<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1997.
REGISTRATION NO. 333 -
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FINE.COM CORPORATION
NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER
<TABLE>
<S> <C> <C>
STATE OF WASHINGTON 7379 91-1657402
STATE OR JURISDICTION OF PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION CLASSIFICATION CODE NUMBER NUMBER
1118 POST AVENUE DANIEL M. FINE, CHIEF EXECUTIVE OFFICER
SEATTLE, WASHINGTON 98101 FINE.COM CORPORATION
(206) 292-2888 1118 POST AVENUE
ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL SEATTLE, WASHINGTON 98101
EXECUTIVE OFFICES (206) 292-2888
AND ADDRESS OF PRINCIPAL PLACE OF BUSINESS NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR
SERVICE
</TABLE>
COPIES OF ALL COMMUNICATIONS TO THE FOREGOING TO BE SENT TO:
<TABLE>
<S> <C>
DAVID M. OTTO & WILLIAM A. CARLETON M. RIDGWAY BARKER
CAIRNCROSS & HEMPELMANN, P.S. KELLEY DRYE & WARREN LLP
701 FIFTH AVENUE, SUITE 7000 TWO STAMFORD PLAZA, 281 TRESSER BOULEVARD
SEATTLE, WASHINGTON 98104-7014 STAMFORD, CONNECTICUT 06901
(206) 587-0700 (203) 324-1400
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
===================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE(2) PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------
Common Stock, no par value..... 1,150,000(1) $7.50 $8,625,000 $2,614
- ---------------------------------------------------------------------------------------------------
Representative's Warrants to
purchase shares of Common
Stock, no par value.......... 100,000 $.001 $100 None
- ---------------------------------------------------------------------------------------------------
Common Stock, no par value,
issuable upon exercise of
Representative's Warrants.... 100,000(3) $9.00 $900,000 $273
===================================================================================================
</TABLE>
(1) Includes 150,000 shares underlying the Underwriters' over-allotment option.
(2) Bona fide estimate for computation of the registration fee pursuant to Rule
457(a) under the Act.
(3) Pursuant to Rule 416(a) under the Securities Act, there are also being
registered such additional shares as may be issuable pursuant to the
anti-dilution provisions of the Representative's Warrant.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
FINE.COM CORPORATION
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS IN PART I OF
FORM SB-2
<TABLE>
<CAPTION>
ITEM IN FORM SB-2 LOCATION OR CAPTION IN PROSPECTUS
------------------------------------------------------ ---------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................... Front of Registration Statement;
Outside Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Prospectus Summary; Risk Factors;
Use of Proceeds
5. Determination of Offering Price....................... Outside Front Cover of
Prospectus; Risk Factors;
Underwriting
6. Dilution.............................................. Risk Factors; Dilution
7. Selling Security Holders.............................. Not applicable
8. Plan of Distribution.................................. Underwriting
9. Legal Proceedings..................................... Business
10. Directors, Executive Officers, Promoters and Control
Persons............................................... Risk Factors; Management;
Principal Shareholders
11. Security Ownership of Certain Beneficial Owners and
Management............................................ Risk Factors; Principal
Shareholders
12. Description of Securities............................. Risk Factors; Description of
Securities; Shares Eligible for
Future Sale; Underwriting
13. Interest of Named Experts and Counsel................. Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities........................ Description of Securities
15. Organization Within Last Five Years................... Management; Principal
Shareholders; Certain
Transactions
16. Description of Business............................... Prospectus Summary; Risk Factors;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business
17. Management's Discussion and Analysis or Plan of
Operation............................................. Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property............................... Business
19. Certain Relationships and Related Transactions........ Certain Transactions; Management
20. Market for Common Equity and Related Stockholder
Matters............................................... Risk Factors; Dividend Policy;
Dilution; Description of
Securities; Shares Eligible for
Future Sale; Underwriting
21. Executive Compensation................................ Management
22. Financial Statements.................................. Financial Statements
23. Changes In and Disagreements With Accountants and
Financial Disclosure.................................. Not applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 9, 1997
PROSPECTUS
1,000,000 Shares
[FINE.COM CORPORATION LOGO]
Common Stock
---------------------------
ALL OF THE SHARES OF COMMON STOCK, NO PAR VALUE (THE "COMMON STOCK"), OFFERED
HEREBY ARE BEING SOLD BY FINE.COM CORPORATION (THE "COMPANY"). PRIOR TO THIS
OFFERING (THE "OFFERING"), THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK.
IT IS CURRENTLY ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $6.50 AND $7.50 PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
APPLICATION HAS BEEN MADE FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ
SMALLCAP MARKET UNDER THE SYMBOL "FDOT."
---------------------------
SEE "RISK FACTORS" ON PAGE 7 FOR CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
</TABLE>
(1) Does not include a non-accountable expense allowance payable to Coleman and
Company Securities, Inc. (the "Representative"). In addition, the Company
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ , including the non-accountable expense allowance.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
150,000 additional shares of Common Stock on the same terms as set forth
above for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered hereby are offered by the several
Underwriters subject to prior sale, when, as and if issued to and accepted by
the Underwriters and subject to the approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify the Offering and to reject any order in
whole or in part. It is expected that delivery of certificates representing such
shares will be made in New York, New York against payment therefor on or about
, 1997.
---------------------------
COLEMAN AND COMPANY SECURITIES, INC.
OSCAR GRUSS & SON INCORPORATED
The date of this Prospectus is , 1997.
<PAGE> 4
[PICTURE OF A COMPANY CLIENT WEB PAGE ACCOMPANIED BY TEXT,
"Anatomy of the Microsoft Developer Store site. The Microsoft Developer Store
uses a 'store' theme throughout the Web site. The five areas of the store
include Product Shelf, Express Checkout, Featured Product, Customer Service
and Store Directory. While shopping, visitors are presented with product
boxes on a shelf, leveraging the familiarity of Microsoft packaging. Shoppers
select products by simply clicking on the appropriate box. Once a product is
selected, shoppers view detailed product information, including prices,
feature comparisons and system requirements. Cross-sell promotional messages
are also displayed in this section. As shoppers select products, they are
added to the shopping basket. Depending on what type of product is added,
shoppers are presented with various 'point of purchase' promotions, including
helpful did you know messages," and BOXED AREA HIGHLIGHTING THE UNIFORM
RESOURCE LOCATOR OF THE COMPANY CLIENT WEB PAGE including text,
"www.developerstore.com"]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE LOSS
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the Financial Statements and
notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information in this Prospectus (i) assumes that the Underwriters'
over-allotment option is not exercised, (ii) gives retroactive effect to the
stock split described in Note 8 to the Financial Statements and (iii) reflects
the conversion of all of the outstanding shares of the Company's Series A
Preferred Stock, no par value (the "Series A Preferred Stock"), on the effective
date of the Registration Statement of which this Prospectus forms a part. See
"Description of Securities" and "Underwriting." Investors should carefully
consider the information set forth under the caption "Risk Factors."
fine.com and the fine.com logo are trademarks of the Company. INDEPENDENCE
DAY (TM) is a trademark of and is Copyright (C) 1997 by Twentieth Century Fox
Film Corporation. All rights reserved. "Twentieth Century Fox," "Fox" and their
associated logos are the property of Twentieth Century Fox Film Corporation.
Microsoft(R) SQL Server(TM), Microsoft(R) Internet Information Server Integrated
with Microsoft Windows NT(R) and the names of other Microsoft products
referenced in this Prospectus are trademarks or registered trademarks of
Microsoft Corporation. "Safeway" and the "S" logo are registered trademarks of
Safeway Inc. All other tradenames and trademarks appearing in this Prospectus
are the property of their respective holders.
THE COMPANY
fine.com Corporation ("fine.com" or the "Company") plans, creates,
maintains and hosts World Wide Web ("Web") sites for major national and
international corporate clients and others. The Company's Web site development
process utilizes marketing expertise and state of the art interactive database
compilation and dissemination techniques and technologies. Through the planning,
creation, maintenance and hosting of interactive Web presentations, the Company
enhances clients' marketing campaigns, fosters the collection of demographic
data which is utilized by clients when allocating marketing resources and
facilitates both internal and external corporate communications for clients.
The Company develops marketing driven, database oriented sites for
businesses which establish commercial presences on, or conduct Internet commerce
over, the Web. Corporate clients for which the Company has built and implemented
such Web sites include Twentieth Century Fox Home Entertainment, Inc., Safeway
Inc. and Microsoft Corporation ("Microsoft"). Web sites created for these
clients may be viewed at www.foxinternational.com, www.safeway.com and
www.developerstore.com, respectively. Through the planning and creation of
Intranet Web sites, the Company also serves businesses seeking to establish
efficient, confidential internal corporate communication systems. Intranet
clients of the Company include Microsoft and Marriott Corporation. Other clients
for which the Company has developed Web sites include Fluke Corporation, Intel
Corporation, Mann Packing Company, Optiva Corporation, Wall Data, Inc.,
Washington Mutual Savings Bank and Windermere Services Company. See
"Business -- Clients and Services."
The Company believes that use of the Internet has grown rapidly since its
commercialization in the early 1990s. According to industry sources, the number
of people using the Internet is more than doubling every year.(1) It has been
estimated that the number of Internet users will exceed 700 million in the year
2000, increasing from approximately 57 million users in 1997.(2) In anticipation
of such growth, businesses are implementing commercial Internet Web sites at a
rapid pace. It has been estimated that fees paid to third-
- ---------------
(1)John S. Quarterman, 1997 Users and Hosts of the Internet and the Matrix,
MATRIX NEWS (January 1997); Press Release: Size of the Internet in October
1995, from the Third MIDS Internet Demographic Survey, Matrix Information
and Directory Services, Inc. (February 3, 1996) (hereinafter Demographic
Survey).
(2)Quarterman, supra note 1.
3
<PAGE> 6
party Web site developers will exceed $10 billion by the year 2000,
compared to $582 million in 1996.(3) Other industry sources have reported that
the number of commercial Internet sites, defined as domain names ending in
".com," increased from 4,912 in August 1995 to 171,738 in June 1996 and 609,275
in April 1997.(4) See "Business -- The Internet and the Web" and "-- Internet
Commerce and the Marketing Communications Industry."
The Web permits real time, one-to-one communication, allowing users to
respond to questions and messages on a Web site. The Company believes that the
Web provides businesses with unique opportunities to gather valuable demographic
data, including information regarding users' identities and preferences.
Accordingly, the Company has created a Web site development process involving
both marketing and communications strategies and Web site design elements. For
example, in creating Web sites that compile user-provided information, the
Company works with its clients, first, to establish specific database driven
marketing strategies, and then to create unique Web site features designed to
entice visitors to provide information useful to the client regarding the
visitor's identity, interests and position in the customer life cycle. Through
such Web sites, the Company's clients may obtain useful databases for use in the
clients' overall sales and marketing efforts. Similar processes are also applied
to the collection, distribution and analysis of data for Intranet sites
developed by the Company. The Company also services certain clients by
maintaining and hosting such clients' Web sites. See "Business -- Clients and
Services -- Web Site Production and Support."
The Company has expertise in custom programming, relational databases and
computer graphics. In order to create Web sites that encourage continuous
dynamic interaction with Web site users, the Company relies upon expertise
beyond mere competency with HTML (hypertext markup language, the common Web site
language). Such expertise includes knowledge and effective utilization of
advanced programming languages such as Visual Basic, Visual J++, Visual C++ and
various scripting languages. Complex relational databases are developed by the
Company using Microsoft(R) SQL Server(TM) and operate in conjunction with server
products including Microsoft(R) Internet Information Server Integrated with
Microsoft Windows NT(R), Microsoft Exchange Server and Microsoft Merchant
Server. The Company believes that only a small percentage of current Web sites
effectively utilize the database integration technologies and interactive
database compilation and dissemination techniques and technologies that are
employed by the Company. The Company further believes that its encompassing
approach makes it well positioned to continue to take advantage of industry
changes as the Web and its commercial applications evolve. See
"Business -- Business Strategy," "-- Relationship with Microsoft" and
"Management."
The Company was incorporated in the State of Washington in October 1994.
The Company's principal executive offices are located at 1118 Post Avenue,
Seattle, Washington 98101, and its telephone and fax numbers are (206) 292-2888
and (206) 292-2889, respectively. The Company's e-mail address is [email protected]
and its Web site address is www.fine.com. Information accessed on or through the
Company's Web site does not constitute a part of this Prospectus.
- ---------------
(3)News Release, Web Outsourcing to Reach $10 Billion by 2000, FORRESTER
RESEARCH, INC. (February 5, 1997) (hereinafter Web Outsourcing).
(4)Netcraft Ltd. Web Server Survey (August 1, 1995); Netcraft Ltd. Web Server
Survey (June 1, 1996); Netcraft Ltd. Web Server Survey(April 1997)
(hereinafter collectively Netcraft Surveys).
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.......................... 1,000,000 shares
Common Stock Outstanding:
Prior to the Offering............... 1,115,065 shares(1)
After the Offering.................. 2,115,065 shares (1)(2)
Use of Proceeds............................... The Company anticipates that the net proceeds
of the Offering will be used for: (i) capital
expenditures for the establishment of new and
the expansion of existing facilities
(including leasehold improvements); (ii)
capital expenditures for the acquisition of
new and upgraded computer hardware and
software for existing and new facilities;
(iii) working capital to finance
work-in-progress prior to achieving payment
milestones; and (iv) working capital to
finance, among other things, increases in
accounts receivable and other general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq SmallCap Market Symbol........ FDOT
</TABLE>
- ---------------
(1) Includes 59,524 shares of Common Stock to be issued on the effective date of
the Registration Statement of which this Prospectus forms a part upon
conversion of the outstanding shares of Series A Preferred Stock. Excludes
107,157 shares of Common Stock reserved for issuance upon exercise of stock
options granted under the Company's 1996 Incentive Stock Option Plan (the
"1996 Option Plan") and an additional 200,000 shares which have been
reserved for issuance upon exercise of options that may be granted under the
Company's 1997 Stock Option Plan (the "1997 Option Plan," and together with
the 1996 Option Plan, the "Option Plans"). See "Management -- Executive
Compensation and Other Information."
