<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
COMMISSION FILE NUMBER 0-22563
PC411, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4463937
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
9800 S. LA CIENEGA BLVD.
INGLEWOOD, CA 90301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 645-1114
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PRECEDING 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
AS OF AUGUST 8, 1997, THERE WERE OUTSTANDING 2,972,500 SHARES OF THE
ISSUER'S COMMON STOCK, $.01 PAR VALUE.
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PC411, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited):
Balance Sheets as of June 30, 1997 and
December 31, 1996 (Audited)............................ 3
Statements of Operations for the six months
ended June 30, 1997 and 1996........................... 4
Statement of Stockholders' Equity for the
six months ended June 30, 1997......................... 5
Statements of Cash Flows for the six months
ended June 30, 1997 and 1996........................... 6
Notes to the Quarterly Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10
PART II. OTHER INFORMATION
Item 5. Other Information.......................................... 16
Item 6. Exhibits and Reports on Form 8-K........................... 16
SIGNATURE............................................................. 17
2
<PAGE> 3
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents..................................... $ 779,744 $ 8,605
Short-term investments........................................ 4,847,779 --
Accounts receivable........................................... -- 10,947
Prepaid expenses.............................................. 42,995 192,865
----------- -----------
Total current assets..................................... 5,670,518 212,417
----------- -----------
Property and equipment, net....................................... 119,031 132,972
----------- -----------
Total assets............................................. $ 5,789,549 $ 345,389
=========== ===========
CURRENT LIABILITIES:
Accrued expenses.................................................. $ 319,700 $ 192,992
Deferred revenue.................................................. 53,130 25,387
Related party demand loan payable ............................... -- 327,065
----------- -----------
Total current liabilities................................ 372,830 545,444
----------- -----------
Commitments and contingencies..................................... -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, Series A $.01 par value. Authorized 10,000
shares; issued and outstanding 0 and 1,820 shares at
June 30, 1997 and December 31, 1996, respectively,
liquidation value of $550 per share........................ -- 18
Common Stock, $.01 par value. Authorized 10,000 shares;
issued and outstanding 2,972,500 and 4,240 at June 30, 1997
and December 31, 1996, respectively........................ 29,725 42
Additional paid-in capital.................................... 7,409,809 1,406,427
Deficit accumulated during the development stage.............. (2,022,815) (1,606,542)
----------- -----------
Net stockholders' equity (deficit)....................... 5,416,719 (200,055)
----------- -----------
Total liabilities and stockholders' equity (deficit)..... $ 5,789,549 $ 345,839
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
3
<PAGE> 4
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Period From
--------------------------------- -------------------------------- December 29, 1993
June 30, June 30, June 30, June 30, (Date of Inception)
1997 1996 1997 1996 to June 30, 1997
---------------- ---------------- --------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 50,491 $ 8,197 $ 92,041 $ 19,753 $ 160,452
Cost and expenses:
Cost of revenues......................... 40,865 14,268 71,524 27,510 269,064
Research and development................. 16,796 74,366 24,639 150,525 570,772
Sales and marketing...................... 50,321 5,870 66,176 19,305 209,518
General and administrative............... 156,788 87,411 286,646 212,992 948,943
--------- ---------- --------- --------- ------------
264,770 181,915 448,985 410,332 1,998,297
--------- ---------- --------- --------- ------------
Operating loss................................ (214,279) (173,718) (356,944) (390,579) (1,837,845)
--------- ---------- --------- --------- ------------
Other income (expense):
Interest and other income................ 35,473 804 35,473 3,749 86,291
Interest expense......................... (36,256) -- (94,002) -- (268,861)
--------- ---------- --------- --------- ------------
Other income (expense)................... (783) 804 (58,529) 3,749 (182,570)
--------- ---------- --------- --------- ------------
Loss before income taxes...................... (215,062) (172,914) (415,473) (386,830) (2,020,415)
Income taxes.................................. -- -- 800 800 2,400
--------- ---------- --------- --------- ------------
Net loss...................................... (215,062) (172,914) (416,273) (387,630) $ (2,022,815)
============
Dividends on preferred shares -
undeclared............................... (192,703) -- (296,953) --
--------- ---------- --------- ---------
Net loss applicable to common stock........... $(407,765) $ (172,914) $(713,226) $(387,630)
========= ========== ========= =========
Net loss per share............................ $ (.16) $ (.24) $ (.34) $ (.53)
========= ========== ========= =========
Shares used in computing net loss per
share.................................... 2,472,427 732,390 2,099,075 732,390
========= ========== ========= =========
</TABLE>
See accompanying Notes to Financial Statements
4
<PAGE> 5
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
accumulated Total
Additional during the stockholders'
Preferred Common paid-in development equity
Stock Stock capital stage (deficiency)
--------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996........ $ 18 $ 42 $ 1,406,427 $ (1,606,542) $ (200,055)
Net loss.......................... -- -- -- (416,273) (416,273)
Conversion of preferred stock
to common stock................ (18) 86 (68) -- --
Stock split....................... -- 22,096 (22,096) -- --
Contribution of common stock to
company........................ -- (6,324) 6,324 -- --
Issuance of stock to legal
counsel........................ -- 600 (600) -- --
Sale of common stock in
initial public offering........ -- 13,225 5,871,775 -- 5,885,000
Payment of preferred
dividend....................... -- -- (171,953) -- (171,953)
Sale of warrants to related
party.......................... -- -- 250,000 -- 250,000
Interest component of stock
option granted................. -- -- 70,000 -- 70,000
------ ------- ----------- ------------ -----------
Balance, June 30, 1997............ $ -- $29,725 $ 7,409,809 $ (2,022,815) $ 5,416,719
====== ======= =========== ============ ===========
</TABLE>
See accompanying Notes to Financial Statements
5
<PAGE> 6
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Period From
-------------------------------- December 29, 1993
June 30, June 30, (Date of Inception)
1997 1996 to June 30, 1997
-------------- -------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (416,273) $ (387,630) $ (2,022,815)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation.................................................. 19,919 19,002 86,392
Interest component of stock options granted................... 70,000 -- 70,000
Amortization of discount on loan payable...................... -- -- 160,940
Changes in assets and liabilities:
Accounts receivable........................................ 10,947 --
Prepaid expenses........................................... 149,870 13,000 (42,995)
Accrued expenses........................................... 126,708 -- 319,700
Deferred revenues.......................................... 27,743 $ -- 53,130
---------- ---------- ------------
Cash used in operating activities.................................. (11,086) (355,628) (1,375,648)
---------- ---------- ------------
Cash flows from investing activities:
Purchase of short-term investments.............................. (4,847,779) -- (4,847,779)
Acquisition of property and equipment........................... (5,978) (7,569) (205,423)
---------- ---------- ------------
Cash flows used in investing activities............................. (4,853,757) (7,569) (5,053,202)
---------- ---------- ------------
Cash flows from financing activities:
Increase in (repayment of) loan payable......................... (327,065) 37,500 --
Issuance of preferred stock..................................... -- -- 1,001,000
Shareholder cash contribution................................... -- -- 92,047
Issuance of common stock........................................ 5,885,000 -- 6,037,500
Payment of preferred dividends.................................. (171,953) -- (171,953)
Sale of warrants................................................ 250,000 -- 250,000
---------- ---------- ------------
Cash flows provided from financing activities...................... 5,635,982 37,500 7,208,594
---------- ---------- ------------
Net increase (decrease) in cash.................................... 771,139 (325,697) 779,744
Cash and cash equivalents at beginning of period................... 8,605 370,827 --
---------- ---------- ------------
Cash and cash equivalents at end of period......................... $ 779,744 $ 45,130 $ 779,744
========== ========== ============
</TABLE>
See accompanying Notes to Financial Statements
6
<PAGE> 7
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BUSINESS AND ORGANIZATION
PC411, Inc. was incorporated in Delaware on December 29, 1993. The
Company provides an on-line service that transmits name, address,
telephone number and other related information digitally to users of
personal computers.
INITIAL PUBLIC OFFERING
On May 21, 1997, the Company completed an initial public offering ("IPO")
of 1,322,500 units (including 172,500 units from the exercise of the
Underwriter's over allotment option), each unit consisting of one share
of Common Stock and one Redeemable Class A Warrant to purchase a share of
Common Stock. The units were sold for $5.75 each and the Company
received, after expenses of the IPO, approximately $6 million in net
proceeds. Immediately prior to the IPO, the then outstanding 12,866
shares of Common Stock were converted into 2,222,390 shares of Common
Stock pursuant to a 172.7336-for-1 stock split. Certain stockholders
contributed 632,390 shares to the Company resulting in 1,590,000 shares
outstanding. In addition, the Company issued an additional 60,000 shares
to its legal counsel in connection with services rendered for the IPO. As
a result of the foregoing, at June 30, 1997 the Company had 2,972,500
shares outstanding.
