FIRST AMENDED
REPORT OF CHANGE IN MAJORITY OF DIRECTORS
INFORMATION PURSUANT TO SELECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
FARADAY FINANCIAL, INC.
175 South Main, Suite 1240, Salt Lake City, Utah 84111
(801) 502-6100
000-22236
-----------------------
(Commission file number)
This report is furnished by the board of directors of Faraday
Financial, Inc., a Delaware corporation (the "Company"), to the holders of
common stock of the Company to provide notice of a change in management. This
information is provided for information purposes only. The Company is not
soliciting proxies in connection with the items described herein. You are not
required to respond to this report.
On or about August 2, 2004, the Company, Video Internet Broadcasting
Corporation ("VIB") and Homenet Utah, Inc. ("Homenet"), a wholly owned
subsidiary of the Company, entered into a Merger Agreement whereby Homenet would
be merged into VIB ("Merger") with VIB to be the surviving corporation. The
separate existence of Homenet would cease if the Merger becomes effective. On
August 23, 2004, the shareholders of VIB approved the Merger and on September 8,
2004, the Merger was consummated.
Immediately prior to the Merger, the Company had 2,318,000 shares of
its common stock issued and outstanding and the Company had 5,082,444 shares of
its common stock outstanding immediately after the Merger. The holders of record
of the Company's common stock are entitled to cast one vote per share of common
stock held by such holder relating to any matter submitted to the stockholders
for vote.
THIS INFORMATION STATEMENT IS PROVIDED TO YOU FOR INFORMATION PURPOSES
ONLY. NO ACTION ON YOUR PART IS SOUGHT OR REQUIRED.
This report will be sent to stockholders on or about October 18, 2004.
Security Ownership of Management and Certain Beneficial Owners
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The following table sets forth certain information with respect to the
beneficial ownership of the Company's 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 Company's 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 Group (7 people) 2,977,415 57.4%
* 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.
(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 Faraday 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 Faraday 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
Faraday 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 Faraday common stock for
every $1.00 of interest and accrued interest that is owing on the
obligations.
Changes in Control
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On or about August 2, 2004, the Company, VIB and Homenet, a wholly
owned subsidiary of the Company, 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.
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 Company's 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 Company 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 2,764,444 shares of common
stock (not including securities that were convertible into VIB stock) in
connection with the Merger which represents approximately fifty-four percent of
the Company's total issued and outstanding common stock immediately following
the Merger. The Company will issue 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 Company 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 Company 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 Company 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.
Legal Proceedings
- -----------------
There are no legal proceedings to which any director, officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of the Company's common stock, or any associate of any of the foregoing,
is a party adverse to the Company or any of its subsidiaries or has a material
interest adverse to Company or any of its subsidiaries.
Directors and Executive Officers
- --------------------------------
Immediately prior to the Merger, the Company had two directors, Mr.
Frank J. Gillen and Ms. Shauna Badger. In connection with the Merger, Ms. Shauna
Badger resigned as a director of the Company, Mr. Frank Gillen continued as a
director and Messrs. Michael Vanderhoof and Michael W. Devine were appointed as
directors of the Company. In addition, on September 13, 2004, Mr. Gregory Haerr
was also appointed so serve as a director of the Company. The director
appointments and director resignation are effective ten days following the
filing of this notice and the mailing of the same to Company stockholders.
Assuming effectiveness of the referenced director appointments and resignation,
set forth below is certain information concerning each of our directors and
executive officers as of September 8, 2004.
With the
Name Age Position Company Since
---- --- -------- -------------
W. Kelly Ryan 40 CEO 2004
Frank J. Gillen 35 Director and President 1999
Michael W. Devine 58 Director and CFO 2004
Jonathan Moore 41 CTO 2004
Shauna Badger 48 Secretary 2004
Gregory Haerr 46 Director 2004
Michael Vanderhoof 44 Director 2004
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W. "Kelly" Ryan. Mr. Ryan is the CEO of the Company. Mr. Ryan is also
the founder and has been principally employed as the CEO of VIB since 2001, and
has overseen the successful deployment of IPTV services over a municipally
funded fiber infrastructure. From 1993 to 2001, Mr. Ryan was a founder and CEO
of InterVision Communications, Inc., a full-service video/film production,
duplication, fulfillment, and distribution multi-media company. He built
InterVision into the third largest video production house in the Pacific
Northwest with key clients like Microsoft and Boeing. Prior to his work with
InterVision, Mr. Ryan was General Manager of Seattle based Video Now, Inc.
Throughout the decade of the 1980's, he was a distinguished independent producer
for ESPN and recognized member of International Television Association (ITVA),
and the Society of International Motion Pictures and Television Engineers
(SIMPTE).
Frank J. Gillen. Mr. Gillen has been with the Company since 1999 and
his term as a director of the Company expires at the next annual meeting of
stockholders. Mr. Gillen was the founder of Maven Strategic Partners, Inc. which
was formed in 1999. Maven Strategic Partners, Inc. invested in various small cap
stocks and was active in day trading. A small part of the revenues were
generated from business consulting and identifying distressed companies that
could be bought or merged into another strategic company. Mr. Gillen sold his
interest in Maven Strategic Partners, Inc. in 2002. Mr. Gillen then began
working for Ford Allen, Inc., a business consulting company until he began
working for the Company on a full time basis.
Michael Devine. Mr. Devine is the CFO and a director of the Company.
Mr. Devine's term as a director of the Company expires at the next annual
meeting of stockholders. Mr. Devine is also the President and Treasurer of VIB.