(2) Excludes (i) 100,000 shares of Common Stock issuable upon the exercise of
warrants to be issued to the Representative upon the consummation of the
Offering (the "Representative's Warrants") and (ii) 150,000 shares of Common
Stock issuable upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."
5
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR ENDED JANUARY 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Gross revenue...................................................... $ 531,800 $ 1,485,869
Gross profit....................................................... 273,268 711,627
Operating income................................................... 47,751 197,568
Income before income taxes......................................... 45,030 188,728
Provision for income taxes......................................... 14,948 64,454
Net income......................................................... 30,082 124,274
Net income per share............................................... $ 0.03 $ 0.11
Shares used in computation of net income per share(1).............. 1,155,126 1,155,126
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31, 1997
-----------------------------
BALANCE SHEET DATA: AT JANUARY 31, 1996 ACTUAL AS ADJUSTED(2)
------------------- ----------- --------------
<S> <C> <C> <C>
Working capital................................ $ 45,565 $ 301,728 $5,917,730
Total assets................................... 149,602 868,537 6,452,535
Total shareholders' equity..................... 90,362 454,554 6,054,554
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
determination of net income per share.
(2) Adjusted to give effect to the sale by the Company of the shares of Common
Stock offered hereby at an assumed initial public offering price of $7.00
per share and after deducting the estimated underwriting discount and
offering expenses, and the receipt of the net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the shares of Common
Stock offered hereby.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those expressed or implied by such statements as a
result of various factors, such as the evolving nature of the Internet and
computer related markets, uncertainties regarding the adaptation of new media by
the marketing communications industry, competition faced by the Company and the
other factors discussed under "Risk Factors."
6
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider each of the following risk
factors in evaluating an investment in the shares of Common Stock offered
hereby.
Uncertainties Regarding Adoption of New Media by Marketing Communications
Industry; Limited Operating History. The market for information gathering and
dissemination through new electronic media such as the Internet has only
recently begun to develop, is rapidly evolving and is characterized by an
increasing number of market entrants who have introduced or developed products
and services for communication and commerce through new electronic media. Demand
and market acceptance for recently introduced products and services are subject
to a high level of uncertainty. Additionally, the Company commenced operations
in October 1994 and, as a result, has a limited operating history upon which an
evaluation of the Company's prospects can be made. There can be no assurance
that commerce and communication through new electronic media will continue to
grow or that the Company will be successful in addressing the risks encountered
by companies which are operating in rapidly evolving markets. The use of new
electronic media in marketing and information gathering and dissemination,
particularly by businesses that have historically relied upon traditional means
of marketing, generally requires the acceptance of new methods of conducting
business and exchanging information. If commerce and communication through new
electronic media fail to gain widespread acceptance or develop more slowly than
expected, the Company would be materially adversely affected. See
"Business -- Internet Commerce and the Marketing Communications Industry."
Reliance on Management and Key Employees. The Company is dependent upon the
services of certain key management personnel, the loss of whose services would
have a material adverse effect on the Company. In particular, the Company
depends on the services of Daniel M. Fine, President and Chief Executive
Officer, James P. Chamberlin, Chief Financial Officer, and Daniel G. Stull,
Chief Operating Officer. The Company has obtained $1,000,000 of key person
insurance on the lives of each of Mr. Fine and Mr. Chamberlin. In addition, the
Company is dependent upon the services of qualified and experienced marketing,
technical and creative personnel. There can be no assurance that any of these
persons will remain employed by the Company or that these persons will not
participate in businesses that compete with the Company in the future. In
seeking qualified personnel, the Company is required to compete with companies
having greater financial and other resources than the Company. Since the
Company's future success will be dependent on its ability to attract and retain
qualified personnel, the inability to do so would have a material adverse affect
on the Company. See "Management."
Competition. The market for the Company's services is highly competitive
and is characterized by demands to adopt and utilize new capabilities and
technologies and to respond rapidly to evolving client requirements. The Company
faces competition from a number of sources, including potential clients that
perform Web site planning, creation, maintenance and hosting services inhouse.
Other sources of competition include Web site service firms, communications,
telephone and telecommunications companies, computer hardware and software
companies, established online services companies, direct Internet access
providers, advertising agencies and specialized and integrated marketing
communication firms, all of which are entering the Web site planning, creation,
maintenance and hosting markets in varying degrees. Many of the Company's
competitors have announced plans to offer expanded Web site planning, creation,
maintenance and/or hosting services and many of such competitors or potential
competitors have longer operating histories, longer customer relationships and
significantly greater financial, management, technological, development, sales,
marketing and other resources than the Company. The Company expects competition
to intensify in the future, as anticipated growth in the industry attracts other
participants. There can be no assurance that the Company will be able to compete
effectively, if at all, and its inability to do so would have a material adverse
effect on the Company. See "Business -- Competition."
Lack of Proprietary Protection; Intellectual Property Rights; Risk of
Infringement; Possible Litigation. The Company does not believe that its
business is dependent upon any patents, copyrights or trademarks and the Company
does not currently have any registered patents, copyrights or trademarks.
Consequently, the Company relies solely on a combination of common law and
statutory law to protect its trademarks,
7
<PAGE> 10
proprietary information and know-how. The majority of the Company's current
agreements with its clients contain provisions granting to the client
intellectual property rights to certain of the Company's work product, including
customized programming that is created during the course of a project. The
Company anticipates that agreements with future clients may contain similar
provisions. Other existing agreements to which the Company is a party are, and
future agreements may be, silent as to the ownership of such rights. To the
extent that the ownership of such intellectual property rights is expressly
granted to a client or is ambiguous, the Company's ability to reuse or resell
such rights will or may be limited. See "Business -- Clients and Services."
The Company utilizes technology owned, and may seek to use technology
developed in the future, by third parties. Although the Company believes that
there are currently sufficient alternative sources of third party technology
which would be available to it if any particular third party technology that it
is currently using were to be discontinued or otherwise become unavailable,
there can be no assurance that licenses for any technology owned or developed by
third parties that might be required for provision of the Company's services
will be available in the future on reasonable terms, or at all, and the
inability to obtain any such licenses could have a material adverse effect on
the Company. Although the Company does not believe that either its services or
its utilization of technology owned by third parties infringes the proprietary
rights of any third parties, there can be no assurance that third parties will
not in the future assert claims against the Company based on such services or
utilization or that any of those claims would not be successful. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights and to protect its proprietary information, to determine the
validity and scope of the proprietary rights of third parties or to defend
against claims of infringement or invalidity. Litigation of this nature, whether
or not successful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on the Company. Furthermore, third
parties making claims against the Company could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief which could
directly or indirectly prohibit the Company from providing certain services. A
judgment of this nature could have a material adverse effect on the Company.
Additionally, the Company and other Web site developers face potential
liability for the actions of clients and others using their services, including
liability for infringement of intellectual property rights, rights of publicity,
defamation, libel and criminal activity under the laws of the United States and
foreign jurisdictions. Although the Company has obtained errors and omissions
insurance providing up to $5,000,000 of coverage, there can be no assurance that
such insurance will be adequate. Any imposition of liability based on the
actions of clients and others using the Company's services could have a material
adverse effect on the Company.
Dependence Upon Continued Development of Access to and Infrastructure of
the Internet. The Company's ability to generate revenues from the planning,
creation, maintenance and hosting of commercial Web sites will depend upon the
continued development of an infrastructure for providing Internet access and
carrying Internet traffic. The Internet may not prove to be a viable commercial
marketplace due to inadequate development of the necessary infrastructure or
delays in the development of complementary products. Moreover, other critical
issues concerning the commercial use of the Internet (including security,
reliability, cost, ease of use and access, and quality of service) remain
unresolved and may adversely impact the anticipated growth of Internet use. It
is difficult to predict whether the Internet will prove to be and remain a
viable commercial marketplace. If the infrastructure and complementary products
necessary to support the Internet's commercial viability are not developed or if
the Internet does not become a viable marketplace, the Company would be
materially adversely affected. See "Business -- The Internet and the World Wide
Web."
Risk of Changing Technology. The services which the Company offers, and the
services which the Company expects to offer in the future, are impacted by
rapidly changing technology, evolving industry standards, emerging competition
and frequent service, software and other product introductions. There can be no
assurance that the Company will be able to successfully identify new business
opportunities and develop and bring new services to market in a timely and
cost-effective manner or that services, products or technologies developed by
others will not render the Company's services noncompetitive or obsolete. See
"Business -- Competition."
8
<PAGE> 11
Dependence on Microsoft. The Company has historically been dependent upon
Microsoft for new business referrals and for work as a paid Microsoft vendor. In
addition, the Company is dependent upon its expertise with Microsoft software
and relies upon such software in creating Web sites for the Company's clients.
Although the Company participates in the Microsoft Solution Provider Partner and
Site Builders Network programs, there can be no assurance that its relationship
with Microsoft will continue or that the Company will continue to derive
benefits from that relationship. In addition, if Microsoft's products, standards
or approach to the Internet or other markets were to fall into disfavor or other
parties were able to develop products, standards or approaches which had greater
market acceptance than those offered by Microsoft, the Company could be
materially adversely affected. See "Business -- Relationship with Microsoft."
Government Regulation. The Company is not currently subject to direct
regulation by any government agency, other than regulations applicable to
businesses generally. However, it is possible that laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy and
pricing, characteristics and quality of products and services. The adoption of
any such laws or regulations may decrease the growth of the Internet (which
could in turn decrease the demand for the Company's services), increase the
Company's cost of doing business, cause the Company to modify its operations or
otherwise have an adverse effect on the Company. Moreover, the applicability to
the Internet of existing laws governing issues such as property ownership, libel
and personal privacy is uncertain. The Company cannot predict the impact, if
any, that any future laws or regulations, or the applicability of such existing
laws, may have on its business.
Broad Discretion in Application of Proceeds. The Company's management will
have broad discretion as to the application of the net proceeds of the Offering.
See "Use of Proceeds."
No Dividends. The Company does not intend to declare any dividends on the
Common Stock in the foreseeable future. See "Dividend Policy."
Control by Management. Upon completion of the Offering, 50.0% (46.7%, if
the Underwriters' overallotment option is exercised in full) of the outstanding
shares of Common Stock will be owned by current directors and executive officers
of the Company. All such shareholders, if they were to vote together, would
likely be able to elect all of the directors of the Company and influence the
outcome of all other matters submitted to a vote of the Company's shareholders.
See "Principal Shareholders" and "Description of Securities."
No Prior Public Market; Determination of Offering Price. Prior to the
Offering, there has been no public market for the Common Stock. Accordingly,
there can be no assurance that an active trading market will develop and be
sustained upon the completion of the Offering or that the market price of the
Common Stock will not decline below the initial public offering price. The
initial public offering price will be determined by negotiations between the
Company and the Representative. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Shares Eligible for Future Sale. Upon completion of the Offering, 2,115,065
shares of Common Stock will be outstanding (2,265,065 shares, if the
Underwriter's over-allotment option is exercised in full), 107,157 shares of
Common Stock will be reserved for issuance under the 1996 Option Plan and
200,000 shares of Common Stock will be reserved for issuance pursuant to the
1997 Option Plan. The shares of Common Stock sold in the Offering will be freely
transferable by persons other than affiliates of the Company. All of the
remaining outstanding shares are restricted securities and may not be sold other
than pursuant to an effective registration statement or Rule 144 or another
exemption from registration under the Securities Act. The Company and each of
its existing officers, directors, shareholders and optionees have entered into
lock-up agreements with the Representative, which agreements prohibit, for a
period of 18 months after the date of this Prospectus, the sale or other
disposition of any shares of Common Stock without the prior written consent of
the Representative. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, or the perception that
such sales may occur, could adversely affect prevailing market price for the
Common Stock and could impair the Company's ability to raise capital through an
offering of its equity securities. See "Shares Eligible for Future Sale" and
"Underwriting."
9
<PAGE> 12
USE OF PROCEEDS
The estimated net proceeds of the Offering to the Company, assuming an
initial public offering price of $7.00 per share and after deducting estimated
underwriting discounts and commissions and estimated expenses of the Offering
payable by the Company, will be approximately $5,600,000 ($6,513,500, if the
Underwriters' over-allotment option is exercised in full). The Company currently
expects to apply the estimated net proceeds as follows:
<TABLE>
<CAPTION>
USE AMOUNT
----------------------------------------------------------------- ----------
<S> <C>
Capital expenditures for establishment of new and expansion of
existing facilities (including leasehold improvements)......... $ 240,000
Capital expenditures for acquisition of new and upgrading of
existing computer hardware and software for existing and new
facilities..................................................... 315,000
Working capital to finance work-in-progress prior to achieving
payment milestones............................................. 470,000
Working capital to finance, among other things, increases in
accounts receivable and other general corporate purposes....... 4,575,000
----------
Total.................................................. $5,600,000
==========
</TABLE>
The Company's expansion strategy focuses on adding personnel, expanding
existing facilities and establishing new facilities in a manner designed to
enable the Company to remain profitable. As a result, the Company anticipates
adding personnel and enlarging existing and establishing new facilities only in
instances when it has a reasonable expectation that long term demand will be
sufficient to maintain and enhance the profitability demonstrated by current or
near term projects and existing or anticipated near term demand.
The growth anticipated by the Company will necessitate additional office
space to house its workforce. Management believes that this expansion will occur
near its existing facility and in one or two new geographic locations. Although
the Company believes that additional space will be available as needed on
commercially reasonable terms, there can be no assurance that market rates for
such additional space will not exceed current expectations, requiring future
expenditures greater than those currently anticipated.
The expansion and addition of office space and personnel will require
acquisition of new or upgrading of current computer hardware and software in two
aspects: office infrastructure and individual workstations. Office
infrastructure purchases relate to the creation or upgrading of internal
networks, multiple development environments and the related security hardware
and software. The Company anticipates purchases of these items will occur
shortly after the expansion or opening of an office. The Company further expects
that individual workstation purchases will coincide with the addition of
personnel, normally on a person by person basis.