(2) PRINCIPLES OF REPORTING
The financial statements of the Company as of June 30, 1997 presented
herein have been prepared by the Company and are unaudited. In the
opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position
as of June 30, 1997 and the results of operations and cash flows for all
periods presented have been made. Results for the interim periods are not
necessarily indicative of the results for the entire year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31,
1996 included in the Company's Registration Statement on Form SB-2, as
amended (No. 333-21545).
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
7
<PAGE> 8
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
STOCK OPTIONS
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock options. In 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which, if fully adopted, changes the methods of
recognition of cost on certain stock options.
SHORT-TERM INVESTMENTS
The Company's short-term investments comprise readily marketable debt
securities with remaining maturities of more than 90 days at the time of
purchase. The Company has classified all of its short-term investments as
available for sale under the provisions of Statement of Financial
Accounting Standards 115, "Accounting for Certain Investments in Debt and
Equity Securities". Available for sale securities are stated at fair
value with unrealized gains and losses included in stockholders' equity.
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is
included in interest income.
As of June 30, 1997, the Company had approximately $1.9 million in U.S.
Government Obligations and approximately $2.9 million in commercial paper
and bonds. The fair value of these short-term investments approximated
their amortized costs and, accordingly, no unrealized gains or losses are
included in stockholders' equity.
(3) RELATED PARTY TRANSACTIONS
The Company entered into a Loan and Security Agreement, dated as of June
27, 1996, as amended (the Loan Agreement), with New Valley Corporation
("New Valley"), an indirect majority owner of the Company's shares of
Common Stock, pursuant to which New Valley agreed to provide the Company,
in its sole and absolute discretion, with up to $750,000 in financing.
Amounts advanced under the Loan Agreement were due on demand and bore
interest at 12% per annum. In May 1997, the Company issued to New Valley
1,000,000 Redeemable Class A Warrants at the IPO price of $.25 per
warrant in satisfaction of $250,000 of indebtedness under the Loan
Agreement and the remaining balance due under the Loan Agreement of
$447,064 was satisfied out of the net proceeds of the IPO.
In January 1997, the Company granted to Direct Assist Holding Inc., a
wholly-owned subsidiary of New Valley, options to acquire 500,000 shares
of Common Stock at $5.75 per share, which fully vested upon the
completion of the IPO. Such options were issued in connection with
services provided on behalf of the Company's IPO, for Preferred Stock
equity placement by New Valley, and for the Loan Agreement provided to
the Company by New Valley. For financial reporting purposes, the Company
has recorded $125,000 of the value assigned to these options as a
dividend on Preferred Stock for the period January 1, 1997 through May
22, 1997. In addition, the Company has recorded imputed interest expense
of $70,000 arising from the issuance of such options during the period
from January 1, 1997 through May 22, 1997.
8
<PAGE> 9
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) STOCK OPTION PLAN
The Company has a stock option plan, "1997 Stock Option Plan" (the "1997
Plan"). The 1997 Plan provides for the grant of options to purchase the
Company's stock to the employees of the Company. Subject to certain
limitations under the 1997 Plan, the number of awards, the terms and
conditions of any award granted thereunder (including, but not limited
to, the exercise price, grant price or purchase price) are at the
discretion of the Board of Directors. The Board of Directors had set
aside 750,000 shares of the Company's common stock for issuance under the
1997 Plan. In January 1997, the Company's Board of Directors authorized
the grant of 404,000 stock options at an exercise price of $4.40 under
the 1997 Plan. One third of such options vested upon the completion of
the IPO and one third will vest at the end of each of the first and
second years thereafter. When granted, the Company determined the fair
market value of each of the Company's shares to be $4.40, post-stock
split; accordingly, no compensation expense was recognized for these
options. In April and May 1997, an aggregate of 102,000 stock options
were granted at an exercise price of $5.50 per share, of which 15,060
became exercisable on the completion of the IPO. All stock options under
the 1997 Plan are subject to an eighteen month lock-up agreement with the
underwriter of the IPO which expires November 1998.
Stock options issued in 1995 and 1996 under a 1994 stock option plan
which was terminated in 1997, vest over a three-year period and have an
exercise price of $11.50 per share. At June 30, 1997, 3,455 of the
granted options were outstanding and exercisable.
Additionally, in connection with its IPO, the Company granted to the
underwriter of the offering options to purchase 73,600 units, at the
exercise price of $9.49 per unit. Each unit consists of one share of
Common Stock and one warrant to purchase an additional share at the price
of $6.10.
In addition to the options issued in connection with the stock option
plans, the Company has granted other parties certain stock options as
described in Note 3.
(5) PREFERRED STOCK
The Company has the authority to issue 10,000 shares of Preferred Stock,
which may be issued from time to time in one or more series. In May 1995,
the Company sold and issued 1,820 shares of Series A Cumulative
Convertible Preferred Stock, $.01 par value. Dividends at an annual rate
of $55 per share on the Series A Preferred Stock were cumulative from the
date of original issue and are payable annually in arrears, when and as
declared by the Company's Board of Directors.
On January 29, 1997, all 1,820 outstanding shares of Preferred Stock were
converted into 8,626 shares (1,490,000 shares after stock split) of
Common Stock, and the cumulative dividends on the Preferred Stock of
$171,953 were subsequently declared and paid on May 22, 1997 out of the
net proceeds of the IPO.
9
<PAGE> 10
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the Financial Condition and Results of
Operations of the Company should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and the notes thereto included in the
Company's Registration Statement on Form SB-2 (No. 333-21545) relating to its
initial public offering, which was completed in May 1997.
OVERVIEW
The Company currently provides an on-line electronic directory assistance
service that gives its customers access to over 110 million U.S. and Canadian
residence and business telephone numbers, addresses and ZIP codes. The PC411
service is available on a direct-dial basis with a personal computer, a modem,
and either the Company's proprietary, copyrighted software program, PC411 FOR
WINDOWS, or an Internet browser. The PC411 service is available over the
Internet at the address HTTP://WWW.PC411.COM. The Company was a development
stage enterprise through June 30, 1997. Effective July 1, 1997, the Company is
no longer considered a development stage enterprise as significant revenues are
being generated and the raising of capital has been completed. Since its
inception in December 1993, the Company has devoted substantially all of its
expenditures (approximately $2 million through June 30, 1997) to the development
of the PC411 service. The Company introduced the first version of the PC411
service in December 1994.
Given its limited operating history, the Company and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the new and rapidly evolving markets for on-line and
internet services. To address these risks, the Company must, among other things,
continue to respond to competitive developments, attract, retain and motivate
qualified personnel, implement and successfully execute its sales and marketing
strategy, create and distribute a version of PC411 FOR WINDOWS for other
operating systems, develop relationships with third parties for purposes of
general distribution and specific industry penetration and upgrade its
technologies and services. There can be no assurance that the Company will be
successful in addressing such risks.
The limited operating history of the Company makes the prediction of future
results of operations difficult or impossible. The Company believes that period
to period comparisons of its operating results for any period should not be
relied upon as an indication of future performance. The Company currently
expects to significantly increase its operating expenses as it builds its sales
and marketing staff, increases product development spending, and invests in
infrastructure. As a result, the Company expects to continue to incur
significant losses on a quarterly and annual basis for the foreseeable future.
In addition, the Company does not have historical financial data for any
significant period of time on which to base planned operating expenses. The
Company's expense levels are based in part on its expectations concerning future
revenue and to a large extent are fixed. Quarterly revenues and operating
results depend substantially upon signing up new customers and retaining such
customers which are difficult to forecast accurately. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenue in relation to the Company's
expectations would have an immediate adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company
currently expects to increase significantly its operating expenses as it builds
its sales and marketing staff, increases product
10
<PAGE> 11
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
development spending, and invests in infrastructure. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, results of operations and financial condition will be
materially and adversely affected.
The Company licenses its database and pays a percentage of revenues earned from
the display of the listing data, with minimum quarterly payments. The Company
typically charges its customers a registration fee and then on a per use basis,
or an annual subscription fee. The Company has entered into distribution
agreements with three computer equipment manufacturers and one modem
manufacturer, pursuant to which PC411 FOR WINDOWS will be installed on a
computer's hard drive or a copy of PC411 FOR WINDOWS will be included with the
purchase of a modem. The Company pays a distribution fee to the three computer
equipment manufacturers and one modem manufacturer for the distribution of PC411
FOR WINDOWS either based upon the number of new customers that sign up for the
PC411 service or the revenues that such new customers generate. Although the
Company has experienced revenue growth in recent months due to these bundling
agreements, there can be no assurance that revenues of the Company will continue
to increase, that revenues will continue at their current level, that the
Company will be able to maintain these arrangements, or that the Company will
enter into additional bundling agreements with other third parties. The Company
has recently been notified by Sony that as of June 1997 it will no longer
include in its new releases products, such as PC411 FOR WINDOWS, which require
users to pay for services. Sony accounted for less than 10% of the Company's
customers during the six months ended June 30, 1997.
