will sell or otherwise
Transfer any such shares not included in such underwriting, or not previously
registered pursuant to a registration statement filed under the 1933 Act, during
the one hundred eighty (180) day period following the effective date of the
registration statement filed with the Securities and Exchange Commission in
connection with such offering, which period may be reduced in the sole
discretion of the Company.
(m) Notices. Any notice to be given to the Company under the terms of
an Option Agreement will be addressed to the Company at its principal executive
office, Attention: Corporate Secretary, or at such other address as the Company
may designate in writing. Any notice to be given to an Optionee will be
addressed to the Optionee at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly given if and when
enclosed in a properly sealed envelope, addressed as aforesaid, registered and
deposited, postage and registry fee prepaid, in a post office or branch post
office regularly maintained by the United States Government.
(n) Other Provisions. The Option Agreement may contain such other
terms, provisions and conditions, including restrictions on the Transfer of
Option Stock issued upon exercise of any Options granted hereunder, not
inconsistent with this Plan, as may be determined by the Board in its sole
discretion.
7. Proceeds from Sale of Stock. Cash proceeds from the sale of shares of Option
Stock issued from time to time upon the exercise of Options granted pursuant to
this Plan will be added to the general funds of the Company and as such will be
used from time to time for general corporate purposes.
8. Modification, Extension and Renewal of Options. Subject to the terms and
conditions and within the limitations of this Plan, the Board may modify this
Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in substitution
therefor. Notwithstanding the foregoing, however, no modification of any Option
will, without the consent of the holder of the Option, alter or impair any
rights or obligations under any Option theretofore granted under this Plan.
9. Amendment and Discontinuance. The Board may amend, suspend or discontinue
this Plan at any time or from time to time; provided that no action of the Board
will cause ISOs granted under this Plan not to comply with Section 422 of the
Code unless the Board specifically declares such action to be made for that
purpose and provided further that no such action may, without the approval of
the stockholders of the Company, increase (other than by reason of an adjustment
pursuant to Section 5(b) hereof) the maximum aggregate number of shares of
Option Stock in the Option Pool that may be issued under Options granted
pursuant to this Plan. Moreover, no such action may alter or impair any Option
previously granted under this Plan without the consent of the holder of such
Option.
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10. Information to Optionees. Prior to the termination or full exercise of an
Option granted under this Plan, the Company annually will make available to each
holder of such an Option the Company's financial statements (which statements
need not be audited). At the discretion of the Board, an Optionee (and any
investment advisers to whom the Optionee proposes to make such information
available) may be required to sign an agreement prohibiting disclosure or use of
such financial information for any purpose whatsoever (other than determining
whether to exercise an Option).
11. Copies of Plan. A copy of this Plan will be delivered to each Optionee at or
before the time he or she executes an Option Agreement.
Date Plan Adopted by Board of Directors: September 13, 2004
Date Plan Approved by Stockholders: ___________, 200__
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APPENDIX B
HOMENET CORPORATION
2004 STOCK OPTION PLAN
1. Purpose; Effectiveness of the Plan.
(a) The purpose of this Plan is to advance the interests of the Company
and its stockholders by helping the Company obtain and retain the services of
employees, officers, consultants, and directors, upon whose judgment, initiative
and efforts the Company is substantially dependent, and to provide those persons
with further incentives to advance the interests of the Company.
(b) This Plan will become effective on the date of its adoption by the
Board, provided this Plan is approved by the stockholders of the Company
(excluding holders of shares of Stock issued by the Company pursuant to the
exercise of options granted under this Plan) within twelve (12) months before or
after that date. If this Plan is not so approved by the stockholders of the
Company, any options granted under this Plan will be rescinded and will be void.
This Plan will remain in effect until it is terminated by the Board under
Section 9 hereof or until the ten year anniversary of Board approval of the
Plan, whichever is earlier, except that no ISO will be granted after the tenth
anniversary of the date of this Plan's adoption by the Board and no option
granted hereunder shall expire by reason of the termination of the Plan. This
Plan will be governed by, and construed in accordance with, the laws of the
State of Delware.