The planning and development of complex Web sites often require several
months to complete. As a result, the Company expects to use a portion of the
estimated proceeds from the sale of the Common Stock offered hereby to fund the
salaries and the other direct project costs related to work-in-progress on
planning and development contracts. The Company intends to use the remaining
proceeds from the sale of the Common Stock offered hereby to finance the
Company's ongoing working capital needs. These working capital needs include
financing growth in the Company's accounts receivable and financing increased
selling, general and administrative expenses necessary to generate and sustain
the organizational infrastructure necessary to serve new and existing clients.
Exact application of the net proceeds and timing of use will vary depending
on numerous factors, including market and technological developments and
competitive pressures. Due to the number and variability of factors that may
affect the Company's use of the net proceeds, the Company will retain
significant discretion over the actual application of the net proceeds.
Accordingly, there can be no assurance that actual application will not vary
substantially from the Company's current expectations.
Pending ultimate application, the net proceeds will be invested in
interest-bearing securities issued or guaranteed by the United States government
or its agencies.
10
<PAGE> 13
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently anticipates it will retain future earnings for use
in the expansion and operation of its business and does not anticipate paying
cash dividends on the Common Stock in the foreseeable future. Any future
determination with regard to the payment of dividends will be at the discretion
of the Board of Directors and will be dependent upon the Company's future
earnings, financial condition, applicable dividend restrictions and capital
requirements and other factors deemed relevant by the Board of Directors. In
addition, pursuant to the agreement relating to the Company's lines of credit,
the Company is prohibited from paying cash dividends on the Common Stock without
the bank's prior written consent. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources and
Liquidity."
DILUTION
The pro forma net tangible book value of the Company at January 31, 1997
was $413,438, or $0.37 per share. Pro forma net tangible book value per share
represents the amount of total tangible assets of the Company reduced by the
Company's total liabilities, divided by the pro forma number of shares of Common
Stock outstanding, after giving effect to the issuance of 59,524 shares of
Common Stock upon conversion of all of the outstanding shares of Series A
Preferred Stock on the effective date of the Registration Statement of which
this Prospectus forms a part. After giving effect to the sale by the Company of
the 1,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $7.00 per share (after deducting estimated underwriting
discounts and expenses of the Offering payable by the Company), the adjusted pro
forma net tangible book value of the Company at January 31, 1997 would have been
$6,054,554 or $2.86 per share. This represents an immediate increase in pro
forma net tangible book value of $2.49 per share to existing shareholders and an
immediate dilution of $4.14 per share to new investors purchasing shares of
Common Stock offered hereby. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $ 7.00
Pro forma net tangible book value per share at January 31, 1997... $0.37
Increase per share attributable to new investors.................. 2.49
Adjusted net tangible book value per share after the Offering....... 2.86
-----
Dilution per share to new investors................................. $ 4.14
=====
</TABLE>
The following table sets forth on a pro forma basis at January 31, 1997,
after giving effect to the issuance of 59,524 shares of Common Stock upon
conversion of all outstanding shares of Series A Preferred Stock and the sale by
the Company of 1,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $7.00 per share, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price paid per share by existing shareholders and by investors
purchasing shares of Common Stock offered hereby:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- ------- --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders................ 1,115,065 52.7% $ 325,000 4.4% $ 0.29
New Investors........................ 1,000,000 47.3 7,000,000 95.6 $ 7.00
--------- ----- ---------- -----
Total...................... 2,115,065 100.0% $7,325,000 100.0%
========= ===== ========== =====
</TABLE>
The foregoing tables assume no exercise of any outstanding stock options.
As of January 31, 1997, there were outstanding options to purchase 107,157
shares of Common Stock under the 1996 Stock Option Plan, at a weighted average
exercise price of $2.05 per share. To the extent that outstanding options are
exercised, there will be further dilution to new investors. See
"Management -- Executive Compensation and Other Information."
11
<PAGE> 14
CAPITALIZATION
The following table sets forth at January 31, 1997 the (i) actual
capitalization of the Company, (ii) the pro forma capitalization of the Company,
after giving effect to the conversion of the outstanding Series A Preferred
Stock into Common Stock, and (iii) the pro forma capitalization as adjusted to
reflect the receipt, on the effective date of the Registration Statement of
which this Prospectus forms a part, of the estimated net proceeds from the sale
of the 1,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $7.00 per share and after deducting the estimated
underwriting discount and expenses of the Offering payable by the Company. Since
its inception in October 1994, the Company has never had any long term debt.
This table should be read in conjunction with the Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JANUARY 31, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
Shareholders' equity:
Preferred Stock, no par value; 1,000,000 shares
authorized; 59,524 shares designated as Series A
Preferred Stock, 59,524 shares of Series A Preferred
Stock issued and outstanding; no shares authorized,
issued or outstanding, pro forma and pro forma as
adjusted............................................. $ 239,918 $ -- $ --
Common Stock, no par value; 9,000,000 shares authorized,
actual, and 10,000,000 shares authorized, pro forma
and pro forma as adjusted; 1,055,541 issued and
outstanding, actual; 1,115,065 issued and
outstanding, pro forma; 2,115,065 issued and
outstanding, pro forma as adjusted (1)............... 75,000 314,918 5,914,918
Retained earnings....................................... 139,636 139,636 139,636
-------- -------- ----------
Total shareholders' equity........................... 454,554 454,554 6,054,554
-------- -------- ----------
Total capitalization............................... $ 454,554 $ 454,554 $ 6,054,554
======== ======== ==========
</TABLE>
- ---------------
(1) Excludes: (i) 107,157 shares of Common Stock reserved for issuance upon
exercise of stock options granted under the 1996 Option Plan; (ii) 200,000
shares of Common Stock reserved for issuance upon exercise of options which
may be granted under the 1997 Option Plan; (iii) 100,000 shares of Common
Stock reserved for issuance upon exercise of the Representative's Warrant;
and (iv) 150,000 shares of Common Stock reserved for issuance upon exercise
of the Underwriters' over-allotment option. See "Management -- Executive
Compensation and Other Information" and "Underwriting."
12
<PAGE> 15
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Financial Statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein. The Statement of Income data for the fiscal years ended January 31, 1996
and 1997 and the Balance Sheet data at January 31, 1996 and 1997 are derived
from the Financial Statements, which have been audited by Ernst & Young LLP,
independent auditors, and are included elsewhere in this Prospectus, and are
qualified by reference to such Financial Statements and the notes thereto. The
historical results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
JANUARY 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Gross revenue..................................................... $ 531,800 $ 1,485,869
Direct salaries and costs......................................... 258,532 774,242
-------- ----------
Gross profit...................................................... 273,268 711,627
Selling, general and administrative expenses...................... 225,517 514,059
-------- ----------
Operating income.................................................. 47,751 197,568
Interest expense.................................................. 2,721 8,840
-------- ----------
Income before income taxes........................................ 45,030 188,728
Provision for income taxes........................................ 14,948 64,454
-------- ----------
Net income........................................................ $ 30,082 $ 124,274
======== ==========
Net income per share.............................................. $ 0.03 $ 0.11
Shares used in computation of net income per share (1)............ 1,155,126 1,155,126
</TABLE>
<TABLE>
<CAPTION>
AT JANUARY 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $ 45,565 $ 301,728
Total assets...................................................... 149,602 868,537
Shareholders' equity.............................................. 90,362 454,554
</TABLE>
- ---------------
(1) See Note 1 of Notes to Financial Statements for information concerning the
determination of net income per share.
13
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Financial
Statements and accompanying notes and the other financial information appearing
elsewhere in this Prospectus.
OVERVIEW
fine.com plans, creates, maintains and hosts Web sites for major national
and international corporate clients and others. The Company's Web site
development process utilizes marketing expertise and state of the art
interactive database compilation and dissemination techniques and technologies.
Through the planning, creation, maintenance and hosting of interactive Web
presentations, the Company enhances clients' marketing campaigns, fosters the
collection of demographic data which is utilized by clients when allocating
marketing resources and facilitates both internal and external corporate
communications for clients.
The Company generates substantially all of its revenues from fees
associated with the planning and creation of commercial Web sites for clients.
These fees are generally earned pursuant to long-term fixed fee contracts (with
terms typically ranging from two to seven months). Revenues generated from
long-term contracts are recognized under the percentage-of-completion method.
Percentage-of-completion is generally measured on the attainment of specific
contract milestones (based on the ratio of costs incurred to total estimated
project costs). Estimated earnings from long-term contracts are reviewed
periodically as work progresses. All other revenue is recorded on the basis of
performance of services. The Company assumes greater financial risk on fixed fee
contracts than on either time-and-material or cost-reimbursable contracts.
Failure to anticipate technical problems, estimate costs accurately or control
costs during performance of a fixed fee contract may reduce the Company's profit
or cause a loss individually on a particular project and in the aggregate. The
Company has generated a net profit for each of the past two fiscal years.
The Company has recently initiated efforts to generate recurring revenues
from Web site maintenance and Web site hosting fees. The amount of revenue
generated to date from the Company's provision of such services has not been
significant. Even if revenues from such sources increase, fees for maintenance
and hosting services may not become a significant percentage of the Company's
revenues, if and to the extent that revenues increase from the planning and
creation of Web sites. No assurance can be given that revenues from maintenance
and hosting fees, or from other new methods of generating recurring revenues,
will be sufficient to offset the costs incurred by the Company in performing
such services.
Historically, the Company has been dependent upon Microsoft for work as a
paid vendor. The aggregate revenues generated from the multiple departments and
divisions at Microsoft for which the Company performed services accounted for
34% and 19% of the Company's gross revenue in the fiscal year ended January 31,
1996 ("fiscal 1996") and the fiscal year ended January 31, 1997 ("fiscal 1997"),
respectively. In addition, Twentieth Century Fox Home Entertainment, Inc. and
Safeway Inc. accounted for 11% and 14% of the Company's gross revenue during
fiscal 1997, respectively. Neither Twentieth Century Fox Home Entertainment,
Inc. nor Safeway Inc. were clients of the Company during fiscal 1996. Management
believes that the long term success of the Company is not dependent on any one
or a few major customers.
RESULTS OF OPERATIONS
Gross Revenue. Gross revenue for fiscal 1997 and fiscal 1996 was $1,485,869
and $531,800, respectively. During each of these fiscal years, substantially all
of the Company's revenue was generated by its Web site planning and creation
services. The 179% increase in fiscal 1997 gross revenue over fiscal 1996 gross
revenue is attributable primarily to the number of clients contracting with the
Company increasing from approximately 18 clients in fiscal 1996 to approximately
25 clients in fiscal 1997 as well as an increase in the average amount billed
per client from approximately $30,000 per client in fiscal 1996 to approximately
$60,000 in fiscal 1997. The Company believes that the increase in number of
clients was attributable to increased levels of marketing, advertising and new
business development activities. The average amount billed per client during
fiscal 1997 increased from fiscal 1996 primarily due to the Company's clients
generally undertaking more sophisticated
14
<PAGE> 17
levels of Web site development. See "Internet Commerce and the Marketing
Communications Industry" and "Clients and Services."
Direct Salaries and Costs. Direct salaries and costs include all internal
labor costs and other direct costs related to project performance, such as
project specific independent contractor fees, supplies and specific project
related expenditures. The Company's direct salaries and costs for fiscal 1997
were $774,242, and consisted primarily of $619,884 paid as direct salaries,
taxes and benefits and, secondarily, of $154,358 as other direct costs of goods
sold related to specific projects. The Company hired additional employees during
fiscal 1997 to meet increased demand and had 21 full time employees at January
31, 1997. The Company expects that it will hire additional staff if and as
needed to meet demand from current clients and prospective clients whose
projects are anticipated to commence within ninety days after hiring. The
Company engages independent contractors and subcontractors to service
unanticipated projects. The Company's direct salaries and costs for fiscal 1996
were $258,532 and consisted, primarily, of $178,803 of direct salaries, taxes
and benefits and, secondarily, of $79,729 of other direct costs of goods sold
related to specific projects. The Company had 13 full time employees at January
31, 1996.
As a percentage of gross revenue, total direct salaries and costs increased
4% from fiscal 1996 to fiscal 1997. Such increase was due primarily to the
increased level of salaries paid to production employees. This increase,
combined with a greater reliance on production employees as compared to
independent contractors and/or subcontractors, resulted in the salaries, taxes
and benefits component of direct salaries and costs increasing from 69% in
fiscal 1996 to 80% in fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $514,059 and $225,517 for fiscal 1997 and fiscal
1996, respectively. In each period, these expenses consisted primarily of
administrative salaries, professional fees, occupancy costs, telephone and
related Internet connectivity fees, computer network costs, office expenses and
supplies, marketing, advertising and new business development costs.
Marketing, advertising and new business development costs increased as a
percentage of gross revenue in fiscal 1997 from fiscal 1996. Marketing,
advertising and new business development costs were $68,687 representing 5% of
gross revenue in fiscal 1997 as compared to $10,237 representing 2% of gross
revenue in fiscal 1996. The Company believes that these increases in marketing,
advertising and new business development costs were instrumental in the 179%
increase in gross revenue from fiscal 1996 to fiscal 1997. Management believes
that these costs will continue to increase as a percentage of gross revenue in
future periods and may reach approximately 6% of gross revenue.
Overall, selling, general and administrative expenses as a percentage of
gross revenue were 35% for fiscal 1997 as compared to 42% for fiscal 1996. This
overall decrease in selling, general, and administrative expenses as a
percentage of gross revenue was a result of the Company's ongoing effort to
control expenses and effectively assimilate higher volumes of business using
existing resources, offset by increased marketing, advertising and new business
development. The Company anticipates administrative expenses increasing due to
the compliance and reporting obligations associated with becoming a publicly
held company.
Net Income. The Company recognized net income of $124,274 (representing 8%
of gross revenue) for fiscal 1997 as compared to $30,082 (representing 6% of
gross revenue) for fiscal 1996. The increase in profitability (as a percentage
of gross revenue) is due to the factors discussed above.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has funded its capital requirements through
earnings, borrowings from affiliates and commercial lenders and private
placements of its capital stock. At January 31, 1997, the Company had cash in
the aggregate amount of $198,317.