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's control.
These factors include the level of usage of the Internet, demand for Internet
advertising, the continued growth of private intranets, the amount and timing of
capital expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new products or services by the Company or its
competitors, pricing changes in the industry, technical difficulties with
respect to the use of the PC411 service, general economic conditions and
economic conditions specific to on-line services and the Internet. As a
strategic response to changes in the competitive environment, the Company may
from time to time make certain pricing, service or marketing decisions that
could have a material adverse effect on the Company's business, results of
operations and financial condition.
INITIAL PUBLIC OFFERING
On May 21, 1997, the Company completed an initial public offering ("IPO") of
1,322,500 units (including 172,500 units from the exercise of the Underwriter's
over allotment option), each unit consisting of one share of Common Stock and
one Redeemable Class A Warrant to purchase a share of Common Stock. The units
were sold for $5.75 each and the Company received, after expenses of the IPO,
approximately $6.1 million in net proceeds. Immediately prior to the IPO, the
then outstanding 12,866 shares of Common Stock were converted into 2,222,390
shares of Common Stock pursuant to a 172.7336-for-1 stock split. Certain
stockholders contributed 632,390 shares to the Company resulting in 1,590,000
shares outstanding. In addition, the Company issued an additional 60,000 shares
to its legal counsel in connection with services rendered for the IPO. As a
result of the foregoing, at May 23, 1997 the Company had 2,972,500 shares
outstanding.
11
<PAGE> 12
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
REVENUES. The Company's revenues have been derived from registration fees and
usage charges for the modem dial-up PC411 service. Revenues are recognized over
the period in which the related services are to be provided. Revenues for the
three months and six months ended June 30, 1997 were $50,491 and $92,041,
respectively, compared to $8,197 and $19,753 for the same periods in the prior
year. The increase in revenues were due primarily to the bundling arrangements
with IBM and U.S. Robotics.
COST OF REVENUES. Cost of revenues consists primarily of the cost of data and
the distribution fees paid to IBM and U.S. Robotics. The Company's contract for
the listing data provides for a specified percentage of revenues that the
Company generates from the distributing the data, with minimum quarterly
payments. To date, the Company has been only required to pay the minimum
quarterly payments. Cost of revenues for the three months and six months ended
June 30, 1997 were $40,865 and $71,524, respectively, as compared to $14,268 and
$27,510 for the same periods in the prior year. The increase is due primarily to
the increase in revenues which increases the distribution fees related to the
bundling arrangements with IBM and U.S. Robotics.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
employee compensation associated with the design, programming, and testing of
the PC411 service. Research and development expenses for the three months and
six months ended June 30, 1997 were $16,796 and $24,639, respectively, as
compared to $74,366 and $150,525 for the same periods in the prior year. The
decrease in research and development was primarily attributable to a decrease in
the number of programmer hours as a result of the completion of the initial
version of the Company's software program. Research and development will
increase over the next six months as the Windows 95 compatible version of the
software is completed.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of
public relations, print advertising, and trade shows. Sales and marketing
expenses for the three months and six months ended June 30, 1997 were $50,321
and $66,176, respectively, as compared to $5,870 and $19,305 for the same
periods in the prior year. The increase in sales and marketing expenses is due
to the Company's effort to obtain additional bundling arrangements.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
primarily of expenses for administration, office operations, and general
management activities, including legal, accounting, and other professional fees.
General and administrative expenses were $156,788 and $286,646 for the three
months and six months ended June 30, 1997, respectively, as compared to $87,411
and $212,992 for the same periods in the prior year. The increase in general and
administrative expenses is due to an increase in payroll and costs associated
with a public company.
12
<PAGE> 13
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
OTHER INCOME (EXPENSE). Interest expense was $36,256 and $94,002 for the three
months and six months ended June 30, 1997. The interest expense was attributed
entirely to the loan from New Valley Corporation ("NVC"), an indirect majority
owner of the Company. Included in interest expense was $70,000 in imputed
interest attributable to stock options granted to Direct Assist Holding Inc.
("DAH"), a wholly-owned subsidiary of NVC, on January 29, 1997. Interest income
for the three months and six months ended June 30, 1997 was $35,473 which
related to interest on the funds received on May 22, 1997 for the initial public
offering.
INCOME TAXES; NET OPERATING LOSS. The Company had no income and therefore made
no provision for federal or state income taxes other than the required
California state minimum tax of $800. At June 30, 1997, the Company had
approximately $1,600,000 of federal net operating loss carryforwards for tax
reporting purposes available to offset future taxable income, if any. The
amounts of and the benefits from net operating loss carryforwards are subject to
certain limitations and these net operating loss carryforwards expire in 2010.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has financed its operations primarily through
the sale of common stock, the private placement of Preferred Stock, and secured
short-term borrowings from NVC. The Company has not been able to generate
sufficient cash from operations and, as a consequence, additional financing has
been required to fund ongoing operations. Cash used in operations for the six
months ended June 30, 1997 and 1996 was $11,086 and $355,628, respectively. The
decrease in the cash used in operations in 1997 as compared to 1996 was due
primarily to the increase in accrued expenses of $126,708 and the decrease in
prepaid expenses of $149,870 which were primarily related to IPO costs.
Capital expenditures for the six months ended June 30, 1997 were $5,978 as
compared to $7,569 for the six months ended June 30, 1996. These expenditures
were primarily for computer equipment.
Cash provided by financing activities for the six months ended June 30, 1997 was
$5,635,982, of which $5,885,000 related to proceeds from the initial public
offering. On May 22, 1997, the Company issued to NVC warrants in satisfaction of
$250,000 of indebtedness under the NVC loan agreement and net proceeds from the
IPO were used to repay NVC the then remaining outstanding balance of the loan
and accrued interest of $447,064. Financing for the cash used in operations for
the six months ended June 30, 1996 was provided through the sale of 1,820 shares
of Preferred Stock to DAH for $1,001,000 on May 28, 1995 and through the NVC
loan agreement. On January 29, 1997, the Company converted the 1,820 shares of
Preferred Stock into 8,626 shares of Common Stock (1,490,000 shares after stock
split) and paid the cumulative dividends thereon of $171,953 on May 22, 1997 out
of net proceeds from the IPO.
13
<PAGE> 14
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
As noted above, the Company completed the sale of 1,322,500 units at a price of
$5.75 per unit and received net proceeds after IPO expenses of approximately
$5.9 million. After the repayment of the NVC loan, cumulative Preferred Stock
dividends, and an $80,000 consulting fee to the Underwriter of the IPO, the
Company had approximately $5.4 million to use to complete the introduction of
the PC411 service over the Internet, to expand marketing, sales and advertising,
to develop or acquire new services or databases, and for general corporate
purposes.
The Company expects that its cash used in operating activities will increase in
the future. The timing of the Company's future capital requirements, however,
cannot be accurately predicted. The Company's capital requirements depend upon
numerous factors, principally the acceptance and use of the PC411 services and
the Company's ability to generate advertising revenue. If capital requirements
vary materially from those currently planned, the Company may require additional
financing, including, but not limited to the sale of equity or debt securities.
The Company has no commitments for any additional financing, and there can be no
assurance that any such commitments can be obtained. Any additional equity
financing may be dilutive to the Company's existing stockholders, and debt
financing, if available, may involve pledging some or all of the Company's
assets and may contain restrictive covenants with respect to raising future
capital and other financial and operational matters.
The Company believes that the net proceeds from the IPO will be sufficient to
meet the Company's operations and capital requirements for the next 12 months,
although there can be no assurance in this regard. Although there can be no
assurance, management believes that the Company will be able to continue as a
going concern for the next 12 months.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company and its representatives may from time to time make oral or written
"forward-looking statements" within the meaning of the Private Securities Reform
Act of 1995 (the "Reform Act"), including any statements that may be contained
in the foregoing "Management's Discussion and Analysis of Financial Condition
and Results of Operations", in this report and in other filings with the
Securities and Exchange Commission and in its reports to stockholders, which
represent the Company's expectations or beliefs with respect to future events
and financial performance. These forward-looking statements are subject to
certain risks and uncertainties and, in connection with the "safe-harbor"
provisions of the Reform Act, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by or on behalf of the Company.
14
<PAGE> 15
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
The Company's plans and objectives are based, in part, on assumptions involving
the continued growth and expansion of the Internet, the Company's ability to
market successfully the PC411 service and related services to the SOHO (small
office/home office) market and to private intranets as a more convenient and
reliable alternative to current comparable and widely used services and that
there will be no unanticipated material adverse change in the Company's
business. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Results actually achieved may differ materially from expected results included
in these statements as a result of these or other factors particularly in light
of the Company's early stage operations. Due to such uncertainties and risks,
readers are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date on which such statements are made.