Mr. Devine was previously employed in the public accounting profession in the
Northwest, including the position of Managing Partner for a large regional
accounting firm. For the past seven years he has been principally employed
registered investment advisor with Heritage Capital Management, LLC. Mr. Devine
also manages a Venture Capital fund. Prior to founding his own business, Mr.
Devine held several senior management positions in the securities industry. He
is a longstanding member of the American Institute of Certified Public
Accountants.
Jonathan Moore, PE. Mr. Moore is the CTO of the Company. Mr. Moore also
services as the CTO of VIB. Mr. Moore brings over 13 years of telecommunications
experience to the Company. From 1997 to 2004 he was the principal engineer with
the Grant County PUD where he was responsible for their open-access Gigabit
Ethernet FTTH architecture enabling the triple play of voice, video, and data.
This assignment included the design and implementation of a 300+ channel IP
multicast video head-end. Prior to working for Grant County, Mr. Moore was
Engineering Manager for American Paging in Minneapolis Minnesota where he
designed a nationwide call and data center for their paging operations. Mr.
Moore has also worked as Senior Design Engineer for American Communications
Consultants in Nashville Tennessee where he designed telephone digital central
offices and outside plant systems. Mr. Moore has a BSEE degree from the
University of Wisconsin, is a licensed Professional Engineer in six states, is
active in the IEEE 802.3ah Ethernet in the First Mile Task Force, and has held
board positions with the Joy Public Broadcasting Corporation.
Shauna Badger. During the prior five years, Ms. Badger has been
principally employed as the sole proprietor of an interior design business Rocky
Mountain Designs, that purchases investment property in Park City and Deer
Valley, Utah. The interior design business specialize in designing and
decorating second home vacation properties that it either leases or resells. Ms.
Badger spends approximately 60% of her available business time working for the
Company.
Gregory Haerr. Mr. Haerr is a director of the Company and his term as a
director of the Company expires at the next annual meeting of stockholders. Mr.
Haerr is the founder and CEO of Century Software, www.centurysoftware.com, a
leader in PC connectivity solutions, and Century Software Embedded Technologies,
embedded.centurysoftware.com, a leading developer of core technologies for the
worldwide embedded Linux applications market. Mr. Haerr has been principally
employed by Century Software since 1985. Mr. Haerr brings over 25 years
experience in the design, development, management and delivery of computer
software on a broad range of systems, from Windows-based desktops, large UNIX
back office systems, flat panel-based devices and today's 32-bit embedded RISC
systems. An expert UNIX, Linux and Windows programmer and systems architect
specializing in operating systems, interpreter, and graphics windowing system
designs, Mr. Haerr earned a degree in Computer Science from the University of
California, San Diego in 1980. Mr. Haerr is currently a board member of Applied
Data Systems, Inc, www.applieddata.net, a leading supplier of single-board,
application-ready, RISC embedded systems computers employing flat panel
displays.
Michael Vanderhoof. Mr. Vanderhoof is a director of the Company and his
term as a director of the Company expires at the next annual meeting of
stockholders. For the past seven years, Mr. Vanderhoof's principal business
activity has been as a private investor in early stage private and public
companies. He is currently a director of Auxilio Inc. (NASDAQ: AUXO), a provider
of integration strategies and outsourced services for Image Management in
healthcare. While a director for Auxilio, he served as interim CEO and recently
assisted Management in the negotiated sale of the Company's human capital
software tools, and purchase of The Mayo Group. Mr. Vanderhoof has over 20 years
experience in the capital markets.
Our executive officers are elected by the board of directors on an
annual basis and serve at the discretion of the board.
There are no family relationship among our directors, executive
officers or persons nominated or chosen to become directors or executive
officers.
The board of directors does not have a standing, audit, nominating or
compensation committee. The board of directors did not meet during the fiscal
year ended March 31, 2004, but acted by written consents of the board.
Certain Relationships and Related Transactions
- ----------------------------------------------
In connection with the proposed Merger, the Company and VIB entered
into loan agreements, pursuant to which the Company has lent VIB a principal
amount of $670,000 as of June 30, 2004. VIB is in difficult financial
circumstances and there can be no assurance that VIB will be able to repay the
amounts lent. Messrs. Ryan and Devine serviced as officers and directors of VIB
prior to the Merger and continued to act in such capacities after the Merger.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
The members of the board of directors, the executive officers of the
Company and persons who hold more than ten percent of the Company's common stock
are subject to reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, which require them to file reports with respect to their
ownership of and transaction in the Company's securities, and furnish the
Company copies of all such reports they file. Based upon the copies of those
reports furnished to the Company, and written representations that no other
reports were required to be filed, the Company believes that, except for Maven
Properties, Ltd., an affiliate of Mr. Gillen, that has not filed a Form 3
reporting the acquisition of common stock, Mr. Gillen, who failed to timely file
a report reporting his acquisition of Company securities, Ms. Shauna Badger who
has not filed a Form 3 reporting her acquisition of Company securities and
Badger Investments, LLC, an affiliate of Ms. Badger, that has not filed a Form 3
reporting its acquisition of Company common stock.
Compensation of Directors and Executive Officers
- ------------------------------------------------
Summary Compensation Table. The following table provides certain
information regarding compensation paid by the company to the named executive
officers.
SUMMARY COMPENSATION TABLE
Annual Compensation Awards Payouts
--------------------------------- -------------------- --------
Other Annual Restricted Stock LTIP All Other
Name and Salary Compensation Stock Options/ Payouts Compensation
Principal Position Year(1) ($) 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.
SIGNATURES
In accordance with Section 13 of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned who is authorized to
do so.
FARADAY FINANCIAL, INC.
(Registrant)
Date: October 13, 2004 By /s/ Frank J. Gillen
--------------------------
Frank J. Gillen
Director and President