The Company's working capital increased $256,163, from $45,565 at January
31, 1996 to $301,728 at January 31, 1997, primarily due to an increase in
accounts receivable and deferred offering costs. Accounts receivable increased
$412,911, from $63,855 at January 31, 1996 to $476,766 at January 31, 1997
primarily
15
<PAGE> 18
due to the increase in gross revenue during fiscal 1997. The Company generally
collects its accounts receivable within 65 days. Operating activities for fiscal
1997 required net cash in the amount of $101,280.
The purchase of equipment and furniture required cash in the amount of
$50,372 during fiscal 1997. These expenditures were made primarily for computer
hardware and software, furniture, fixtures and leasehold improvements necessary
to accommodate an increase in Company personnel. The Company believes that the
increase in personnel was a principal factor enabling the Company to generate
higher gross revenue in fiscal 1997. Net cash provided from financing activities
was $334,301, primarily due to an increase of $90,286 in borrowings under a
secured revolving line of credit with a commercial bank (the "Revolving Line of
Credit") and net proceeds in the amount of $239,918 from the sale of 59,524
shares of Series A Preferred Stock. See "Certain Transactions."
At January 31, 1997, the maximum amount available under the Revolving Line
of Credit was $200,000. Amounts outstanding under the Revolving Line of Credit
bore interest at the bank's prime interest rate plus 2% (10.25% at January 31,
1997) and were secured by all of the Company's accounts receivable. At January
31, 1997, $90,286 was outstanding under the Revolving Line of Credit.
The Revolving Line of Credit expired on March 31, 1997 and was replaced by
a new revolving line of credit (the "New Revolving Line of Credit"). The maximum
amount available under the New Revolving Line of Credit is $750,000. Prior to
the first day of the month following the completion of the Offering, amounts
outstanding under the New Revolving Line of Credit bear interest at the bank's
prime interest rate plus 2% (10.25% at April 30, 1997). On the first day of the
month following the successful completion of the Offering, the interest rate
will be reduced to the bank's prime interest rate plus 0.25%. Amounts
outstanding under the New Revolving Line of Credit are secured by all of the
Company's accounts receivable and the personal guaranty of Daniel M. Fine. See
"Certain Transactions." The New Revolving Line of Credit contains restrictions
relating to change of ownership of the Company and covenants requiring the
Company to maintain certain minimum levels of working capital and tangible net
worth (each as defined therein). The New Revolving Line of Credit expires on
March 31, 1998 (the "Expiration Date"). On the Expiration Date, the Company must
pay in full the aggregate unpaid principal amount then outstanding and all
accrued interest, together with all the applicable fees, costs and charges, if
any.
The Company has also obtained an additional line of credit (the "Equipment
Line of Credit") from the commercial bank which has made the New Revolving Line
of Credit available. The maximum amount available under the Equipment Line of
Credit is $400,000. Amounts drawn by the Company pursuant to the Equipment Line
of Credit may be used exclusively for the purchase of computer hardware and
software, furniture and fixtures, and leasehold improvements. Amounts
outstanding under the Equipment Line of Credit bear interest at the same rate of
interest as applicable to the New Revolving Line of Credit. Monthly payments of
accrued interest only are due until January 31, 1998, from which date the
balance outstanding under the Equipment Line of Credit will be required to be
amortized over a 36 month period. Amounts outstanding under the Equipment Line
of Credit will be secured by the assets purchased with funds borrowed under the
Equipment Line of Credit, all of the Company's accounts receivable and the
personal guaranty of Daniel M. Fine. See "Certain Transactions." The Company
believes that the funds available pursuant to the New Revolving Line of Credit,
the Equipment Line of Credit, the funds provided by the Offering and revenues
from operations will be sufficient for it to meet its capital requirements for
the foreseeable future.
In February 1997, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"). The Company, which is required to adopt the provisions of SFAS No.
128 during the fiscal year ended January 31, 1998, does not expect such adoption
to have any significant effect on earnings per share.
SEASONALITY AND INFLATION
The Company does not believe that inflation or seasonality has had a
significant effect on the Company's operations to date.
16
<PAGE> 19
BUSINESS
The Company plans, creates, maintains and hosts Web sites for major
national and international corporate clients and others. The Company's Web site
development process utilizes marketing expertise and state of the art
interactive database compilation and dissemination techniques and technologies.
Through the planning, creation, maintenance and hosting of interactive Web
presentations, the Company enhances clients' marketing campaigns, fosters the
collection of demographic data which is utilized by clients when allocating
marketing resources and facilitates both internal and external corporate
communications for clients.
The Company develops marketing driven, database oriented sites for
businesses which establish commercial presences on, or conduct Internet commerce
over, the Web. Corporate clients for which the Company has built and implemented
such Web sites include Twentieth Century Fox Home Entertainment, Inc., Safeway
Inc. and Microsoft. Web sites created for these clients may be viewed at
www.foxinternational.com, www.safeway.com and www.developerstore.com,
respectively. Through the planning and creation of Intranet Web sites, the
Company also serves businesses seeking to establish efficient, confidential
internal corporate communication systems. Intranet clients of the Company
include Microsoft and Marriott Corporation. Other clients for which the Company
has developed Web sites include Fluke Corporation, Intel Corporation, Mann
Packing Company, Optiva Corporation, Wall Data, Inc., Washington Mutual Savings
Bank and Windermere Services Company. See "-- Clients and Services."
BUSINESS STRATEGY
The Company specializes in producing complex, database driven and
relationship marketing oriented Web sites. The Company believes that such state
of the art Web sites -- as compared to traditional, one-way broadcast media
(such as television) or many first-generation Web sites -- will become an
essential means of conducting business for many commercial organizations. The
Company's business strategy is to derive and maximize revenue from the planning
and creation of such Web sites. In addition, the Company believes that, as
commercial Internet and internal corporate markets for Intranet sites develop,
ongoing maintenance and hosting of Web sites will become a more important aspect
of the Company's business.
The Company believes that there are thousands of Web site developers who
have created hundreds of thousands of Web sites, but that only a small
percentage of current commercial Web sites effectively utilize database
integration technologies or interactive database marketing techniques. Relying
upon its knowledge of marketing principles as well as its specific expertise in
custom programming and the development of relational databases, the Company
works with each of its commercial Web site clients, first, to establish specific
database driven relationship marketing strategies, and then to create unique Web
site features designed to entice visitors to provide information useful to the
client regarding the visitor's identity, interests and position in the customer
life cycle. Through such Web sites, the Company's clients may obtain
information-rich databases for use in the clients' overall sales and marketing
efforts. Similar techniques and strategies are also applied to the collection,
distribution and analysis of information for Intranet sites developed by the
Company.
The Company's producers, programmers, media designers, graphic artists,
writers and other personnel use third party software (primarily from Microsoft),
third party hardware and internally developed and customized software to plan,
create, maintain and host Web sites for the Company's clients. The Company works
with Microsoft to demonstrate to third parties the manner in which Microsoft
products can be used to establish a commercial presence on the Web. As a result
of this relationship, Microsoft has provided the Company with marketing
materials, assisted the Company with new business development and given
recognition to the Company on the Microsoft Web site (www.microsoft.com). See
"-- Relationship with Microsoft."
THE INTERNET AND THE WEB
Overview. The Company believes that the Internet and the Web offer new and
powerful mediums for commercial organizations to rapidly, economically and
productively target and manage a wider and better defined customer base.
Companies from many industries are publishing product and company information
for their vendors and customers, providing customer support, allowing customers
to buy products and permitting
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companies to collect customer feedback and demographic information online. User
friendly software now permits businesses to offer multimedia content such as
audio files and video clips, as well as text, spreadsheet and graphical data,
over the Web. These enhanced means of communication are also being used by
businesses internally for confidential corporate communications via Intranets.
History of the Internet. The Internet began in 1969 as ARPANET, an
experimental project funded by the U.S. Department of Defense and its Advanced
Research Programs Agency. ARPANET was designed for the military to link diverse
types of computer networks that would withstand the destruction of any part of
the network and continue to function. In 1986, the National Science Foundation
("NSF") established a program to promote the scientific use of ARPANET in
universities in the United States, and a year later awarded a contract to
various private companies to create and manage NSFNET, which became the
Internet's backbone. Although ARPANET officially ceased to exist in 1990, the
academic and private sector consortium had gathered significant momentum to
continue development.
Public and governmental agencies that funded the development of the
Internet established policies that prohibited commercial use, including
advertising, on the Internet. Nevertheless, the academic community began to
formulate independent connections to the Internet, which eventually evolved into
today's commercial access providers. Commercial access providers established the
Commercial Internet Exchange in 1991 to transmit traffic in a manner avoiding
the publicly funded portion of the Internet and the ban on its commercial use.
By 1995 in the United States, control of the Internet had largely passed from
the public sector to the private sector.
[PICTURE OF AN INTERNET TIMELINE, ACCOMPANIED BY TEXT, "1969 Department of
Defense commissions ARPANET; 1982 TCP/IP becomes standard; 1986 NSFNET, the
beginning of the Internet backbone, is created; 1991 commercial use of the
Internet begins to expand; 1992 The World Wide Web is introduced; 1995 US
Internet traffic carried by commercial access providers; April 1997 Reports
estimate that publicly accessible sites exceed 1 million."]
Source: Robert Zakon, Hobbes' Internet Timeline v 2.5, INTERNET SOCIETY (1996).
How the Internet Works. The Internet is a global "network of networks"
linking thousands of public and private computer networks that allows computers
attached to the Internet to communicate utilizing an open communications
protocol known as Transmission Control Protocol/Internet Protocol ("TCP/IP"). As
a result, diverse computing resources can be connected to the Internet on the
TCP/IP language, thereby enabling the free exchange of data without regard to
the various languages used by any specific computer. The primary uses of the
Internet include electronic mail, file transfer, news and chat services and,
increasingly, commerce over the recently developed network of servers and
information available on the portion of the Internet known as the Web.
Businesses and individuals access the Internet and the Web in two primary ways:
direct access to the Internet through an Internet Service Provider (commonly
known as an "ISP"), such as AT&T, MCI, Sprint, NETCOM, PSI or UUNET; or access
to the Internet through an online service, such as CompuServe, America Online or
Prodigy, each of which provide Internet access gateways.
The backbone of the Internet consists of international and nationwide
networks of data communications circuits and telecommunications lines designed
and operated specifically to carry TCP/IP-based traffic. High performance, high
bandwidth data communications circuits are interconnected at high performance
hubs,
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which are then connected to other regional hub locations. Computers at both ends
are typically connected to the network by means of a traditional local access
line provided by regional telephone companies. Thus, through ISPs or online
services, Internet users connect to the global network of networks with the
convenience and cost of a local telephone call.
LOGO
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Sites on the Web portion of the Internet can capture and maintain the
attention of a site visitor in a way that is not easily achievable with
conventional media. Web sites can be designed to retain a visitor's attention by
analyzing visitor responses, determining visitor interests and providing content
dynamically tailored by the visitor's feedback. Web sites allow commercial
organizations to offer their products and services to anyone with access to the
Internet. Businesses can encourage repeated visitor interaction by continuously
updating online information and can monitor the popularity of content and make
timely changes in response to real-time feedback. For example, a company can
estimate the volume of traffic on a Web site, gather information about the
visitors to that site and monitor the visitor's level of interest in that
company's products and services.
The Web. The recent growth in Internet use by businesses and individuals is
largely due to the emergence of a network of servers and information available
on the Web. The Web is a client/server system of multimedia data files
introduced in 1992, in which certain computers ("servers" or "home pages") store
files and respond to requests issued by remote computers ("clients") to download
files, thus allowing multiple, geographically dispersed users to view
information stored on a single server.
A Web site is a collection of one or more electronic documents, or "Web
pages," which may contain textual, audio and video information, that are
published in the common format known as HTML. A Web site can contain from one to
thousands of Web pages. Users with Web browsers, or software specifically
designed to search for and access information available on Web servers, can
specify which Web sites they wish to view by entering a site's unique electronic
Web address, known as its URL. Alternatively, users can navigate the Web by
making use of the hypertext link capabilities of Web documents. Hypertext links
are active areas on a Web page which, when selected by a user, automatically
cause the browser to display a specified page which may be located anywhere else
on the Web, thus enabling users to move from one Web site to another without
having to know the underlying address, or URL, of each site.
Growth of the Internet and the World Wide Web. Internet use has grown
rapidly since the early 1990s, fueled by increasing use of personal computers
and modems, the development of the Web, the introduction of easy-to-use Web
browsers and the availability of informational, entertainment and commercial
software applications. Technological advances relating to the Internet have
occurred and continue to occur rapidly, resulting in a more robust, lower-cost
infrastructure, improved security and increased value-added services and
content. According to a recent industry report, the number of people using the
Internet is, at a minimum, doubling every year.(5) Industry sources expect this
rate of growth to continue until at least the year 2000, at which time the
number of Internet users is expected to exceed 700 million, increasing from
approximately 57 million users in 1997.(6)
According to another industry source, Internet user growth is occurring at
a rapid pace in both households and businesses. That industry source estimates
that by the year 2000, the number of U.S. households with ready access to the
Internet will increase to 33 million, from 10 million in 1996, and the
percentage of U.S. businesses connected to the Internet will rise to 33% from 4%
in November 1996.(7) Noting that the numbers represent U.S. estimates only, that
industry source concludes that worldwide growth presents significant
opportunities for the transaction of business over the Internet.(8) In
anticipation of such growth, commercial Internet sites are being created at an
explosive pace. According to other industry sources, the number of commercial
Internet sites, defined as domain names ending in ".com," has increased from
4,912 in August 1995 to 171,738 in June 1996 and 609,275 in April 1997.(9) See
"-- Internet Commerce and the Marketing Communications Industry."
- ---------------
(5)Quarterman, supra note 1; Demographic Survey, supra note 1.
(6)Quarterman, supra note 1.