The Company does not undertake to update any forward-looking statement that may
be made from time to time on behalf of the Company.
15
<PAGE> 16
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
Effective as of July 31, 1997, the Company's Common Stock (symbol:
PCFR), Redeemable Class A Warrants (symbol: PCFRW), and Units (symbol:
PCFRU) began trading on the Nasdaq SmallCap Market. Such securities had
previously traded on the OTC Bulletin Board.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Employment Agreement dated May 14, 1997 between the
Company and Dean R. Eaker.
10.2 Employment Agreement dated May 14, 1997 between the
Company and Edward A. Fleiss.
27. Financial Data Schedule (for SEC use only)
(b) REPORTS ON FORM 8-K
None
16
<PAGE> 17
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PC411, INC.
(Registrant)
Date: August 13, 1997 By: /s/ ROBERT M. LUNDGREN
----------------------------
Robert M. Lundgren
Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
17
<PAGE> 1
Exhibit 10.1
Employment Agreement dated as of
May 14, 1997 by and between PC411, Inc.
(the "Company") and Dean Eaker (the "Employee")
-----------------------------------------------
The Company and the Employee agree to the Employee's employment by the
Company on the following terms:
1. EMPLOYMENT: TERM.
The Company will employ the Employee, and the Employee will work for
the Company, as its President and Chief Executive Officer ("CEO"), for a term
commencing on May 14, 1997 and, unless sooner terminated in accordance with the
provisions of Section 11, terminating on June 30, 1998 (the "Initial Term"). The
Initial Term shall be extended for successive one-year periods (the "Additional
Terms") unless terminated at the end of the Initial Term or any Additional Term
by either party upon ninety (90) days' prior written notice given to the other
party (the Initial Term and any Additional Terms shall be referred to as the
"Employment Period").
2. DUTIES.
During the Employment Period, the Employee shall serve as the President
and CEO of the Company and perform such duties as shall, from time to time, be
reasonably delegated or assigned to the Employee by the Board of Directors of
the Company consistent with his position. Thus, the Employee shall: (i) expend
substantially all of his working time for the Company; (ii) devote his best
efforts, energy and skill to the services of the Company and the promotion of
its interests; and (iii) not take part in activities known by Employee to be
detrimental to the best interests of the Company and/or any affiliate thereof.
During the Employment Period, the Employee shall be permitted to operate his
affiliate, Electronic Pictures Corp., provided that the operation thereof will
not: (i) violate any law or any provision hereof; (ii) limit the Company's or
its affiliate's activities; (iii) create any conflict between the Employees
fiduciary obligations to the Company and its affiliates; or (iv) materially
interfere with the performance of the Employee's duties hereunder. The
Employee's duties and job location will be carried out from offices in
Connecticut or New York.
3. COMPENSATION.
3.1 In consideration for the services to be performed by the Employee
for the Company during the Employment Period, the Company shall compensate
Employee at an initial annual base salary of $180,000 ("Base Salary"), payable
in accordance with the Company's standard payroll practices. The amount of the
Base Salary shall be subject to review at the end of each calendar year and may
be increased (any such
<PAGE> 2
increase effective as of the following January 1), but not decreased, at the
Company's sole discretion.
3.2 During the Employment Period, Employee shall also be entitled to an
incentive bonus based on each calendar year or portion thereof in an amount
equal to a percentage of Base Salary earned and paid during such calendar year,
and calculated in accordance with performance goals, to be determined annually
by the Employee and the Board of Directors. The percentage of Base Salary and
the performance goals for the first calendar year of the Employment Period shall
be determined as soon as practicable following commencement of this Agreement,
provided, the parties hereto shall exert their best efforts to make such
determination by September 30, 1997.
4. BENEFITS AND REIMBURSEMENT OF EXPENSES.
4.1 Employee shall receive all benefits and fringes, if any, made
available to other employees and officers of the Company to the full extent of
Employee's eligibility, including medical, dental, life insurance and disability
insurance benefits and pension and other similar plans, provided that the
Employee shall be provided with life insurance at least equal to $500,000
(provided he is insurable at standard rates).
4.2 The Company shall pay directly, or reimburse the Employee for, all
reasonable and necessary expenses and disbursements incurred by him for and on
behalf of the Company in the performance of his duties under this Agreement. For
such purposes, the Employee shall submit to the Company itemized reports of such
expenses in accordance with the Company's policies. Employee shall be entitled
to a monthly automobile allowance of $550 per month.
4.3 Employee shall be entitled to paid vacations during the Employment
Period in accordance with the Company's then applicable policy for executive
employees, provided that the Employee shall not be entitled to less than four
(4) weeks paid vacation in each full contract year.
5. INVENTIONS AND PATENTS.
5.1 The Employee will promptly and fully disclose to the Company, or
any of its designees, any and all improvements, designs, ideas, works of
authorship, copyrightable works, discoveries, trademarks, copyrights, trade
secrets, formulae, processes, techniques, know-how, and data, whether or not
patentable, made or conceived or reduced to practice or learned by Employee,
either alone or jointly with others, during the period of Employee's employment
(whether or not during normal working hours) that are related to or useful in
the actual or anticipated business of the Company or any of its subsidiaries, or
result from tasks assigned Employee by the Company or its subsidiaries, or
result from use of premises or equipment owned, leased, or contracted for by the
Company or its subsidiaries (all said improvements,
2
<PAGE> 3
inventions, designs, ideas, works of authorship, copyrightable works,
discoveries, trademarks, copyrights, trade secrets, formulae, processes,
techniques, know-how, data, patent applications, continuation applications,
continuation-in-part applications, file wrapper continuation applications and
divisional applications shall be collectively hereinafter called "Inventions").
All such Inventions shall be the sole property of the Company, its successors,
assigns and nominees, and Employee hereby assigns to the Company, without
further compensation, all rights, title and interest in and to such Inventions
and any and all related patents, patent applications, copyrights, copyright
applications, trademarks and trade names in the United States and elsewhere.
5.2 The Employee hereby assigns to the Company, without further
compensation, all of his interest as of the date hereof in the proposed joint
venture known as "American Web Station" (formerly known as "Time and Space
Inc.") between the Employee (and/or an affiliate thereof) and Hawthorne
Communications, Inc.
5.3 Except as listed on Annex A attached to this Agreement, Employee
will not assert any rights to any Inventions as having been made or acquired by
Employee prior to being employed by the Company, or since then, and not
otherwise covered by the terms of this Agreement. Employee shall not be
obligated to assign any Invention that may be wholly conceived by him after
Employee leaves the employ of the Company, except that Employee is so obligated
if such Invention shall involve the utilization of confidential information or
Proprietary Information (as defined herein) obtained while in the employ of the
Company. Employee shall not be obligated to assign any Invention that relates to
or would be useful in any business or activities in which the Company or any
subsidiary thereof is engaged if such Invention was conceived and reduced to
practice by Employee prior to his employment with the Company, provided that all
such Inventions are listed on the attached Annex A.
5.4 The Employee will keep and maintain adequate and current written
records of all Inventions (in the form of notes, sketches, drawings and as may
be specified by the Company), which records shall be available to and remain the
sole property of the Company at all times.
5.5 The Employee will assist the Company in obtaining and enforcing
patents, copyrights and other forms of legal protection of such Inventions in
any country. Upon request, the Employee will execute all applications,
assignments, instruments and papers and perform all acts necessary or desired by
the Company to assign all such Inventions fully and completely to the Company
and to enable the Company, its successors, assigns and nominees, to secure and
enjoy the full and exclusive benefits and advantages thereof. If the Company is
unable, after reasonable effort, to secure Employee's signature on any patent,
copyright or other analogous protection relating to an Invention, whether
because of Employee's physical or mental incapacity or for any other reason
whatsoever, Employee hereby irrevocably designates
3
<PAGE> 4
and appoints the Company and its duly authorized officers and agents as his
agent and attorney-in-fact, to act for and in his behalf and stead to execute
and file any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of letters patent,
copyright or other analogous protection thereon with the same legal force and
effect as if executed by Employee.
5.6 Employee acknowledges that all original works of authorship which
are made by him (solely or jointly with others) within the scope of his
employment and which are protectable by copyright are being created at the
instance of the Company and are "works made for hire," as that term is defined
in the United States Copyright Act (17 USCA, Section 101). If such laws are
inapplicable or in the event that such works, or any part thereof, are
determined by a court of competent jurisdiction not to be a work made for hire
under the United States copyright laws, this Agreement shall operate as an
irrevocable and unconditional assignment by Employee to the Company of all of
his right, title and interest (including, without limitation all rights in and
to the copyrights throughout the world, including the right to prepare
derivative works and the right to all renewals and extensions) in the works in
perpetuity.