2. Certain Definitions. Unless the context otherwise requires, the following
defined terms (together with other capitalized terms defined elsewhere in this
Plan) will govern the construction of this Plan, and of any stock option
agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth in
Section 424(d) of the Code at the time he or she is granted an Option, stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of the Company and/or of its subsidiaries;
(b) "1933 Act" means the Federal Securities Act of 1933, as amended;
(c) "Board" means the Board of Directors of the Company;
(d) "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections of
the Code as enacted at the time of this Plan's adoption by the Board and as
subsequently amended, or to any substantially similar successor provisions of
the Code resulting from recodification, renumbering or otherwise);
(e) "Company" means HomeNet Corporation, a Delaware corporation;
(f) "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code;
(g) "Eligible Participants" means persons who, at a particular time,
are employees, officers, consultants (but only if such consultant is a natural
person who provides bona fide services to the Company which services are not in
connection with a capital raising transaction and who does not directly or
indirectly promote the Company's stock), or directors of the Company or its
subsidiaries;
(h) "Fair Market Value" means, with respect to the Stock and as of the
date an ISO is granted hereunder, the market price per share of such Stock
determined by the Board, consistent with the requirements of Section 422 of the
Code and to the extent consistent therewith, as follows:
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(i) If the Stock was traded on a stock exchange on the date in
question, when the Fair Market Value will be equal to the closing price
reported by the applicable composite-transactions report for the day
preceding such date;
(ii) If the Stock was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value will be equal to the last-transaction price quoted by the
NASDAQ system for the day preceding such date;
(iii) If the Stock was traded over-the-counter on the date in
question but was not classified as a national market issue, then the
Fair Market Value will be equal to the average of the last reported
representative bid and asked prices quoted by the NASDAQ system for the
day preceding such date; and
(iv) If none of the foregoing provisions is applicable, then
the Fair Market Value will be determined by the Board in good faith on
such basis as it deems appropriate.
(i) "ISO" has the same meaning as "incentive stock option," as defined
in Section 422 of the Code;
(j) "Just Cause Termination" means a termination by the Company of an
Optionee's employment by and/or service to the Company (or if the Optionee is a
director, removal of the Optionee from the Board by action of the stockholders
or, if permitted by applicable law and the bylaws of the Company, the other
directors), in connection with the good faith determination of the Company's
board of directors (or of the Company's stockholders if the Optionee is a
director and the removal of the Options from the Board is by action of the
stockholders, but in either case excluding the vote of the Optionee if he or she
is a director or a stockholder) that the Optionee has engaged in any acts
involving dishonesty or moral turpitude or in any acts that materially and
adversely affect the business, affairs or reputation of the Company or its
subsidiaries;
(k) "NSO" means any option granted under this Plan whether designated
by the Board as a "non-qualified stock option," a "non-statutory stock option"
or otherwise, other than an option designated by the Board as an ISO, or any
option so designated but which, for any reason, fails to qualify as an ISO
pursuant to Section 422 of the Code and the rules and regulations thereunder;
(l) "Option" means an option granted pursuant to this Plan entitling
the option holder to acquire shares of Stock issued by the Company pursuant to
the valid exercise of the option;
(m) "Option Agreement" means an agreement between the Company and an
Optionee, in form and substance satisfactory to the Board in its sole
discretion, consistent with this Plan;
(n) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the Option Stock
called for under such Option;
(o) "Option Stock" means Stock issued or issuable by the Company
pursuant to the valid exercise of an Option;
(p) "Optionee" means an Eligible Participant to whom Options are
granted hereunder, and any transferee thereof pursuant to a Transfer authorized
under this Plan;
(q) "Plan" means this 2004 Stock Option Plan of the Company;
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(r) "QDRO" has the same meaning as "qualified domestic relations order"
as defined in Section 414(p) of the Code;
(s) "Stock" means shares of the Company's common stock, par value $.001
per share;
(t) "subsidiary" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(f) of the Code; and
(u) "Transfer," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer, conveyance,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy of
such Option Stock.