(7)News Release, Business-to-Business E-Commerce Explodes in 2000, FORRESTER
RESEARCH, INC. (November 29, 1996) (hereinafter E-Commerce).
(8)E-Commerce, supra note 7.
(9)Netcraft Surveys, supra note 4.
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INTERNET COMMERCE AND THE MARKETING COMMUNICATIONS INDUSTRY
Internet Commerce Generally. The Internet provides companies, individuals
and others with new means to conduct business and other activities rapidly,
economically and productively. According to an industry source, in 1996,
Internet commerce, defined as business-to-business and business-to-consumer
transactions, product marketing, advertising, entertainment, electronic
publishing, electronic services and customer support, accounted for $9.6 billion
in revenues.(10) This industry source projects that Internet commerce will
generate approximately $196 billion in revenues by the year 2000.(11) Another
industry source estimates that $66 billion of the aggregate $196 billion is
expected to result from business-to-business Internet commerce and the remaining
$140 billion is expected to be allocated among business and professional
information services ($37 billion), financial services ($22 billion), consumer
retail ($7 billion) and technical services relating to Internet infrastructure
and access ($74 billion).(12) The Company believes that the planning, creation,
maintenance and hosting of Web sites comprise services that are fundamental to
all of these areas of Internet commerce. As a result, the Company believes that
it is strategically positioned to profit from growth in all areas of Internet
commerce.
Interactive Marketing Communications. The Company believes that the
Internet enables businesses to reach and establish personalized two-way
communication with well-defined target audiences without paying the significant
costs required to buy traditional media (e.g. paper, print space, broadcast
media time and mail). The Internet thereby enables such businesses to target and
track customers with specific brand messages, to capture customer and corporate
constituent preferences, opinions, needs and desires, to have instant access to
consumer feedback and to continuously sharpen marketing plans to address the
current marketplace.
Early adopters of Web sites considered such sites to be a relatively
inexpensive way to signal a technologically sophisticated image without
requiring the expenditure of a significant portion of their overall marketing
communications budget. The Company believes, however, that as businesses become
more familiar with interactive marketing techniques and opportunities, the
amounts spent to utilize the new media will increase rapidly. Industry sources
have estimated that online spending for advertising alone will grow from $312
million in 1996 to $5 billion by 2000.(13) Approximately $161 billion was spent
on advertising in the United States in 1995, according to a leading advertising
agency.(14) The Company believes that over the next few years the rate of growth
of expenditures on new media will greatly exceed that of expenditures for
traditional media as more households and businesses connect to the Web and
marketers come to understand the potential benefits of communicating through
that media.
The Intranet Market. Once a corporation provides its employees with Web
access from their desktops, it may then have an internal corporate Web site
installed to distribute information internally within the corporation and to
host corporate applications. The Company believes that, in addition to the
development of publicly accessible Internet sites, the planning, creation,
maintenance and hosting of Intranets will provide significant business
opportunities for Web site developers.(15) Although the exact number of
corporate Intranets presently in existence is unknown, an industry source
estimates that the private Intranet market is far larger than its public
counterpart. According to this industry source, the number of publicly
accessible Internet sites, estimated at over 1 million, may be only a quarter of
the number of Intranets installed.(16) This market is
- ---------------
(10)Stan Gibson, Attention Shoppers: E-Commerce Is Here!, PC WEEK (November 25,
1996).
(11)Gibson, supra note 10.
(12)E-Commerce, supra note 7.
(13)Glenn Hasek, Web's Ad Revenues Rise, CYBERMANAGEMENT (October 7, 1996).
(14)McCann-Erickson, Insider's Report (December 4, 1995).
(15)Ellis Booker, Change in Market Share; Microsoft Server Tops Netscape's, WEB
WEEK (April 7, 1997).
(16)Booker, supra note 15.
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expected to experience rapid growth and development over the next three
years.(17) As of March 1996, corporate Intranets allowed employees to use the
Web only for internal document sharing.(18) New applications, however, have been
developing monthly.(19) By 2000, a "Full Service Intranet" is anticipated, which
is expected to provide five core applications consisting of directory services,
electronic mail, file management, print services and network management.(20)
Through Intranets, corporations may utilize the Web to extend their
internal information systems and applications to geographically dispersed
facilities, remote offices and mobile employees. An Intranet can yield
significant operational efficiencies and cost reductions by (1) lowering or
eliminating the costs of long distance telephone charges and leased telephone
lines that connect decentralized offices and staff, (2) permitting the delivery
and receipt of information more quickly, and (3) reducing paper, printing and
postage or delivery costs. Because security concerns have been, and continue to
be, addressed by improving technology, companies are now beginning to utilize
Intranets for confidential communications within the enterprise. Intranets are
also now being used by organizations for confidential communications to
customers and vendors (when used in this manner, Intranets may be referred to as
"Extranets"). An industry source predicts that, as corporations begin to take
advantage of the expanding benefits of Intranets, the total Intranet market will
grow from $12 billion in 1997 to $28 billion by 1999.(21)
Production and Hosting of Web Sites. As the number of Internet users
increases, the need by businesses to obtain effective and engaging Web sites is
expected to create significant opportunities for Web site developers. It has
been estimated that by 2000 fees paid to third party developers for building Web
sites will exceed $10 billion, compared to $1.2 billion paid to third party
developers of Web sites in 1996.(22) Of this $10 billion, it is estimated that
approximately $8.9 billion will be used for building promotional and commercial
Web sites, principally sites that advertise a company's products or services or
provide interactive shopping, banking or customer services.(23) The $10 billion
estimate, however, does not include estimated expenditures relating to Intranet
development.
An industry source has noted that most companies lack the internal
resources necessary to develop their own Web sites or effectively capture
commercial opportunities made available through utilization of the Web.(24) As a
result, businesses are relying upon Web site developers to define and implement
unique Web strategies and to keep businesses current with Internet
technology.(25) According to an industry source, businesses spend in the range
of $10,000 to $100,000 for Web site development. (26)
The construction of Web sites represents only part of the Web site
development industry. Businesses are also utilizing Web site development firms
to host their Web sites. An industry source reports that two-thirds of Fortune
1,000 companies currently use outside entities to host their Web sites, a
service which is estimated to
- ---------------
(17)Forrester Report, FORRESTER RESEARCH, INC. (March 1, 1996).
(18)Forrester Report, supra note 17.
(19)Paul Korzeniowski, Intranet Bets Pay Off Corporations are Leaping Headfirst
into Intranet Waters, Eschewing Traditional Return on Investment Research,
INFOWORLD ELECTRIC (January 13, 1997).
(20)Forrester Report supra note 17.
(21)Next-Generation Nets, INTERNETWORK (January 1997).
(22)Web Outsourcing, supra note 3.
(23)Web Outsourcing, supra note 3.
(24)News Release, Most Businesses Outsourcing Web Site Hosting, FORRESTER
RESEARCH, INC. (January 15, 1997) (hereinafter Site Hosting).
(25)Web Outsourcing, supra note 3.
(26)Site Building, CYBER ATLAS, from ActivMedia, Inc. (February 1, 1996).
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cost 20% less than a comparable, internally hosted site.(27) The Company
believes that businesses may continue to outsource hosting to acquire the
technical expertise, increased reliability and reported savings associated with
outside hosting.
CLIENTS AND SERVICES
The Web permits real time, one-to-one communication with consumers,
allowing consumers to respond to questions and messages on a Web site. The
Company believes that the Web provides commercial enterprises with unique
opportunities to gather valuable demographic data, including information
regarding users' identities and preferences. Accordingly, the Company has
created a Web site development process involving marketing and communications
strategies and Web site design elements. For example, in creating Web sites that
compile user-provided information, the Company works with its clients, first, to
establish specific database driven marketing strategies, and then, to create
unique Web site features designed to entice visitors to provide information
useful to the client regarding the visitor's identity, interests and position in
the customer life cycle. Through such Web sites, the Company's clients may
obtain information-rich databases for use in the clients' overall sales and
marketing efforts. The Company also services certain clients by maintaining and
hosting such clients' Web sites.
Company Clients. Since it began operations in 1994, the Company has
designed and created more than 50 Web sites. The Company's clients to date
include Twentieth Century Fox Home Entertainment, Inc., Safeway Inc., Microsoft,
Optiva Corporation, Fluke Corporation, Intel Corporation, Washington Mutual
Savings Bank, Wall Data, Inc., The DeWolfe Company, Windermere Services Company
and Mann Packing Company. The Company has designed and created Intranet sites
for Cairnstone Incorporated, Microsoft and Windermere Services Company. The
Company has also entered into a contract to design, create and produce Intranet
sites for the Marriott Corporation.
Web Site Production and Support. The Company has expertise in custom
programming, relational databases and computer graphics. The Company attempts to
provide each of its clients with the appropriate product or service for its
particular need. As detailed on the chart and in the text below, the Company's
services with respect to a particular client's interactive Web site may fall
within any combination of up to four major areas: Web site planning; Web site
creation; Web site maintenance; and Web site hosting.
- ---------------
(27)Site Hosting, supra note 24.
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LOGO
24
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LOGO
25
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WEB SITE PLANNING. The Company's process of developing a Web site begins
with planning. Web site planning generally consists of marketing and business
process consultation and the delivery of a Web site blueprint.
- Internet Marketing Consultation. The Company believes that one of its
strengths is its knowledge and utilization of marketing principles. Every
Internet Web site created by the Company is designed with the idea that
the end product should be an integrated part of the client's overall
marketing plan. The Company believes that its use of marketing principles,
in the context of developing Web sites and designing the manner in which
such Web sites are capable of interacting with users, differentiates the
Company from its competitors.
- Intranet Business Process Consultation. Many of the marketing principles
used in designing an Internet Web site are also applied by the Company in
designing Intranet Web sites for its clients. Utilizing marketing
principles, the Company and client identify the target audience and match
applicable information with the appropriate recipient. In addition, the
Company consults with its clients as to utilization of the Web for
extensions of the client's internal information systems and enterprise
applications to geographically dispersed facilities, remote offices and
mobile employees. The Company seeks to design Web sites in a manner which
will enable its clients to achieve operational efficiencies and cost
reductions.
- Web Site Blueprint. The technical plan, or blueprint, prepared by the
Company for each client describes in detail the Web site objectives,
design strategy and tactics, reporting requirements, technical
specifications, review and testing processes, program management and
communication protocols, site promotion, future site enhancements and
project timeline. In particular, the Company focuses on its marketing
resources to design Web sites that will provide measurements of actual
performance relative to each client's desired measurable results. The
Company compiles these blueprints and attempts, by leveraging the
information and experiences gained from each project completed by the
Company, to further enhance the development processes it routinely
utilizes for formulation of client proposals and projects.
WEB SITE CREATION. The Company's process of creating interactive Web sites
combines up to five elements: graphic design; multimedia production; custom
programming; database development; and systems integration. The Company believes
that the Web sites it creates are unique and among only a small percentage of
Web sites that effectively utilize database integration technologies or
interactive database marketing techniques.
- Graphic Design. The Internet and the Web allow the Company to produce for
its clients a Web site that communicates with the site visitor using both
text and graphic design. The Company employs personnel skilled in
presenting text which is consistent with the client's overall marketing
strategy and in providing sophisticated art direction that is visually
stimulating and capable of capturing the target audience's attention.
- Multimedia Production. The Company develops Web sites utilizing still
photographs, full motion video, dynamically generated charts and graphs,
animation and sound. Any or all of these features may be used to appeal to
a client's target audience on a Web site. Although these features are used
routinely for marketing to parties external to the client, such features
may also be used as part of a client's internal communications strategy.
- Custom Programming. Developing Web sites which permit real time
one-on-one interaction with site visitors requires specialized computer
programming beyond HTML. The Company therefore has employed technical
personnel with specific expertise in custom programming. In addition to
HTML, Company personnel have expertise and develop custom programming
using applications such as Microsoft(R) Visual Basic(R), Microsoft Visual
Basic(R) Scripting Edition, Microsoft(R) Jscript(R) Scripting Edition,
Microsoft(R) Visual J++(TM), Microsoft(R) Visual C++(R), and Microsoft(R)
Visual SourceSafe(TM).
- Database Development. The Company employs technical personnel with
specific expertise in the development of complex relational databases.
These databases are developed using Microsoft(R) SQL Server(TM) and
operate in conjunction with server products including Microsoft(R)
Internet Information
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Server Integrated with Microsoft Windows NT(R), Microsoft Exchange Server,
Microsoft Merchant Server and StormCloud Development Corporation's WebDBC.
- Systems Integration. A key component of a Web site is its ability to be
integrated into a client's computer systems as currently existing and as
such systems change in the future. The Company has employed technical
personnel with expertise in analyzing and documenting clients' existing
systems and in designing Web sites with sufficient flexibility to
facilitate future modifications.
WEB SITE MAINTENANCE. Maintaining and updating a Web site serves to protect
a client's investment in its Web site. Such maintenance may include supporting,
augmenting and enhancing the information collection and analysis efforts
provided for in the Web site's blueprint. In some cases, certain maintenance
activities may be performed directly by the client due to features designed and
implemented by the Company when creating the Web site. The Company, pursuant to
written agreements in addition to the original Web site creation agreement, will
frequently provide ongoing marketing and business process consultation, Web site
content updates, refreshment of graphic and multimedia content, and database
management.
- Content Updates. Web sites often require event driven or regularly
scheduled modifications of site content. Examples of such updating
includes posting of new properties on a real estate company's Web site
(e.g., Windermere Services Corporation), replacement of outdated coupons
with coupons promoting different merchandise (e.g., Safeway Inc.) or
changes in employment listings on a company's Intranet human resources
Web site (e.g., Microsoft).
- Graphic and Multimedia Refreshes. Both content updates and graphic
refreshment are driven by the interactive nature of the Web site. As an
interactive media, the Web site provides a virtually instantaneous gauge
of the site's communications effectiveness. This feedback allows the
client to continuously modify the form and content of a Web site message
to improve its effectiveness.
- Database Management. Databases experiencing large volumes of original
input normally require periodic maintenance to ensure the integrity and
usefulness of the data. The Company performs such functions for certain
of its clients.