5.7 The Employee understands that certain obligations under this
Section 5 will continue after the termination of his employment with the Company
and that during the Employment Period Employee will perform his obligations
under this Section 5 without further payment of any kind, except for
reimbursement of expenses incurred at the request of the Company. The Employee
further understands that if he is not employed by the Company as an employee at
the time he is requested to perform any obligations under this Section 5, he
shall receive for such performance a reasonable per diem fee, as well as
reimbursement of any expenses incurred at the request of the Company.
6. PROPRIETARY INFORMATION.
6.1 The Employee recognizes that his relationship with the Company is
one of high trust and confidence by reason of his access to and contact with the
trade secrets and confidential and proprietary information of the Company and
any subsidiaries of the Company. Except as may be otherwise required by law, the
Employee will not at any time, either during his employment with the Company or
thereafter, disclose to others, or use for his own benefit or the benefit of
others, any Inventions or any confidential, proprietary or secret information
owned, possessed or used by the Company and any subsidiaries of the Company
(collectively, "Proprietary Information"). By way of illustration, but not
limitation, Proprietary Information includes trade secrets, processes, data,
know-how, marketing plans, forecasts, unpublished financial statements, budgets,
licenses, prices, costs and employee, customer and supplier lists.
4
<PAGE> 5
6.2 The Employee's undertakings and obligations under this Section 6
will not apply, however, to any Proprietary Information which: (i) is or becomes
in the public domain through no action on his part, (ii) is generally disclosed
to unrelated third parties, or (iii) is approved for release by written
authorization of the Board of Directors of the Company or its designees.
6.3 Upon termination of employment with the Company or at any other
time upon request, the Employee will promptly deliver to the Company at its
expense all notes, memoranda, notebooks, drawings, records, reports, files and
other documents (and all copies or reproductions of such materials) in his
possession or under his control, whether prepared by him or others, which
contain Proprietary Information. The Employee acknowledges that this material is
the sole property of the Company.
7. ABSENCE OF RESTRICTIONS UPON DISCLOSURE AND COMPETITION.
7.1 The Employee represents that, except as has been disclosed in
writing to the Company, he is not bound by the terms of any agreement with any
previous employers or other party to refrain from using or disclosing any trade
secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from such competing, directly or
indirectly, with the business of such previous employer or any other party.
7.2 The Employee further represents that his performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by him in confidence or in trust prior to his employment with the
Company, and will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
8. COVENANT NOT TO COMPETE.
(a) Unless otherwise approved by the Board of Directors in writing,
during the period specified in subsection (b) below, the Employee shall not
directly engage (whether for compensation or without compensation) in any
business activity, other than Electronic Pictures Corporation as provided in
Section 2 hereof, either as an individual proprietor, partner, stockholder,
officer, employee, director, consultant or in any other capacity whatsoever
(otherwise than as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly held company), which competes with any business
conducted by the Company or any of its subsidiaries at any time during the
period of his employment with the Company.
(b) The restrictions specified in subsection (a) above shall be
applicable during the period Employee is employed by the Company and for a
period of one year thereafter.
5
<PAGE> 6
(c) The restrictions set forth in this Section 8 are considered by the
parties to be reasonable for the purposes of protecting the business of the
Company. However, if any such restriction is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area,
it shall be interpreted to extend only over the maximum period of time, range of
activities or geographic areas as to which it may be enforceable.
(d) It shall not be considered a competitive activity within the
meaning of subsection (a) above for the Employee to be a member of the faculty
or staff of a university, college or other educational institution, and to
undertake all activities which are normally associated with such positions.
9. COVENANT NOT TO SOLICIT EMPLOYEES.
Unless otherwise approved by the Board of Directors in writing, the
Employee shall not at any time, during or for a period of one year after his
employment by the Company, recruit or otherwise solicit or induce any employee
of the Company or any of its subsidiaries to terminate their employment with, or
otherwise cease their relationships with, the Company or any of its
subsidiaries.
10. INJUNCTIVE RELIEF.
Employee acknowledges and agrees that, in the event he shall violate
any provisions of Sections 6 through 9, the Company will be without an adequate
remedy at law and, accordingly, will be entitled to enforce such restrictions by
temporary or permanent injunctive or mandatory relief obtained in any action or
proceeding instituted in any court of competent jurisdiction without the
necessity of proving damages and without prejudice to any other remedies which
it may have at law or in equity.
11. TERMINATION.
11.1 Employee's employment shall automatically be terminated upon the
death of the Employee or Employee's voluntarily leaving the employ of the
Company and, in addition, Employee's employment may be terminated, at the sole
discretion of the Company, and without recourse by the Employee, upon the
occurrence of either of the following events:
(a) in the event of the Employee's disability as set forth in
Section 11.2 below, but only upon fourteen (14) days' prior written
notice from the Company to the Employee;
6
<PAGE> 7
(b) in the event that the Board of Directors determines in
writing that there is cause for immediate termination, which shall mean
that the Board of Directors determines either (i) Employee has failed
to perform material duties as an employee and officer of the Company
following receipt of a written notice from the Board of Directors,
which identifies the manner in which the Employee has failed to perform
duties; (ii) Employee has failed to follow any reasonable policies or
directives of the Board of Directors after having received written
notice from the Board of Directors that the Employee is not following
such policies or directions, and Employee fails to cure such failure
within 10 business days of such notice; (iii) Employee has engaged in
willful, malicious or bad faith conduct materially detrimental to the
Company; (iv) Employee has been convicted of any felony; or (v)
Employee has materially breached this Agreement.
11.2 Employee shall be deemed disabled if, in the reasonable opinion of
the Board of Directors of the Company, as confirmed by competent medical advice,
he shall become physically or mentally unable to perform his duties for the
Company and such incapacity shall have continued for any period of ninety (90)
consecutive days.
11.3 In the event the Company terminates the Employee's employment for
any reason other than in accordance with Section 11.1 or in the event of
non-renewal of the Employment Period by the Company pursuant to Section 1, then
the Company shall pay to the Employee all amounts earned by the Employee
pursuant to Section 3 together with any reimbursable amount pursuant to Section
4, plus, provided he signs a release of all claims arising out of his employment
with the Company or termination thereof (other than his right to
indemnification, which shall survive) in such form as reasonably requested by
the Company, severance pay equal to the amount of Base Salary he would have
received if he was employed for six months after termination of the Employment
Period. Such severance shall be paid in six (6) equal monthly installments,
subject to any required withholding, beginning on the first day of the month
immediately following the Employee's execution of the aforesaid release,
provided, however, that on such date the Employee is in compliance with and
thereafter he continues to comply with any and all material provisions that
survive the termination of this Agreement. The Company and its affiliated
entities shall have no other obligations to the Employee.
(a) For purposes of this Section 11.3, in the event the
Employee shall resign from his employment with the Company subsequent
to any materially adverse change in his title, nature of duties, powers
or responsibilities or employee benefits or a relocation of his primary
place of employment from New York or Connecticut or other material
breach of this Agreement by the Company, such resignation shall be
deemed to be a termination of employment by the Company other than in
accordance with Section 11.1.
7
<PAGE> 8
(b) The Employee shall be under no obligation to mitigate the
amount of any payment provided for under this Section 11.3 by seeking
other employment or otherwise nor shall such amount be offset by any
compensation which the Employee may receive from future employment or
otherwise.
12. SERVICE AS DIRECTOR.
During the Employment Period, the Employee shall, if elected or
appointed, serve as a Director of the Company and/or any affiliate of the
Company without receipt of any additional compensation therefor unless otherwise
provided by the Board of Directors.
13. STOCK OPTIONS.
On or before the date of this Agreement, the Company shall have granted
to Employee options under the PC411, Inc. 1997 Stock Option Plan (the "1997
Plan") to purchase 364,000 shares of the Company's common stock at $4.40 per
share (the "Options"). The Options are intended to constitute Incentive Stock
Options (as defined in the 1997 Plan) only to the extent the aggregate Fair
Market Value (as defined in the 1997 Plan), as of the date of grant, of the
shares of Common Stock with respect to which such options are exercisable for
the first time during any calendar year does not exceed $100,000 or such other
amount as specified in Section 422 of the Internal Revenue Code of 1986, as
amended. All other Options will be Nonqualified Stock Options (as defined in the
1997 Plan). Subject to the terms and conditions of the 1997 Plan, one third of
such options are exercisable upon the consummation of the Company's initial
public offering (the "IPO") and one third thereof are exercisable on each of the
first and second anniversaries of the IPO, provided the Employee is employed by
the Company on such dates. Employee may exercise the Options through a cashless
exercise method. As soon as it is practicable, the Company shall use its best
efforts to file and keep in effect a Registration Statement on Form S-8, Form
S-3 or other applicable form to register under the Securities Act of 1933, as
amended, the shares of Common Stock issuable to the Employee upon exercise of
the Options and the resale thereof by him. In the event New Valley Corporation
disposes of any of its shares in the Company, the Company will use its best
efforts to take all necessary actions to permit Employee, if he so elects, to
dispose of a proportionate percentage of his shares in the Company (or shares he
could acquire upon the exercise of his vested options) on the same terms and
conditions of those that apply to New Valley Corporation.