3. Eligibility. The Company may grant Options under this Plan only to persons
who are Eligible Participants as of the time of such grant. Subject to the
provisions of Sections 4(c), 5 and 6 hereof, there is no limitation on the
number of Options that may be granted to an Eligible Participant.
4. Administration.
(a) General. The Board will administer this Plan.
(b) Authority and Discretion of Board. The Board will have full and
final authority in its discretion, at any time and from time to time, subject
only to the express terms, conditions and other provisions of the Company's
Articles of Incorporation, Bylaws and this Plan, and the specific limitations on
such discretion set forth herein:
(i) to select and approve the persons who will be granted
Options under this Plan from among the Eligible Participants, and to
grant to any person so selected one or more Options to purchase such
number of shares of Option Stock as the Board may determine;
(ii) to determine the period or periods of time during which
Options may be exercised, the Option Price and the duration of such
Options, and other matters to be determined by the Board in connection
with specific Option grants and Option Agreements as specified under
this Plan; and
(iii) to interpret this Plan, to prescribe, amend and rescind
rules and regulations relating to this Plan, and to make all other
determinations necessary or advisable for the operation and
administration of this Plan.
(c) Designation of Options. Except as otherwise provided herein, the
Board will designate any Option granted hereunder either as an ISO or as an NSO.
To the extent that the Fair Market Value (determined at the time the Option is
granted) of Stock with respect to which all ISOs are exercisable for the first
time by any individual during any calendar year (pursuant to this Plan and all
other plans of the Company and/or its subsidiaries) exceeds $100,000, such
option will be treated as an NSO. Notwithstanding the general eligibility
provisions of Section 3 hereof, the Board may grant ISOs only to persons who are
employees of the Company and/or its subsidiaries.
(d) Option Agreements. Options will be deemed granted hereunder only
upon the execution and delivery of an Option Agreement by the Optionee and a
duly authorized officer of the Company. Options will not be deemed granted
hereunder merely upon the authorization of such grant by the Board.
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5. Shares Reserved for Options.
(a) Option Pool. The aggregate number of shares of Option Stock that
may be issued pursuant to the exercise of Options granted under this Plan will
not exceed 1,000,000 shares of Stock (the "Option Pool"), provided that such
number will be increased by the number of shares of Option Stock that the
Company subsequently may reacquire through repurchase or otherwise. Shares of
Option Stock that would have been issuable pursuant to Options, but that are no
longer issuable because all or part of those Options have terminated or expired,
will be deemed not to have been issued for purposes of computing the number of
shares of Option Stock remaining in the Option Pool and available for issuance.
(b) Adjustments Upon Changes in Stock. In the event of any change in
the outs tanding Stock of the Company as a result of a stock split, reverse
stock split, stock dividend, recapitalization, combination or reclassification,
appropriate proportionate adjustments will be made in: (i) the aggregate number
of shares of Option Stock in the Option Pool that may be issued pursuant to the
exercise of Options granted hereunder; (ii) the Option Price and the number of
shares of Option Stock called for in each outstanding Option granted hereunder;
and (iii) other rights and matters determined on a per share basis under this
Plan of any Option Agreement hereunder. Any such adjustments will be made only
by the Board, and when so made will be effective, conclusive and binding for all
purposes with respect to this Plan and all Options then outstanding. No such
adjustments will be required by reason of the issuance or sale by the Company
for cash or other consideration of additional shares of its Stock or securities
convertible into or exchangeable for shares of its Stock.
6. Terms of Stock Option Agreements. Each Option granted pursuant to this Plan
will be evidenced by an agreement (an "Option Agreement") between the Company
and the person to whom such Option is granted, in form and substance
satisfactory to the Board in its sole discretion, consistent with this Plan.