WEB SITE HOSTING. The Company also serves certain of its clients by hosting
the Web sites it has planned, created or maintained. In addition, the Company
provides hosting services for Web sites other than those it has planned, created
or maintained. The primary elements of Web site hosting are reporting and
Internet connectivity.
- Reporting. The Company serves certain of its clients by periodically
analyzing client's Web site traffic and reporting the results.
- Internet Connectivity. Every Web site must be made accessible to the
Internet in order to be viable. The Company serves as a host for certain
of its clients' Web sites. The Company provides the computers and/or the
connection to the Internet necessary to allow the client's Web site to be
accessed by users of the Internet.
COMPANY RESPONSE TO ONE CLIENT'S NEEDS
One example of the services performed by the Company is the initial project
undertaken for Twentieth Century Fox Home Entertainment, Inc. For this client,
the Company planned, created and maintains a brand-intensive, highly interactive
Web site supporting the release of the home video version of the film
Independence Day as it is distributed into retail outlets outside of the United
States. A diagram illustrating the features of this Web site appears on the
inside front cover of this Prospectus. The Company believes that the Web site
created for Twentieth Century Fox Home Entertainment, Inc. is representative of
the Company's ability to create sophisticated Web sites for its clients.
The objectives of Twentieth Century Fox Home Entertainment, Inc.'s
Independence Day Web site include generating public awareness of the video's
availability, stimulating store traffic, reinforcing the positioning and
branding of the movie, cross-promoting other movies, driving consumer traffic to
related promotional events and encouraging both word-of-mouth site referrals and
repeat site visits. Twentieth Century Fox Home Entertainment, Inc. desired a
highly interactive database to run the Web site as well as to
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provide timely feedback on the results of the various programs and events
promoted on the site. The complex database implemented by the Company for this
site enables analysis of the consumer profile information collected on the site,
site image statistics and consumer segmentation data.
The Company made extensive use of several programming applications to
create the custom features used to capture the attention of the site's target
audience. The Independence Day Web site contains three games for site visitors
to play. As of the date of this Prospectus, each game is paired with a promotion
or sweepstakes. The site was configured to allow online postcards to be sent
from a site visitor to anyone in the world with an electronic mail address. The
postcard recipient may then go to the site's "post office" and retrieve the
message which was sent. The site is available in multiple languages for various
international audiences.
The Independence Day Web site was designed to be an ongoing resource for
the client. The site's database is capable of handling the information related
to additional videos as they are released and promoted via the Web. The Company
anticipates being engaged to create additional sites for the client to take
advantage of this resource.
RELATIONSHIP WITH MICROSOFT
Since its formation in 1994, the Company has developed technical expertise
in planning, creating, maintaining and hosting Web sites for clients. To date,
the Company has developed such Web sites principally through the application of
Microsoft products and has developed intensive specialized training for its
production personnel in the use of Microsoft products. The Company is a beta
tester, and is sometimes an alpha tester, of new software products developed by
Microsoft and other software developers. As a result, Company personnel have
historically been regularly informed of the latest developments in interactive
technology.
Working with Microsoft as a Paid Vendor. The Company serves Microsoft as a
paid vendor, developing various components of both Internet and Intranet Web
sites for Microsoft. During fiscal 1996 and fiscal 1997, the Company created
over 30 Web sites for various Microsoft units including its Enterprise Customer
Unit, Organization Customer Unit, Human Resources Department, Product Groups
(including Exchange, Project, Publisher/Works, and Word) and The Microsoft
Network. Total services rendered by the Company to Microsoft accounted for 34%
and 19% of the Company's gross revenue for fiscal 1996 and fiscal 1997,
respectively.
Microsoft Sponsored Marketing Programs. The Company is an active
participant in two Microsoft sponsored marketing programs: the Microsoft
Solution Provider Partner program and the Microsoft Site Builder Network
program:
- Microsoft Solution Provider Partner Program. Microsoft Solution Provider
Partners are individual companies that provide consulting, integration,
customization, development, training, technical support or other services
utilizing Microsoft products. Through the Microsoft Solution Provider
Partner program, Microsoft works with companies to provide information,
tools and business development assistance to successfully implement
business solutions and provide services using the Microsoft Solutions
platform and technologies. The Microsoft Solution Provider Partner
program clearly identifies companies as having a special relationship
with Microsoft.
- Microsoft Site Builder Network Program. Participants in this program
receive national marketing materials, including a four color printed
brochure that promotes the participants and their services, a featured
client case study on the Microsoft Web site, and a listing on the
Microsoft Web site within a directory of site builders. In addition,
Microsoft technical support and training opportunities, including free
training at a Microsoft authorized Technical Education Center and special
participant only technical briefings, the latest development information
and tools and sales leads of businesses requesting assistance
implementing Microsoft technology are provided to participants in the
Microsoft Site Builder Network Program.
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The Company is a Level Three Microsoft Site Builder (the highest attainable
service level) and was the first entity to achieve this designation. The Company
believes it was the first site builder featured in a direct mail campaign
conducted by Microsoft. The Company has developed several significant client
relationships from this association.
Joint Marketing Presentations. In conjunction with both the Microsoft
Solution Provider Partner and the Microsoft Site Builder Network programs,
representatives of the Company have been invited to take part in several joint
marketing opportunities with Microsoft. These include:
- the Microsoft/Ernst & Young LLP "Small Business Summit 1996" held in San
Francisco, California in October 1996;
- the Microsoft/Onyx Software/fine.com Corporation seminar, "How to
Successfully Market Products and Services on the Web," at the Microsoft
Bellevue, Washington campus in January 1997;
- the Microsoft/fine.com Corporation/Polaris Group seminar, "Microsoft
Intranet Solutions," at the Microsoft Bellevue, Washington campus in
February 1997;
- as co-developer and presenter of a Microsoft/Hewlett Packard/fine.com
Corporation "Consumer Solutions Briefing" made available on CD ROM in
March 1997;
- the fine.com Corporation/Microsoft seminar, "Retailing on the Internet,"
held at the Microsoft Boston, Massachusetts offices in April 1997; and
- the Microsoft/fine.com Corporation/XcellNet/Successful
Franchising/Hewlett Packard seminar, "Franchise of the Future," held at
the Microsoft Redmond, Washington campus in April 1997.
COMPETITION
The Internet-related interactive marketing industry is highly competitive.
The Company expects competition for its services to intensify in the future. Due
to the rapidly evolving nature of the Internet, competition also is
characterized by pressures to adopt and utilize new capabilities and
technologies to respond rapidly to evolving client requirements.
The Company faces competition from a number of competitors, some or all of
which may provide Web site planning, creation, maintenance or hosting services.
Direct competitors include: (1) prospective clients that perform Web site
development services in-house; (2) Web site service firms, such as K2 Design,
Free Range Media, Razorfish Inc., Eagle River Interactive, Red Sky Interactive,
Inc. and USWeb; (3) Internet-oriented advertising agencies such as The Leap
Group, CKS Group and The Martin Agency; (4) communications, telephone and
telecommunications companies such as UUNET Technologies and US West; and (5)
established online service companies, advertising agencies, direct Internet
access providers as well as specialized and integrated marketing communication
firms, all of which are entering the Web site planning, creation, maintenance or
hosting markets in varying degrees and are competing with the Company, and many
of which have announced plans to offer expanded Web site planning, creation,
maintenance and/or hosting services. Many of the Company's competitors or
potential competitors have longer operating histories, longer customer
relationships and significantly greater financial, management, technological,
development, sales, marketing and other resources than the Company. The Company
also competes on the basis of creative and technical talent, price, customer
service and responsiveness. There can be no assurance that the Company will be
able to compete effectively and its inability to do so would have a material
adverse impact on the Company.
29
<PAGE> 32
PROPERTIES
The Company's offices currently occupy approximately 8,000 square feet of
an office building at 1118 Post Avenue, Seattle, Washington 98101 at an annual
rent of approximately $80,000. Such payments include the Company's allocable
share of certain real property taxes and building operating expenses. The
remaining lease term expires in April 2001. The Company anticipates that it will
need to lease additional space during either 1997 or 1998 as the Company adds
personnel and expands its infrastructure.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
EMPLOYEES
As of April 30, 1997, the Company had 24 full time employees. The Company
has no labor contracts or collective bargaining agreements. The Company
considers its relations with its employees to be good.
30
<PAGE> 33
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning directors,
executive officers and certain key employees of the Company. Each director holds
office until the first annual meeting of shareholders is held after his election
or until his successor is elected or appointed and qualified.
<TABLE>
<CAPTION>
NAME AGE* POSITION
------------------------- ---- --------------------------------------------------
<S> <C> <C>
Daniel M. Fine 38 Chairman of the Board, President and Chief
Executive Officer
James P. Chamberlin 36 Chief Financial Officer and Director
Daniel G. Stull 35 Chief Operating Officer
Bill Flowers 34 Chief Technology Manager
Diana Bury 34 Manager of Internet Services
Robert L. Barker, Jr. 28 Manager of Intranet Services
Herbert L. Fine 66 Director
Frank Hadam 69 Director
Norman W. Lauchner 76 Director
Anthony C. Naughtin 41 Director
</TABLE>
- ---------------
* As of May 9, 1997
Daniel M. Fine founded the Company in 1994 and since its inception has
served as its Chief Executive Officer and Chairman of the Board. From September
1991 through January 1994, Mr. Fine was a partner in Kobasic Fine Hadley, an
advertising agency, where he also served as vice president of marketing. Kobasic
Fine Hadley was created in 1990, after the merger of Kobasic Hadley, an
advertising agency, with Fine Advertising, an agency founded by Mr. Fine in
1987. From 1984 to 1986, Mr. Fine was an associate marketing/media manager with
the New York advertising agency of Levine, Huntley, Schmidt & Beaver. Mr. Fine
holds a B.A. from Washington State University. Mr. Fine is the son of Herbert
Fine, a Director, and Mr. Fine is related by marriage to Mr. Hadam, a Director.
James P. Chamberlin joined the Company in July 1995 as Chief Financial
Officer. Mr. Chamberlin has served as a Director of the Company since July 1996.
From March 1989 to July 1995, Mr. Chamberlin served as controller of Pinnacle
Productions International, Inc., a video special effects and post production
company. From September 1985 to March 1989, Mr. Chamberlin was on the audit
staff of Ernst & Young LLP in its Seattle, Washington office. Mr. Chamberlin
holds a B.A. from the University of Washington.
Daniel G. Stull joined the Company in March 1996 and has served as Chief
Operating Officer since January 1997. From October 1992 to March 1996, Mr. Stull
served LaserDirect, Inc., a database and direct marketing company, as chief
financial officer (from October 1992 to December 1993), vice president of
account services (from December 1993 to February 1995) and vice
president/account director (from March 1995 to March 1996). From June 1989 to
August 1992, Mr. Stull served as vice president and general manager of ADS
Distributing, Inc., a distributor of specialty construction materials selling
through a network of independent dealer/distributors in the United States and
Canada. From 1987 to 1989, Mr. Stull was on the audit staff of Ernst & Young LLP
in its Seattle, Washington office. Mr. Stull holds a B.A. and M.B.A. from the
University of Washington. Mr. Stull serves as a director of LaserDirect, Inc., a
privately held company.
Bill Flowers joined the Company in July 1996 and has served as Chief
Technology Manager since December 1996. From July 1992 to June 1996, Mr. Flowers
served as director of academic computing and user services at Seattle
University. From September 1991 to June 1992, Mr. Flowers was a technical
computer consultant at Seattle University. Mr. Flowers holds a B.A. from
Washington State University.
Diana Bury joined the Company in September 1996 as Manager of Internet
Services. From January 1996 to August 1996, Ms. Bury operated her own multimedia
consulting business. From April 1994 to Janu-
31
<PAGE> 34
ary 1996, Ms. Bury served as executive producer for Sanctuary Woods Multimedia,
an entertainment and educational multi-media CD-ROM production company. From
March 1993 to April 1994, Ms. Bury served AT&T's Microelectronics Division as an
Individual Software Vendor Marketing Manager. From June 1990 to December 1992,
Ms. Bury served as product marketing manager for Pensoft Corporation, a software
development corporation for pen-based computers.
Robert L. Barker, Jr. joined the Company in January 1997 as Manager of
Intranet Services. From July 1995 to January 1997, Mr. Barker served
SolutionsIQ, a firm specializing in developing technical computer solutions,
where he worked principally on Web-based database applications. From November
1994 to July 1995, Mr. Barker was a product development manager for Intermation,
Inc., a records and document management software development corporation, where
he managed the development of a client/server document management system
product. From June 1993 to October 1994, Mr. Barker was a development lead for
Microsoft. From 1991 to June 1993, Mr. Barker was a development and design lead
for Analytical Technologies, Inc., an environmental analysis laboratory. Mr.
Barker holds a B.S. in Biochemistry/Molecular Biology from the University of
Maryland.
Herbert L. Fine has been a Director of the Company since October 1994.
Since January 1996, Mr. Fine has been a partner of FINE/EDGE, a marketing
consulting firm which has been retained to provide services to Toyota Motor
Sales, USA., Inc. From March 1991 to December 1995, Mr. Fine served as senior
vice president, chief operating officer and a director of Kogei America, Inc., a
sales promotion company. From 1974 to 1991, Mr. Fine served
Dancer-Fitzgerald-Sample Advertising as vice president and director of promotion
services. Mr. Fine holds a B.A. in Communication Arts from Michigan State
University. Mr. Herbert Fine is the father of Daniel M. Fine.
Frank Hadam has been a Director of the Company since October 1994. Mr.
Hadam retired in 1991. From 1986 to 1991, Mr. Hadam served as a communications
consultant to Bell Communications Research ("Bellcore"). Prior to that time, Mr.
Hadam served in various capacities at Michigan Bell, AT&T, Bell Labs, and
Bellcore where he worked on the design and implementation of international
private data networks. These analog and digital networks served both large
business customers and the U.S. government. His experience includes development
and manufacture of electronic switching systems, electronic tanden networks,
private virtual networks, software defined networks, T-1 transmission systems,
microwave transmission and fiber optics. Mr. Hadam holds a B.S. from Lyle
University. Mr. Hadam's daughter is married to Daniel M. Fine.