14. ASSIGNMENT.
This Agreement, as it relates to the employment of the Employee, is a
personal contract and the rights and interests of the Employee hereunder may not
be sold,
8
<PAGE> 9
transferred, assigned, pledged or hypothecated. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns,
including without limitation, any corporation or other entity into which the
Company is merged, irrespective of whether or not the Company is the surviving
entity of such merger, or which acquires all of the outstanding shares of the
Company's capital stock, or all of substantially all of the assets of the
Company, provided, however, any such assignment shall be valid only so long as
Company or its successor is not relieved of any obligation hereunder and so long
as the assignee assumes the Company's obligations hereunder. To the extent
permitted by law, the Employee shall not have any power of anticipation,
alienation or assignment of payments contemplated hereunder, and all rights and
benefits of the Employee shall be for the sole personal benefit of the Employee,
and no other person shall acquire any right, title or interest hereunder by
reason of any sale, assignment, transfer, claim or judgment or bankruptcy
proceedings against the Employee.
15. NOTICES.
Any notice required or permitted to be given pursuant to this Agreement
shall be deemed given three (3) business days after such notice is mailed by
certified mail, return receipt requested, addressed as follows: (i) if to
Employee, at 67 Stonehedge Drive South, Greenwich, CT 06831; and (ii) if to the
Company, at PC411, Inc., 100 S.E. Second Street, 32nd Floor, Miami, Florida
33131, Attention: Chief Financial Officer, or at such other address as either
party shall designate by written notice to the other party.
16. GOVERNING LAW.
This Agreement shall be governed by and enforced in accordance with the
laws of the State of New York. Any dispute or controversy with respect to this
Agreement, other than injunctive relief under Section 10, shall be submitted to
arbitration, in New York City, with the American Arbitration Association. The
decision of the arbitrators shall be final and binding upon the parties hereto
and may be entered in any court having jurisdiction. The prevailing party in
such arbitration proceeding shall be entitled to full reimbursement of the fees,
costs and expenses incurred therein.
17. WAIVER.
The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and not in any way affect or render invalid or unenforceable any other
provisions of this Agreement, and this Agreement shall be carried out as if such
invalid or unenforceable provision were not part of this Agreement.
9
<PAGE> 10
18. INDEMNIFICATION.
The Employee shall be entitled to be indemnified by the Company for his
actions as an officer, director, employee, agent or fiduciary of the Company or
its affiliated entities to the fullest extent permitted by applicable law and
shall have legal fees and other expenses paid to him in advance of final
disposition of a proceeding provided he executes an undertaking to repay such
amounts if, and to the extent, required to do so by applicable law. The Company
shall cover the Employee under any directors and officers liability insurance
policy to the same extent as its other senior officers.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties
with respect to the Employee's employment by the Company and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether written or oral, of the parties hereto
relating to the transactions contemplated by this Agreement.
20. LOCK-UP AGREEMENT(S).
With respect to any future sale of securities of the Company, the
Employee will execute such lock-up agreement(s) as may be required by an
underwriter, the NASD, the Securities and Exchange Commission and any state
"blue sky" regulators provided, however, that the terms and conditions of such
lock-up agreement(s) must be substantially the same in all material respects
with any lock-up agreement(s) signed by other officers, directors, and
stockholders of the Company.
Executed as an Agreement as of May 14, 1997.
PC411, INC.
/s/ DEAN R. EAKER /s/ ROBERT M. LUNDGREN
- --------------------------- ---------------------------------
Dean R. Eaker Robert M. Lundgren
Vice President and
Chief Financial Officer
10
<PAGE> 11
ANNEX A
Employment Agreement dated as of
May 14, 1997 by and between PC411, Inc.
(the "Company") and Dean Eaker (the "Employee")
-----------------------------------------------
The Employee represents that he has indicated on this Annex all
Inventions (as defined in the Agreement) in which he owned any right or interest
prior to his employment with the Company. The Employee agrees that any present
or future Inventions not listed in this Annex are subject to assignment under
the Agreement.
Brief Description Right, Title or Interest
of Inventions and Date Acquired
----------------- ------------------------
Employee hereby represents that the following relationships of
Electronic Pictures Corp. as well as his activities relating thereto will not
interfere nor otherwise pose a conflict with any of his ongoing duties,
obligations or responsibilities at the Company:
- Developing Strategic Alliances for Immersion Corporation (a
small technology company that has a 3D digitizing product
called Microscribe-3D).
- Developing Strategic Alliances for Digits N' Arts (a small
Canadian 3D software company).
- Consulting and/or representing many digital artists and
generally promoting and evangelizing Digital Art as a mass
medium art form.
11
<PAGE> 1
Exhibit 10.2
Employment Agreement dated as of
May 14, 1997 by and between PC411, Inc.
(the "Company") and Edward A. Fleiss (the "Employee")
-----------------------------------------------------
The Company and the Employee agree to the Employee's employment by the
Company on the following terms:
1. EMPLOYMENT: TERM.
The Company will employ the Employee, and the Employee will work for
the Company, as its Vice President and Chief Technology Officer ("CTO"), for a
term commencing on May 14, 1997 and, unless sooner terminated in accordance with
the provisions of Section 11, terminating on June 30, 1998 (the "Initial Term").
The Initial Term shall be extended for successive one-year periods (the
"Additional Terms") unless terminated at the end of the Initial Term or any
Additional Term by either party upon ninety (90) days' prior written notice
given to the other party (the Initial Term and any Additional Terms shall be
referred to as the "Employment Period").
2. DUTIES.
During the Employment Period, the Employee shall serve as the Vice
President and CTO of the Company and perform such duties as shall, from time to
time, be reasonably delegated or assigned to the Employee by the Board of
Directors of the Company consistent with his position. Thus, the Employee shall:
(i) expend substantially all of his working time for the Company; (ii) devote
his best efforts, energy and skill to the services of the Company and the
promotion of its interests; and (iii) not take part in activities known by
Employee to be detrimental to the best interests of the Company and/or any
affiliate thereof. The Employee's duties and job location will be carried out
from offices in Connecticut or New York.
3. COMPENSATION.
3.1 In consideration for the services to be performed by the Employee
for the Company during the Employment Period, the Company shall compensate
Employee at an initial annual base salary of $96,000 ("Base Salary"), payable in
accordance with the Company's standard payroll practices. The amount of the Base
Salary shall be subject to review at the end of each calendar year and may be
increased (any such increase effective as of the following January 1), but not
decreased, at the Company's sole discretion.
3.2 During the Employment Period, Employee shall also be entitled to an
annual incentive bonus based on each calendar year or portion thereof in an
amount equal to a percentage of Base Salary earned and paid during such calendar
year, and
<PAGE> 2
calculated in accordance with performance goals, to be determined annually by
the Employee and the Board of Directors. The percentage of Base Salary and the
performance goals for the first calendar year of the Employment Period shall be
determined as soon as practicable following commencement of this Agreement,
provided, the parties hereto shall exert their best efforts to make such
determination by September 30, 1997.
4. BENEFITS AND REIMBURSEMENT OF EXPENSES.
4.1 Employee shall receive all benefits and fringes, if any, made
available to other employees and officers of the Company to the full extent of
Employee's eligibility, including medical, dental, life insurance and disability
insurance benefits and pension and other similar plans, provided that the
Employee shall be provided with life insurance at least equal to $500,000
(provided he is insurable at standard rates).
4.2 The Company shall pay directly, or reimburse the Employee for, all
reasonable and necessary expenses and disbursements incurred by him for and on
behalf of the Company in the performance of his duties under this Agreement. For
such purposes, the Employee shall submit to the Company itemized reports of such
expenses in accordance with the Company's policies.
4.3 Employee shall be entitled to paid vacations during the Employment
Period in accordance with the Company's then applicable policy for executive
employees, provided that the Employee shall not be entitled to less than four
(4) weeks paid vacation in each full contract year.