Without limiting the foregoing, each Option Agreement (unless otherwise stated
therein) will be deemed to include the following terms and conditions:
(a) Covenants of Optionee. At the discretion of the Board, the person
to whom an Option is granted hereunder, as a condition to the granting of the
Option, must execute and deliver to the Company a confidential information
agreement approved by the Board. Nothing contained in this Plan, any Option
Agreement or in any other agreement executed in connection with the granting of
an Option under this Plan will confer upon any Optionee any right with respect
to the continuation of his or her status as an employee of, consultant or
independent contractor to, or director of, the Company or its subsidiaries.
(b) Vesting Periods. Except as otherwise provided herein, each Option
Agreement may specify the period or periods of time within which each Option or
portion thereof will first become exercisable (the "Vesting Period") with
respect to the total number of shares of Option Stock called for thereunder (the
"Total Award Option Stock"). Such Vesting Periods will be fixed by the Board in
its discretion, and may be accelerated or shortened by the Board in its
discretion.
(c) Exercise of the Option.
(i) Mechanics and Notice. An Option may be exercised to the
extent exercisable (1) by giving written notice of exercise to the
Company, specifying the number of full shares of Option Stock to be
purchased and accompanied by full payment of the Option Price thereof
and the amount of withholding taxes pursuant to Subsection 6(c)(ii)
below; and (2) by giving assurances satisfactory to the Company that
the shares of Option Stock to be purchased upon such exercise are being
purchased for investment and not with a view to resale in connection
with any distribution of such shares in violation of the 1933 Act and
that such exercise does not otherwise violate the provisions of the
1933 Act or any state securities laws; provided, however, that in the
event the Option Stock called for under the Option is registered under
the 1933 Act, or in the event resale of such Option Stock without such
registration would otherwise be permissible, this second condition will
be inoperative if, in the opinion of counsel for the Company, such
condition is not required under the 1933 Act, or any other applicable
law, regulation or rule of any governmental agency.
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(ii) Withholding Taxes. As a condition to the issuance of the
shares of Option Stock upon full or partial exercise of an NSO granted
under this Plan, the Optionee will pay to the Company in cash, or in
such other form as the Board may determine in its discretion, the
amount of the Company's tax withholding liability required in
connection with such exercise. For purposes of this Subsection
6(c)(ii), "tax withholding liability" will mean all federal and state
income taxes, social security tax, and any other taxes applicable to
the compensation income arising from the transaction required by
applicable law to be withheld by the Company.
(d) Payment of Option Price. Each Option Agreement will specify the
Option Price with respect to the exercise of Option Stock thereunder, to be
fixed by the Board in its discretion, but in no event will the Option Price for
an ISO granted hereunder be less than the Fair Market Value (or, in case the
Optionee is a 10% Stockholder, one hundred ten percent (110%) of such Fair
Market Value) of the Option Stock at the time such ISO is granted. The Option
Price will be payable to the Company in United States dollars in cash or by
check or, such other legal consideration as may be approved by the Board, in its
discretion.
(i) For example, the Board, in its discretion, may permit a
particular Optionee to pay all or a portion of the Option Price, and/or
the tax withholding liability set forth in Subsection 6(c)(ii) above,
with respect to the exercise of an Option either by surrendering shares
of Stock already owned by such Optionee or by withholding shares of
Option Stock, provided that the Board determines that the fair market
value of such surrendered Stock or withheld Option Stock is equal to
the corresponding portion of such Option Price and/or tax withholding
liability, as the case may be, to be paid for therewith.
(e) Termination of the Option. Except as otherwise provided herein,
each Option Agreement will specify the period of time, to be fixed by the Board
in its discretion, during which the Option granted therein will be exercisable,
not to exceed ten (10) years from the date of grant in the case of an ISO (the
"Option Period"); provided that the Option Period will not exceed five (5) years
from the date of grant in the case of an ISO granted to a 10% Stockholder. To
the extent not previously exercised, each Option will terminate upon the
expiration of the Option Period specified in the Option Agreement; provided,
however, that each such Option will terminate, if earlier: (i) ninety (90) days
after the date that the Optionee ceases to be an Eligible Participant for any
reason, other than by reason of death or Disability or a Just Cause Termination;
(ii) twelve (12) months after the date that the Optionee ceases to be an
Eligible Participant by reason of such person's death or Disability; or (iii)
immediately as of the date that the Optionee ceases to be an Eligible
Participant by reason of a Just Cause Termination. In the event of a merger or
consolidation or other reorganization (a "Corporate Transaction") in which the
Company is not the surviving corporation, or in which the Company becomes a
subsidiary of another corporation, then notwithstanding anything else herein,
the right to exercise all then outstanding Options will vest immediately prior
to such Corporate Transaction and will terminate immediately after such
Corporate Transaction; provided, however, that if the Board, in its sole
discretion, determines that such immediate vesting of the right to exercise
outstanding Options is not in the best interests of the Company, then the
successor corporation must agree to assume the outstanding Options or substitute
therefor comparable options of such successor corporation or a parent or
subsidiary of such successor corporation.