Norman W. Lauchner has been a Director of the Company since December 1996.
Since November 1994, Mr. Lauchner has served as Managing Director/Pacific region
of The Advertising Council, Inc., a non-profit corporation which is the nation's
largest provider of public service advertising. Mr. Lauchner retired in 1985.
From 1975 until 1985, Mr. Lauchner served as President of
Dancer-Fitzgerald-Sample's Southern California Division. From 1973 to 1975, Mr.
Lauchner served as Executive Vice President of Dancer-Fitzgerald-Sample, Inc.,
in New York, and from 1973 to 1983 he was a Director of DFS Holdings, Inc., the
agency's parent.
Anthony C. Naughtin has been a Director of the Company since December 1996.
Mr. Naughtin founded InterNAP Network Services LLC, a high performance
Internet/Intranet and data center outsourcing company, for which he has served
as president and chief executive officer since May 1996. From May 1995 to May
1996, Mr. Naughtin served as vice president of Commercial Network Services and a
director of ConnectSoft, Inc., a retail software and network services company.
From 1992 to May 1995, Mr. Naughtin served as director of sales for
NorthwestNet, Inc., a NSFNET/Internet company. Mr. Naughtin holds a B.A. from
the University of Iowa and a J.D. from Creighton School of Law.
AUDIT COMMITTEE
In April 1997, the Board of Directors established an Audit Committee. The
Audit Committee's functions include reviewing the Company's internal controls
and recommending to the Board of Directors the engagement of the Company's
independent accountants, reviewing with such accountants plans for and the
results of their examination of the Company's financial statements and
determining the independence of such accountants. The members of the Audit
Committee are Messrs. Hadam and Naughtin.
32
<PAGE> 35
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table. The following table sets forth certain
compensation paid to the Chief Executive Officer for fiscal 1997 (the "Named
Executive Officer"). During fiscal 1997, none of the Company's other executive
officers received compensation, including bonuses, in excess of $100,000.
<TABLE>
<CAPTION>
ANNUAL
NAME AND PRINCIPAL POSITION COMPENSATION(1)
-------------------------------------------------------------- ---------------
<S> <C>
Daniel M. Fine
(President and Chief Executive Officer)..................... $58,113
</TABLE>
- ---------------
(1) The amount listed consists entirely of salary. No bonus was paid to Mr. Fine
during fiscal 1997. The Company provides Mr. Fine certain personal benefits
including payments for a car allowance. Since the value of such benefits did
not exceed 10% of Mr. Fine's annual salary, the amount is omitted.
Employment Contracts. Daniel M. Fine and James P. Chamberlin have entered
into employment agreements with the Company, each of which will become effective
on the first day of the month following the closing of the Offering. Each
agreement is for a term of three years, and is subject to automatic renewal for
successive one year terms unless either the employee or the Company gives 90
days notice of an intention to not renew such agreement. In addition, Messrs.
Fine and Chamberlin are each parties to the Company's standard assignment of
inventions and nondisclosure agreement which provides that each will endeavor to
protect all intellectual property rights of the Company and will not disclose
confidential Company information to outside parties during the term of their
respective employment agreements and for a period of 18 months thereafter.
Mr. Fine's employment agreement provides for an annual base salary of
$95,000, subject to annual review by the Board of Directors. A discretionary
bonus may be determined by the Board of Directors. Additionally, pursuant to a
non-competition covenant, Mr. Fine has agreed not to compete with the Company
for two years following the termination of his employment.
Mr. Chamberlin's three-year employment agreement provides for an annual
base salary of $90,000, subject to annual review by the Board of Directors. A
discretionary bonus may be determined by the Board of Directors. Additionally,
pursuant to a non-competition covenant, Mr. Chamberlin has agreed not to compete
with the Company for two years following the termination of his employment.
1997 Option Plan. In April 1997, the Company adopted the 1997 Option Plan
and reserved 200,000 shares of Common Stock for issuance thereunder. The purpose
of the 1997 Option Plan is to promote the success of the Company's business by
attracting the best available personnel for positions of substantial
responsibility, and to provide additional incentives to officers, directors,
employees, consultants and advisors of the Company. The 1997 Option Plan
provides for the grant of both incentive stock options (stock options that are
intended to qualify for favorable tax treatment under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) and nonqualified stock
options. The 1997 Option Plan is not qualified under Section 401(a) of the Code
and is not subject to the Employee Retirement Income Security Act of 1974.
The 1997 Option Plan is administered by the Board of Directors which has
full power and authority to administer and interpret the 1997 Option Plan and to
adopt such rules and agreements for the administration of the 1997 Option Plan
as the Board of Directors deems necessary or advisable.
The Board of Directors selects the participants to receive stock options
and determines the number of shares, the type of option and the exercise price
as well as the time or times at which options may be exercised and other terms
and conditions. For incentive stock options, the exercise price may not be less
than the fair market value of the Common Stock on the date of grant. For
nonqualified stock options, the exercise price may be less than the fair market
value of the Common Stock on the date of grant. In no case, however, may options
(whether incentive stock options or nonqualified stock options) be granted under
the 1997 Option Plan at an exercise price which is less than the initial public
offering price of the shares of Common Stock offered hereby. In the event of
stock dividends, stock splits or similar changes in the Company's capital
structure, the
33
<PAGE> 36
1997 Option Plan provides for appropriate adjustments in the number of shares
available for options and the number of shares subject to and exercise prices of
outstanding options.
The term of each option granted under the 1997 Option Plan may be no more
than ten years from the date of grant. Vested options granted to employees
expire 90 days following termination of employment (12 months, if termination of
employment is due to death or disability, but in no event later than the date of
expiration of the option). The Board of Directors has the authority to extend
the expiration dates of any outstanding option in circumstances it deems
appropriate, provided that it may not extend an option beyond the original term
of such option.
The exercise price of options is generally payable in cash. Additionally,
upon exercise of nonqualified stock options, the option holder must also pay to
the Company the amount of federal, state, and local taxes required to be
withheld by the Company. Under certain limited circumstances, shares of Common
Stock may be used for payment of the exercise price or satisfaction of
withholding obligations.
Notwithstanding any option vesting requirements, in the event of a merger,
reorganization, sale of substantially all of the assets of the Company, change
of control of the Company, liquidation, dissolution or other corporate
transaction wherein the Company is not the surviving corporation, an option
holder typically has the right to immediately exercise all of his or her
options, whether vested or unvested.
The options are assignable only (i) by will or by the laws of descent and
distribution; (ii) by a qualified domestic relations order; or (iii) in the case
of a nonqualified stock option, by gift to immediate family members of the
optionee, to partnerships of which the only partners are members of the
optionee's immediate family and trusts established solely for the benefit of
such immediate family members.
The 1997 Option Plan may be modified, amended or terminated by the Board of
Directors except with respect to options granted prior to such action.
Notwithstanding the foregoing, shareholder approval is required for any
amendment which increases the number of shares subject to the 1997 Option Plan
(other than in connection with the anti-dilution provisions described above or
the assumption or substitution of options in connection with certain mergers and
other similar events). The Board of Directors may delegate its power and
authority with respect to the 1997 Option Plan to a committee thereof.
1996 Option Plan. The Company has adopted the 1996 Option Plan, the purpose
of which is to attract, retain and motivate selected employees, officers and
consultants of the Company. A total of 107,157 shares of Common Stock have been
reserved for issuance and are subject to outstanding options under the 1996
Option Plan. The exercise price of all outstanding options under the 1996 Option
Plan at April 30, 1997 is $2.05 per share. No additional shares can be reserved
under the 1996 Option Plan.
Options granted under the 1996 Option Plan vest over a five-year period,
according to a schedule which provides that 5% of such options vest one year
after the date of grant, 15% vest after two years, 30% vest after three years,
50% vest after four years, and the option becomes 100% vested after five years.
No options under the 1996 Option Plan were granted prior to 1996. Vested options
granted under the 1996 Option Plan are generally exercisable for a period of 10
years from the date of grant, except that vested options terminate 60 days after
termination of employment (12 months, if termination of employment is due to
death or disability). Upon exercise, the exercise price may be paid in cash or,
at the discretion of the Option Plan Administrator (currently the Board of
Directors), in shares of Common Stock or by withholding from the optionee that
number of shares of Common Stock which on the date of exercise have a fair
market value equal to the exercise price of the option. All of the options
granted under the 1996 Option Plan qualify as incentive stock options.
CERTAIN TRANSACTIONS
In October 1994, in connection with the initial capitalization of the
Company, the Company issued, after giving effect to subsequent recapitalization
events, 633,323 shares of Common Stock to Daniel M. Fine, President, Chief
Executive Officer and Chairman of the Board, and 211,109 shares of Common Stock
to
34
<PAGE> 37
each of Frank Hadam, Director and Herbert L. Fine, Director, resulting in net
proceeds to the Company in the amount of $75,000.
On January 31, 1997, the Company completed a private placement of 59,524
shares of Series A Preferred Stock, resulting in net proceeds to the Company in
the amount of $239,918. The terms of the Series A Preferred Stock provide that
the issued and outstanding shares of Series A Preferred Stock will automatically
convert on the effective date of the Registration Statement of which this
Prospectus forms a part into shares of Common Stock, at a one-to-one conversion
ratio. Upon the closing of the Offering, all authority of the Company to issue
preferred stock shall terminate. See "Description of Capital Stock -- Preferred
Stock." None of the holders of Series A Preferred Stock were previously
shareholders of the Company. Digit, Inc., a wholly owned subsidiary of Mitsui
Corporation, purchased 23,810 shares of Series A Preferred Stock. No other
investor purchased more than 10% of the total number of such shares issued.
Craig T. Kobayashi, a principal of Cairncross & Hempelmann, P.S., counsel to the
Company, purchased 5,952 shares of Series A Preferred Stock on terms identical
to those of the other investors.
In February 1997, principals of Cairncross & Hempelmann, P.S., counsel to
the Company, entered into an option agreement with Messrs. Daniel M. Fine, Frank
Hadam and Herbert L. Fine providing for the purchase from such shareholders of
up to 79,167 shares of Common Stock at any time between January 1, 1999 and
January 1, 2007 at a nominal price.
InterNAP, Inc., a company founded and served by Anthony C. Naughtin,
Director, has provided the Company with Internet network and Web server hosting
services in the past. The Company believes that such services were provided on
terms no less favorable to the Company than could have been obtained from
unaffiliated parties.
As of the date of this Prospectus, Daniel M. Fine owes the Company
approximately $30,000, reflecting advances made to Mr. Fine over an
approximately two-year period ending in December 1996. Mr. Fine is currently
making semi-monthly payments on the principal amount of such debt.
Daniel M. Fine has personally guaranteed the obligations of the Company
arising under its real property lease, the New Revolving Line of Credit and the
Equipment Line of Credit.
Subsequent to the date of this Prospectus, the Company does not intend,
with the exception of customary travel and expense advances, to advance funds or
extend loans to any officer, director or holder of five percent or more of the
outstanding capital stock of the Company or any of their respective affiliates.
Additionally, the Company does not intend to enter into any other transaction
with any officer, director or holder of five percent or more of the outstanding
capital stock of the Company or any of their respective affiliates unless the
terms are no less favorable to the Company than those which would be available
from unaffiliated third parties and the transaction is first approved by a
majority of the Company's disinterested directors.
35
<PAGE> 38
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of the date of this Prospectus, and
after the sale of the Common Stock offered hereby, by (i) each person who is
known by the Company to beneficially own 5% or more of the outstanding shares of
Common Stock, (ii) each director, (iii) the Named Executive Officer and (iv) the
Company's executive officers and directors as a group. The address of each such
person is in care of the Company, 1118 Post Avenue, Seattle, Washington 98101.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF ---------------------
SHARES BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
------------------------------------------- ------------------- -------- --------
<S> <C> <C> <C>
Daniel M. Fine............................. 633,323(2) 56.8% 29.9%
Frank Hadam................................ 211,109(3) 18.9 10.0
Herbert L. Fine............................ 211,109(3) 18.9 10.0
James P. Chamberlin........................ 3,320(4) * *
Anthony C. Naughtin........................ -- * *
Norman W. Lauchner......................... -- * *
All executive officers and directors as a
group (seven persons).................... 1,058,908(5) 94.7% 50.0%
</TABLE>
- ---------------
* Less than 1%
(1) This table is based on information supplied by executive officers, directors
and shareholders. Subject to applicable community property laws, each
shareholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such shareholder's name.
(2) Of this amount, 47,499 shares are subject to an option granted by Mr. D.
Fine to principals of Cairncross and Hempelmann, P.S., counsel to the
Company. See "Certain Transactions."
(3) Of this amount, 15,834 shares are subject to an option granted by each of
Mr. Hadam and Mr. H. Fine to Cairncross and Hempelmann, P.S., counsel to the
Company. See "Certain Transactions."
(4) Consists of shares of Common Stock subject to stock options granted and
exercisable within 60 days of the date of this Prospectus.
(5) The number of shares beneficially owned by all executive officers and
directors as a group includes 3,367 shares of Common Stock subject to stock
options granted and exercisable within 60 days of the date of this
Prospectus.