5. INVENTIONS AND PATENTS.
5.1 The services the Employee will perform in the course of employment
may include the invention of new programs, methods, processes, apparatus and
products and the development and improvement of existing programs, methods,
processes, apparatus, reports, drawings, memoranda, specimens, models, letters,
notebooks, software, firmware, program listings and documentation which will or
may be related to or used in the business of the Company and any subsidiary
thereof. The Employee will promptly and fully disclose to the Company, or any of
its designees, any and all improvements, designs, ideas, works of authorship,
copyrightable works, discoveries, trademarks, copyrights, trade secrets,
formulae, processes, techniques, know-how, and data, whether or not patentable,
made or conceived or reduced to practice or learned by Employee, either alone or
jointly with others, during the period of Employee's employment (whether or not
during normal working hours) that are related to or useful in the actual or
anticipated business of the Company or any of its subsidiaries, or result from
tasks assigned Employee by the Company or its subsidiaries, or result from use
of premises or equipment owned, leased, or contracted for by the Company or its
subsidiaries (all said improvements, inventions, designs,
2
<PAGE> 3
ideas, works of authorship, copyrightable works, discoveries, trademarks,
copyrights, trade secrets, formulae, processes, techniques, know-how, data,
patent applications, continuation applications, continuation-in-part
applications, file wrapper continuation applications and divisional applications
shall be collectively hereinafter called "Inventions"). All such Inventions
shall be the sole property of the Company, its successors, assigns and nominees,
and Employee hereby assigns to the Company, without further compensation, all
rights, title and interest in and to such Inventions and any and all related
patents, patent applications, copyrights, copyright applications, trademarks and
trade names in the United States and elsewhere.
5.2 Except as listed on Annex A attached to this Agreement, Employee
will not assert any rights to any Inventions as having been made or acquired by
Employee prior to being employed by the Company, or since then, and not
otherwise covered by the terms of this Agreement. Employee shall not be
obligated to assign any Invention that may be wholly conceived by him after
Employee leaves the employ of the Company, except that Employee is so obligated
if such Invention shall involve the utilization of confidential information or
Proprietary Information (as defined herein) obtained while in the employ of the
Company. Employee shall not be obligated to assign any Invention that relates to
or would be useful in any business or activities in which the Company or any
subsidiary thereof is engaged if such Invention was conceived and reduced to
practice by Employee prior to his employment with the Company, provided that all
such Inventions are listed on the attached Annex A.
5.3 The Employee will keep and maintain adequate and current written
records of all Inventions (in the form of notes, sketches, drawings and as may
be specified by the Company), which records shall be available to and remain the
sole property of the Company at all times.
5.4 The Employee will assist the Company in obtaining and enforcing
patents, copyrights and other forms of legal protection of such Inventions in
any country. Upon request, the Employee will execute all applications,
assignments, instruments and papers and perform all acts necessary or desired by
the Company to assign all such Inventions fully and completely to the Company
and to enable the Company, its successors, assigns and nominees, to secure and
enjoy the full and exclusive benefits and advantages thereof. If the Company is
unable, after reasonable effort, to secure Employee's signature on any patent,
copyright or other analogous protection relating to an Invention, whether
because of Employee's physical or mental incapacity or for any other reason
whatsoever, Employee hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as his agent and attorney-in-fact, to
act for and in his behalf and stead to execute and file any such application or
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent, copyright or other analogous
protection thereon with the same legal force and effect as if executed by
Employee.
3
<PAGE> 4
5.5 Employee acknowledges that all original works of authorship which
are made by him (solely or jointly with others) within the scope of his
employment and which are protectable by copyright are being created at the
instance of the Company and are "works made for hire," as that term is defined
in the United States Copyright Act (17 USCA, Section 101). If such laws are
inapplicable or in the event that such works, or any part thereof, are
determined by a court of competent jurisdiction not to be a work made for hire
under the United States copyright laws, this Agreement shall operate as an
irrevocable and unconditional assignment by Employee to the Company of all of
his right, title and interest (including, without limitation all rights in and
to the copyrights throughout the world, including the right to prepare
derivative works and the right to all renewals and extensions) in the works in
perpetuity.
5.6 The Employee understands that certain obligations under this
Section 5 will continue after the termination of his employment with the Company
and that during the Employment Period Employee will perform his obligations
under this Section 5 without further payment of any kind, except for
reimbursement of expenses incurred at the request of the Company. The Employee
further understands that if he is not employed by the Company as an employee at
the time he is requested to perform any obligations under this Section 5, he
shall receive for such performance a reasonable per diem fee, as well as
reimbursement of any expenses incurred at the request of the Company.
6. PROPRIETARY INFORMATION.
6.1 The Employee recognizes that his relationship with the Company is
one of high trust and confidence by reason of his access to and contact with the
trade secrets and confidential and proprietary information of the Company and
any subsidiaries of the Company. Except as may be otherwise required by law, the
Employee will not at any time, either during his employment with the Company or
thereafter, disclose to others, or use for his own benefit or the benefit of
others, any Inventions or any confidential, proprietary or secret information
owned, possessed or used by the Company and any subsidiaries of the Company
(collectively, "Proprietary Information"). By way of illustration, but not
limitation, Proprietary Information includes trade secrets, processes, data,
know-how, marketing plans, forecasts, unpublished financial statements, budgets,
licenses, prices, costs and employee, customer and supplier lists.
6.2 The Employee's undertakings and obligations under this Section 6
will not apply, however, to any Proprietary Information which: (i) is or becomes
in the public domain through no action on his part, (ii) is generally disclosed
to unrelated third parties, or (iii) is approved for release by written
authorization of the Board of Directors of the Company or its designees.
4
<PAGE> 5
6.3 Upon termination of employment with the Company or at any other
time upon request, the Employee will promptly deliver to the Company at its
expense all notes, memoranda, notebooks, drawings, records, reports, files and
other documents (and all copies or reproductions of such materials) in his
possession or under his control, whether prepared by him or others, which
contain Proprietary Information. The Employee acknowledges that this material is
the sole property of the Company.
7. ABSENCE OF RESTRICTIONS UPON DISCLOSURE AND COMPETITION.
7.1 The Employee represents that, except as has been disclosed in
writing to the Company, he is not bound by the terms of any agreement with any
previous employers or other party to refrain from using or disclosing any trade
secret or confidential or proprietary information in the course of his
employment with the Company or to refrain from such competing, directly or
indirectly, with the business of such previous employer or any other party.
7.2 The Employee further represents that his performance of all the
terms of this Agreement and as an employee of the Company does not and will not
breach any agreement to keep in confidence proprietary information, knowledge or
data acquired by him in confidence or in trust prior to his employment with the
Company, and will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
8. COVENANT NOT TO COMPETE.
(a) Unless otherwise approved by the Board of Directors in writing,
during the period specified in subsection (b) below, the Employee shall not
directly engage (whether for compensation or without compensation) in any
business activity, either as an individual proprietor, partner, stockholder,
officer, employee, director, consultant or in any other capacity whatsoever
(otherwise than as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly held company), which competes with any business
conducted by the Company or any of its subsidiaries at any time during the
period of his employment with the Company.
(b) The restrictions specified in subsection (a) above shall be
applicable during the period Employee is employed by the Company and for a
period of one year thereafter.
(c) The restrictions set forth in this Section 8 are considered by the
parties to be reasonable for the purposes of protecting the business of the
Company. However, if any such restriction is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area,
it shall be interpreted to extend only
5
<PAGE> 6
over the maximum period of time, range of activities or geographic areas as to
which it may be enforceable.
(d) It shall not be considered a competitive activity within the
meaning of subsection (a) above for the Employee to be a member of the faculty
or staff of a university, college or other educational institution, and to
undertake all activities which are normally associated with such positions.
9. COVENANT NOT TO SOLICIT EMPLOYEES.
Unless otherwise approved by the Board of Directors in writing, the
Employee shall not at any time, during or for a period of one year after his
employment by the Company, recruit or otherwise solicit or induce any employee
of the Company or any of its subsidiaries to terminate their employment with, or
otherwise cease their relationships with, the Company or any of its
subsidiaries.
10. INJUNCTIVE RELIEF.
Employee acknowledges and agrees that, in the event he shall violate
any provisions of Sections 6 through 9, the Company will be without an adequate
remedy at law and, accordingly, will be entitled to enforce such restrictions by
temporary or permanent injunctive or mandatory relief obtained in any action or
proceeding instituted in any court of competent jurisdiction without the
necessity of proving damages and without prejudice to any other remedies which
it may have at law or in equity.
11. TERMINATION.
11.1 Employee's employment shall automatically be terminated upon the
death of the Employee or Employee's voluntarily leaving the employ of the
Company and, in addition, Employee's employment may be terminated, at the sole
discretion of the Company, and without recourse by the Employee, upon the
occurrence of either of the following events:
(a) in the event of the Employee's disability as set forth in
Section 11.2 below, but only upon fourteen (14) days' prior written
notice from the Company to the Employee;
(b) in the event that the Board of Directors determines in
writing that there is cause for immediate termination, which shall mean
that the Board of Directors determines either (i) Employee has failed
to perform material duties as an employee and officer of the Company
following receipt of a written notice from the Board of Directors,
which identifies the manner in which the Employee has failed to perform
duties; (ii) Employee has failed to follow any
6
<PAGE> 7
reasonable policies or directives of the Board of Directors after
having received written notice from the Board of Directors that the
Employee is not following such policies or directions, and Employee
fails to cure such failure within 10 business days of such notice;
(iii) Employee has engaged in willful, malicious or bad faith conduct
materially detrimental to the Company; (iv) Employee has been convicted
of any felony; or (v) Employee has materially breached this Agreement.