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(f) Options Nontransferable. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and distribution, or in
the case of an NSO, pursuant to a QDRO. During the lifetime of the Optionee, the
Option will be exercisable only by him or her, or the transferee of an NSO if it
was transferred pursuant to a QDRO.
(g) Qualification of Stock. The right to exercise an Option will be
further subject to the requirement that if at any time the Board determines, in
its discretion, that the listing, registration or qualification of the shares of
Option Stock called for thereunder upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental regulatory
authority, is necessary or desirable as a condition of or in connection with the
granting of such Option or the purchase of shares of Option Stock thereunder,
the Option may not be exercised, in whole or in part, unless and until such
listing, registration, qualification, consent or approval is effected or
obtained free of any conditions not acceptable to the Board, in its discretion.
(h) Restrictions on Transfer of Option Stock. By accepting Options
and/or Option Stock under this Plan, the Optionee will be deemed to represent,
warrant and agree as follows:
(i) Securities Act of 1933. The Optionee understands that the
shares of Option Stock have not been registered under the 1933 Act, and
that such shares are not freely tradeable and must be held indefinitely
unless such shares are either registered under the 1933 Act or an
exemption from such registration is available. The Optionee understands
that the Company is under no obligation to register the shares of
Option Stock. The Optionee further understands that the certificates
evidencing the Option Stock will bear a legend describing the
restrictions on transfer and shall be in a form determined by the Board
in its sole discretion.
(ii) Investment Intent. (1) Upon exercise of any Option, the
Optionee will purchase the Option Stock for his or her own account and
not with a view to distribution within the meaning of the 1933 Act,
other than as may be effected in compliance with the 1933 Act and the
rules and regulations promulgated thereunder; (2) no one else will have
any beneficial interest in the Option Stock; and (3) he or she has no
present intention of disposing of the Option Stock at any particular
time.
(i) Additional Restrictions on Exercise and Transfer. The Optionee
further understands that exercise of the Option and/or Transfer of the Option
Stock requires full compliance with the provisions of all applicable laws.
(j) Compliance with Law. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, the Option Stock may be
issued pursuant to the exercise thereof by an Optionee, only after there has
been compliance with all applicable federal and state securities laws, and all
of the same will be subject to this overriding condition. The Company will not
be required to register or qualify Option Stock with the Securities and Exchange
Commission or any State agency, except that the Company will register with, or
as required by local law, file for and secure an exemption from such
registration requirements from, the applicable securities administrator and
other officials of each jurisdiction in which an Eligible Participant would be
granted an Option hereunder prior to such grant.
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(k) Stock Certificates. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all legends required by law
and necessary to effectuate this Plan's provisions. The Company may place a
"stop transfer" order against shares of the Option Stock until all restrictions
and conditions set forth in this Plan and in the legends referred to in this
Section 6(k) have been complied with.
(l) Market Standoff. To the extent requested by the Company and any
underwriter of securities of the Company in connection with a firm commitment
underwriting, no holder of any shares of Option Stock will sell or otherwise
Transfer any such shares not included in such underwriting, or not previously
registered pursuant to a registration statement filed under the 1933 Act, during
the one hundred eighty (180) day period following the effective date of the
registration statement filed with the Securities and Exchange Commission in
connection with such offering, which period may be reduced in the sole
discretion of the Company.
(m) Notices. Any notice to be given to the Company under the terms of
an Option Agreement will be addressed to the Company at its principal executive
office, Attention: Corporate Secretary, or at such other address as the Company
may designate in writing. Any notice to be given to an Optionee will be
addressed to the Optionee at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly given if and when
enclosed in a properly sealed envelope, addressed as aforesaid, registered and
deposited, postage and registry fee prepaid, in a post office or branch post
office regularly maintained by the United States Government.
(n) Other Provisions. The Option Agreement may contain such other
terms, provisions and conditions, including restrictions on the Transfer of
Option Stock issued upon exercise of any Options granted hereunder, not
inconsistent with this Plan, as may be determined by the Board in its sole
discretion.
7. Proceeds from Sale of Stock. Cash proceeds from the sale of shares of Option
Stock issued from time to time upon the exercise of Options granted pursuant to
this Plan will be added to the general funds of the Company and as such will be
used from time to time for general corporate purposes.
8. Modification, Extension and Renewal of Options. Subject to the terms and
conditions and within the limitations of this Plan, the Board may modify this
Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in substitution
therefor. Notwithstanding the foregoing, however, no modification of any Option
will, without the consent of the holder of the Option, alter or impair any
rights or obligations under any Option theretofore granted under this Plan.
9. Amendment and Discontinuance. The Board may amend, suspend or discontinue
this Plan at any time or from time to time; provided that no action of the Board
will cause ISOs granted under this Plan not to comply with Section 422 of the
Code unless the Board specifically declares such action to be made for that
purpose and provided further that no such action may, without the approval of
the stockholders of the Company, increase (other than by reason of an adjustment
pursuant to Section 5(b) hereof) the maximum aggregate number of shares of
Option Stock in the Option Pool that may be issued under Options granted
pursuant to this Plan. Moreover, no such action may alter or impair any Option
previously granted under this Plan without the consent of the holder of such
Option.
10. Information to Optionees. Prior to the termination or full exercise of an
Option granted under this Plan, the Company annually will make available to each
holder of such an Option the Company's financial statements (which statements
need not be audited). At the discretion of the Board, an Optionee (and any
investment advisers to whom the Optionee proposes to make such information
available) may be required to sign an agreement prohibiting disclosure or use of
such financial information for any purpose whatsoever (other than determining
whether to exercise an Option).
11. Copies of Plan. A copy of this Plan will be delivered to each Optionee at or
before the time he or she executes an Option Agreement.
Date Plan Adopted by Board of Directors: September 13, 2004
Date Plan Approved by Stockholders: ___________, 200__
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APPENDIX C
PROXY CARD FOR SPECIAL MEETING OF STOCKHOLDERS OF
FARADAY FINANCIAL, INC.
This Proxy is Solicited on Behalf of the Board of Directors. The undersigned
hereby appoints Frank Gillen as Proxy, with the power to appoint his substitute
and hereby authorize them to represent and to vote, as designated below, all
voting shares of stock of Faraday Financial, Inc. held of record by the
undersigned on September 21, 2004, at the Special Meeting of stockholders to be
held on October 20, 2004, or any adjournment thereof.
1. Proposal to Amend the Certificate of Incorporation to change the
Company's name to HomeNet Corporation.
[ ] For [ ] Against [ ] Abstain
2. Proposal to approve the Founders' Stock Option Plan.
[ ] For [ ] Against [ ] Abstain
3. Proposal to approve the 2004 Stock Option Plan.
[ ] For [ ] Against [ ] Abstain
4. In their discretion, the Proxy is authorized to vote upon such other
business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder(s). If no directions are made, this proxy will be
voted for the above Proposals.
Please sign below. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporation name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated: ________________________, 2004 ________________________________
(signature)
________________________________
(signature if held jointly)
Please mark, sign, date and return the proxy
card promptly using the enclosed envelope or
proxy cards may be sent by facsimile to the ________________________________
Company at: (509) 754-1399. (print name of stockholder(s))
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