11.2 Employee shall be deemed disabled if, in the reasonable opinion of
the Board of Directors of the Company, as confirmed by competent medical advice,
he shall become physically or mentally unable to perform his duties for the
Company and such incapacity shall have continued for any period of ninety (90)
consecutive days.
11.3 In the event the Company terminates the Employee's employment for
any reason other than in accordance with Section 11.1 or in the event of
non-renewal of the Employment Period by the Company pursuant to Section 1, then
the Company shall pay to the Employee all amounts earned by the Employee
pursuant to Section 3 together with any reimbursable amount pursuant to Section
4, plus, provided he signs a release of all claims arising out of his employment
with the Company or termination thereof (other than his right to
indemnification, which shall survive) in such form as reasonably requested by
the Company, severance pay equal to the amount of Base Salary he would have
received if he was employed for six months after termination of the Employment
Period. Such severance shall be paid in six (6) equal monthly installments,
subject to any required withholding, beginning on the first day of the month
immediately following the Employee's execution of the aforesaid release,
provided, however, that on such date the Employee is in compliance with any and
all material provisions that survive the termination of this Agreement. The
Company and its affiliated entities shall have no other obligations to the
Employee.
(a) For purposes of this Section 11.3, in the event the
Employee shall resign from his employment with the Company subsequent
to any materially adverse change in his title, nature of duties, powers
or responsibilities or employee benefits or a relocation of his primary
place of employment from Connecticut or New York or other material
breach of this Agreement by the Company, such resignation shall be
deemed to be a termination of employment by the Company other than in
accordance with Section 11.1.
(b) The Employee shall be under no obligation to mitigate the
amount of any payment provided for under this Section 11.3 by seeking
other employment or otherwise nor shall such amount be offset by any
compensation which the Employee may receive from future employment or
otherwise.
7
<PAGE> 8
12. SERVICE AS DIRECTOR.
During the Employment Period, the Employee shall, if elected or
appointed, serve as a Director of the Company and/or any affiliate of the
Company without receipt of any additional compensation therefor unless otherwise
provided by the Board of Directors.
13. STOCK OPTIONS.
On or before the date of this Agreement, the Company shall have granted
to Employee options under the PC411, Inc. 1997 Stock Option Plan (the "1997
Plan") to purchase 40,000 shares of the Company's common stock at $4.00 per
share (the "Options"). The Options are intended to constitute Incentive Stock
Options (as defined in the 1997 Plan) only to the extent the aggregate Fair
Market Value (as defined in the 1997 Plan), as of the date of grant, of the
shares of Common Stock with respect to which such options are exercisable for
the first time during any calendar year does not exceed $100,000 or such other
amount as specified in Section 422 of the Internal Revenue Code of 1986, as
amended. All other Options will be Nonqualified Stock Options (as defined in the
1997 Plan). Subject to the terms and conditions of the 1997 Plan, one third of
such options are exercisable upon the consummation of the Company's initial
public offering (the "IPO") and one third thereof are exercisable on each of the
first and second anniversaries of the IPO, provided the Employee is employed by
the Company on such dates. Employee may exercise the Options through a cashless
exercise method. As soon as it is practicable, the Company shall use its best
efforts to file and keep in effect a Registration Statement on Form S-8, Form
S-3 or other applicable form to register under the Securities Act of 1933, as
amended, the shares of Common Stock issuable to the Employee upon exercise of
the Options and the resale thereof by him. In the event New Valley Corporation
disposes of any of its shares in the Company, the Company will use its best
efforts to take all necessary actions to permit Employee, if he so elects, to
dispose of a proportionate percentage of his shares in the Company (or shares he
could acquire upon the exercise of his vested options) on the same terms and
conditions of those that apply to New Valley Corporation.
14. ASSIGNMENT.
This Agreement, as it relates to the employment of the Employee, is a
personal contract and the rights and interests of the Employee hereunder may not
be sold, transferred, assigned, pledged or hypothecated. This Agreement shall
inure to the benefit of and be binding upon the Company and its successors and
assigns, including without limitation, any corporation or other entity into
which the Company is merged, irrespective of whether or not the Company is the
surviving entity of such merger, or which acquires all of the outstanding shares
of the Company's capital stock, or all of
8
<PAGE> 9
substantially all of the assets of the Company, provided, however, any such
assignment shall be valid only so long as the Company or its successor is not
relieved of any obligation hereunder and so long as the assignee assumes the
Company's obligations hereunder. To the extent permitted by law, the Employee
shall not have any power of anticipation, alienation or assignment of payments
contemplated hereunder, and all rights and benefits of the Employee shall be for
the sole personal benefit of the Employee, and no other person shall acquire any
right, title or interest hereunder by reason of any sale, assignment, transfer,
claim or judgment or bankruptcy proceedings against the Employee.
15. NOTICES.
Any notice required or permitted to be given pursuant to this Agreement
shall be deemed given three (3) business days after such notice is mailed by
certified mail, return receipt requested, addressed as follows: (i) if to
Employee, at 75 Hillwood Drive, Huntington Station, NY 11746; and (ii) if to the
Company, at PC411, Inc., 100 S.E. Second Street, 32nd Floor, Miami, Florida
33131, Attention: Chief Financial Officer, or at such other address as either
party shall designate by written notice to the other party.
16. GOVERNING LAW.
This Agreement shall be governed by and enforced in accordance with the
laws of the State of New York. Any dispute or controversy with respect to this
Agreement, other than injunctive relief under Section 10, shall be submitted to
arbitration, in New York City, with the American Arbitration Association. The
decision of the arbitrators shall be final and binding upon the parties hereto
and may be entered in any court having jurisdiction. The prevailing party in
such arbitration proceeding shall be entitled to full reimbursement of the fees,
costs and expenses incurred therein.
17. WAIVER.
The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach. If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and not in any way affect or render invalid or unenforceable any other
provisions of this Agreement, and this Agreement shall be carried out as if such
invalid or unenforceable provision were not part of this Agreement.
18. INDEMNIFICATION.
The Employee shall be entitled to be indemnified by the Company for his
actions as an officer, director, employee, agent or fiduciary of the Company or
its
9
<PAGE> 10
affiliated entities to the fullest extent permitted by applicable law and shall
have legal fees and other expenses paid to him in advance of final disposition
of a proceeding provided he executes an undertaking to repay such amounts if,
and to the extent, required to do so by applicable law. The Company shall cover
the Employee under any directors and officers liability insurance policy to the
same extent as its other senior officers.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties
with respect to the Employee's employment by the Company and there are no
representations, warranties or commitments except as set forth herein. This
Agreement supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether written or oral, of the parties hereto
relating to the transactions contemplated by this Agreement.
20. LOCK-UP AGREEMENT(S).
With respect to any future sale of securities of the Company, the
Employee will execute such lock-up agreement(s) as may be required by an
underwriter, the NASD, the Securities and Exchange Commission and any state
"blue sky" regulators provided, however, that the terms and conditions of such
lock-up agreement(s) must be substantially the same in all material respects
with any lock-up agreement(s) signed by other officers, directors, and
stockholders of the Company.
Executed as an Agreement as of May 14, 1997.
PC411, INC.
/s/ EDWARD A. FLEISS /s/ ROBERT M. LUNDGREN
- ----------------------------- ----------------------------
Edward A. Fleiss Robert M. Lundgren
Vice President and
Chief Financial Officer
10
<PAGE> 11
ANNEX A
Employment Agreement dated as of
May 14, 1997 by and between PC411, Inc.
(the "Company") and Edward A. Fleiss (the "Employee")
-----------------------------------------------------
The Employee represents that he has indicated on this Annex all
Inventions (as defined in the Agreement) in which he owned any right or interest
prior to his employment with the Company. The Employee agrees that any present
or future Inventions not listed in this Annex are subject to assignment under
the Agreement.
BRIEF DESCRIPTION RIGHT, TITLE OR INTEREST
OF INVENTIONS AND DATE ACQUIRED
----------------- ------------------------
Inapplicable Inapplicable
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 779,744
<SECURITIES> 4,847,779
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,670,518
<PP&E> 119,031
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,789,549
<CURRENT-LIABILITIES> 372,830
<BONDS> 0
0
0
<COMMON> 29,725
<OTHER-SE> 5,386,994
<TOTAL-LIABILITY-AND-EQUITY> 5,789,549
<SALES> 0
<TOTAL-REVENUES> 92,041
<CGS> 0
<TOTAL-COSTS> 71,524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,002
<INCOME-PRETAX> (415,473)
<INCOME-TAX> 800
<INCOME-CONTINUING> (416,273)
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<NET-INCOME> (416,273)
<EPS-PRIMARY> (.34)
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</TABLE>