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock is not
intended to be complete and is subject to and qualified in its entirety by
reference to the Company's Articles of Incorporation, as amended, and the
Company's Bylaws, copies of each of which are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
GENERAL
Immediately prior to the date of this Prospectus, the Company had
authorized capital stock consisting of 9,000,000 shares of Common Stock, of
which 1,055,541 shares are issued and outstanding, and 1,000,000 shares of
Preferred Stock, of which 59,524 shares have been designated as Series A
Preferred Stock, all of which are issued and outstanding. Immediately prior to
the date of this Prospectus, there were four holders of record of Common Stock
and nine holders of record of shares of Series A Preferred Stock. Pursuant to
the terms of the Series A Preferred Stock, on the effective date of the
Registration Statement of which this Prospectus forms a part, the issued and
outstanding shares of Series A Preferred Stock will automatically convert into
59,524 shares of Common Stock (resulting in an aggregate of 1,115,065 shares of
Common Stock outstanding at such time). Additionally, on such date, all
authorized shares of Preferred Stock will automatically convert into additional
authorized shares of Common Stock and, as a result, the Company's
36
<PAGE> 39
authorized capital stock will, on such date, consist solely of 10,000,000 shares
of Common Stock. The Company has reserved 107,157 shares of Common Stock for
issuance under the 1996 Option Plan, all of which are subject to outstanding
options, and 200,000 shares of Common Stock for issuance pursuant to the 1997
Option Plan, none of which are subject to outstanding options.
COMMON STOCK
Holders of outstanding shares of Common Stock are entitled to one vote per
share on all matters submitted to a vote of the shareholders. Except as may be
required by applicable law, holders of outstanding shares of Common Stock vote
together as a single class. Holders of a majority of the outstanding shares of
Common Stock constitute a quorum at any meeting of shareholders and the vote by
the holders of a two-thirds of the outstanding shares of Common Stock is
required to effect certain fundamental corporate changes including liquidation,
merger or sale of substantially all of the Company's assets.
Holders of outstanding shares of Common Stock are entitled to receive
dividends, if, as, and when declared by the Board of Directors out of funds
legally available therefor. Upon liquidation of the Company, holders of
outstanding shares of Common Stock are entitled to share ratably in all assets
of the Company remaining after payment of liabilities. Holders of outstanding
shares of Common Stock have no preemptive rights or other rights to subscribe
for unissued or treasury shares or securities convertible into or exercisable or
exchangeable for shares of Common Stock. The outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby when issued will be, duly
authorized and validly issued and, upon payment therefor, fully paid and
nonassessable.
ANTI-TAKEOVER LEGISLATION
The Company is subject to the Business Corporation Act of Washington
("RCW"), which contains provisions that have the effect of discouraging
nonnegotiated takeover attempts. RCW 23B.19 generally prohibits any "significant
business transaction" within five years of the date on which a person acquires
ten percent or more of the outstanding voting shares of a corporation, unless
the transaction first receives the approval of a majority of the disinterested
directors prior to the time the ten percent threshold is crossed.
RCW 23B.19 also imposes a fair price restriction on corporations. The
statute provides, subject to certain exceptions, that specified
change-of-control transactions between a corporation and an interested
shareholder (defined as a person or affiliated group beneficially owning 20% or
more of a corporation's outstanding voting stock) will be prohibited unless a
majority of disinterested directors determine the price offered by the
interested shareholder to be fair or unless two-thirds of the shareholders (not
including the interested shareholder) approve.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation, as amended, provide that the
liability of the Company's directors is limited and that the Company will
indemnify its directors and officers to the fullest extent permitted by law.
Insofar as indemnification for liability arising under the Securities Act may be
provided to directors, officers and controlling persons of the Company pursuant
to those provisions, or otherwise, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Corporate Services.
37
<PAGE> 40
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Sales of a substantial amount of Common Stock in the public market, or
the perception that such sales may occur, could adversely affect the market
price of the Common Stock prevailing from time to time in the public market and
could impair the Company's ability to raise additional capital through the sale
of its equity securities in the future.
Upon completion of the Offering, the Company will have 2,115,065 shares of
Common Stock outstanding (2,265,065 shares, if the Underwriters' over-allotment
option is exercised in full), consisting of 1,000,000 shares of Common Stock
offered hereby (1,150,000 shares, if the Underwriters' over-allotment option is
exercised in full) and 1,115,065 restricted shares of Common Stock. In addition,
the Company will have reserved 107,157 shares of Common Stock for issuance upon
exercise of outstanding options granted under the 1996 Option Plan and 200,000
shares of Common Stock for issuance upon exercise of options which may be
granted under the 1997 Option Plan.
The shares of Common Stock offered hereby will be freely tradable without
restriction or further registration under the Securities Act by persons other
than affiliates of the Company. The restricted shares will be freely tradable if
subsequently registered under the Securities Act or to the extent permitted by
Rule 144 or some other exemption from registration under the Securities Act.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the date of acquisition of restricted shares from the Company or an
affiliate of the Company, the holder is entitled to sell, in the public market,
within any three month period, that number of shares of Common Stock which does
not exceed the greater of 1% of the total number of then outstanding shares of
Common Stock or the average weekly trading volume of shares of Common Stock
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and availability of current public
information about the Company. If two years have elapsed, a holder, other than
an affiliate of the Company, is entitled to sell restricted shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale requirements, public information requirements or notice requirements. Of
the restricted shares, 1,055,541 shares of Common Stock will be eligible for
sale under Rule 144 under the Securities Act 90 days after the date of this
Prospectus, and the remaining 59,524 shares will be eligible for sale under Rule
144 on January 31, 1998.
The Company and all of its existing directors, officers, shareholders and
optionees have entered into lock-up agreements with the Representative which
provide that such persons will not, directly or indirectly, offer, sell,
announce an intention to sell, contract to sell, pledge, hypothecate, grant any
option to purchase or otherwise dispose of, and the Company has agreed not to
file with the Commission a registration statement under the Securities Act
relating to, any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for shares of Common Stock for a period of 18 months
following the date of this Prospectus without the prior written consent of the
Representative.
38
<PAGE> 41
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and the Underwriters named
below (the "Underwriters"), each of the Underwriters has severally agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the number of shares of Common Stock set forth below opposite each
such Underwriter's name, at the initial public offering price per share less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------------------------------------------------------------- ---------
<S> <C>
Coleman and Company Securities, Inc................................ 500,000
Oscar Gruss & Son, Incorporated.................................... 500,000
---------
Total.................................................... 1,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of such shares are subject to
certain conditions precedent and that the several Underwriters will purchase all
of such shares, if any of such shares are purchased.
The Representative has advised the Company that the Underwriters propose
initially to offer the shares of Common Stock offered hereby directly to the
public at the initial public offering price per share set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the Offering, the public offering price, concession
and re-allowance may be changed.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 150,000 additional shares of Common Stock at the initial public
offering price per share less the underwriting discounts and commissions set
forth on the cover page of the Prospectus. The Underwriters may exercise this
option only to cover over-allotments, if any, made in connection with the sale
of the shares of Common Stock offered hereby. To the extent that the
Underwriters exercise this option, each Underwriter will be obligated, subject
to certain conditions, to purchase the number of the additional shares of Common
Stock proportionate to such Underwriters' initial commitment reflected in the
preceding table.
The Company has agreed to pay the Representative a non-accountable expense
allowance equal to three percent of the gross proceeds of the Offering, of which
$25,000 has already been paid, to cover certain of the underwriting costs and
due diligence expenses relating to the Offering.
The Company has agreed to permit the Representative to have an observer
attend meetings of the Board of Directors for a period of three years from the
effective date of the Registration Statement of which this Prospectus forms a
part. The Representative's observer will be reimbursed for all out-of-pocket
expenses incurred in connection with the observer's attendance at meetings of
the Board of Directors and will receive compensation equal to the compensation
payable by the Company to its outside directors for attendance at meetings of
the Board of Directors, provided, however, that the per meeting fees payable to
the Representative's observer shall not be less than $1,500 and that there shall
be a minimum of four meetings per year.
The Company and the Underwriters have agreed to indemnify each other
against, or to contribute to losses arising out of, certain civil liabilities in
connection with the Offering, including liabilities under the Securities Act.
The Representative, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase shares so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of shares in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the
39
<PAGE> 42
Representative, on behalf of the Underwriters, to reclaim a selling concession
from a syndicate member when the shares originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Common Stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the Nasdaq SmallCap Market or otherwise and, if
commenced, may be discontinued at any time.
The Company and all of its existing current officers, directors,
shareholders and optionees have agreed not to, directly or indirectly, offer,
sell, announce an intention to sell, contract to sell, pledge, hypothecate,
grant any option to purchase or otherwise dispose of, and the Company has agreed
not to file with the Commission a registration statement under the Securities
Act relating to, any shares of Common Stock or any securities convertible into
or exchangeable or exercisable for shares of Common Stock without the prior
written consent of the Representative for a period of 18 months after the date
of this Prospectus.
Application has been made to list the Common Stock for quotation on the
Nasdaq SmallCap Market under the symbol "FDOT."
Prior to the Offering, there has been no public trading market for the
Common Stock. The public offering price of the shares of Common Stock offered
hereby will be determined by negotiation between the Company and the
Representative. Factors to be considered in determining the initial public
offering price, in addition to prevailing market conditions, include the history
of and prospects for the industry in which the Company operates, an assessment
of the Company's management, the prospects of the Company, its capital structure
and such other factors as are deemed relevant.
In connection with the Offering, the Company has agreed to sell the
Representative's Warrants to the Representative for a nominal price. The
Representative's Warrants entitle the Representative to purchase shares in an
amount equal to 10% of the total number of shares sold in the Offering
(excluding shares subject to the Underwriters' over-allotment option). The
shares subject to the Representative's Warrants will be in all respects
identical to the shares offered hereby to the public. The Representative's
Warrants will be limited to a term of five years from the date of this
Prospectus and will be exercisable for a four year period commencing 12 months
after the date of this Prospectus, at a per share exercise price equal to 120%
of the initial public offering price per share set forth on the cover page of
this Prospectus. The Representative's Warrants may not be sold, assigned,
transferred, pledged or hypothecated for a period of 12 months from the date of
this Prospectus except to the Representative or its officers. Pursuant to the
terms of the Underwriting Agreement, the Company is registering the shares
issuable upon exercise of the Representative's Warrants under the Registration
Statement of which this Prospectus forms a part. The Company has agreed to file,
at its expense, during the period beginning one year from the date of this
Prospectus and ending five years after such date, on no more than one occasion
at the request of the holders of a majority of the Representative's Warrants and
the underlying shares, and to use its best efforts to cause to become effective,
a post-effective amendment to the Registration Statement of which this
Prospectus forms a part or a new registration statement under the Securities Act
as required to permit the public sale of the shares issued or issuable upon
exercise of the Representative's Warrants. In addition, the Company has agreed
to give advance notice to holders of the Representative's Warrants of its
intention to file certain registration statements commencing one year and ending
five years after the date this Prospectus and, in such case, holders of such
Representative's Warrants or underlying shares shall have the right to require
the Company to include all or part of the shares underlying the Representative's
Warrants in such registration statement at the Company's expense. For the term
of the Representative's Warrants, the holders thereof are given the opportunity
to profit from a rise in the market price of the Common Stock, which may result
in a dilution of the interest of other shareholders. As a result, the Company
may find it more difficult to raise additional equity capital if it should be
needed for the business of the Company while the Representative's Warrants are
outstanding. The holders of the Representative's Warrants might be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain additional equity capital on terms more favorable to the Company than
those provided by the Representative's Warrants. Any profit realized on the sale
of the shares issuable upon the exercise of the Representative's Warrants may be
deemed additional underwriting compensation.
40
<PAGE> 43
The preceding description includes a summary of the principal terms of the
Underwriting Agreement and the Representative's Warrant Agreement and does not
purport to be complete. Reference is made to the copy of the Underwriting
Agreement and the Representative's Warrant Agreement filed as an exhibit to the
Registration Statement of which this Prospectus forms a part and each statement
herein is qualified in all respects by such reference.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed on
for the Company by Cairncross & Hempelmann, P.S., Seattle, Washington.
Principals of Cairncross & Hempelmann hold an option granted by affiliates of
the Company to purchase 79,167 shares of Common Stock. A principal of Cairncross
& Hempelmann individually owns 5,952 shares of Common Stock.
Certain legal matters related to the Offering will be passed on for the
Underwriters by Kelley Drye & Warren LLP, New York, New York.
EXPERTS
The Financial Statements and notes thereto at January 31, 1996 and 1997,
and for each of the two years in the period ended January 31, 1997, appearing in
this Prospectus and the Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the shares of Common Stock offered
hereby (together with the exhibits and schedules thereto, the "Registration
Statement"). This Prospectus, filed as a part of such Registration Statement,
does not contain all the information set forth in the Registration Statement,
certain portions of which have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the shares of Common Stock offered hereby, reference is made to the
Registration Statement. Statements made in this Prospectus as to the contents of
any contract or document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement and each such statement is qualified in
its entirety by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the principal
office of the Commission at Room 1024, Judiciary Plaza Building, 450 Fifth
Street, N.W., Washington D.C. 20549, and the regional offices of the Commission
at Seven World Trade Center, Suite 1300, New York, New York 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may be obtained at prescribed rates from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza
Building, 450 Fifth Street, N.W. Washington D.C. 20549. The Commission maintains
a Web site that contains registration statements, reports, proxy statements and
other information regarding registrants (including the Company), that file
electronically with the Commission. The address of the Commission's Web site is
http://www.sec.gov.
As a result of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). So long as the Company is subject to the informational
reporting requirements of the Exchange Act, the Company will provide its
stockholders with annual reports containing audited financial statements and
interim quarterly reports containing unaudited financial information.
41
<PAGE> 44
FINE.COM CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets at January 31, 1996 and 1997........................................... F-3
Statements of Income for the fiscal years ended January 31, 1996 and 1997............. F-4
Statements of Shareholders' Equity for the fiscal years ended January 31, 1996 and
1997................................................................................ F-5
Statements of Cash Flows for the fiscal years ended January 31, 1996 and 1997......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
fine.com Corporation
We have audited the accompanying balance sheets of fine.com Corporation as of
January 31, 1996 and 1997, and the related statements of income, shareholders'
equity and cash flows for each of the two years in the period ended January 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of fine.com Corporation at January
31, 1996 and 1997, and the results of its operations and its cash flows for each
of the two years in the period ended January 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
April 1, 1997, except for Note 8,
as to which date is May 9, 1997
F-2
<PAGE> 46
FINE.COM CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash................................................................. $ 15,668 $198,317
Accounts receivable, less allowance for doubtful accounts of $5,000
in 1996 and 1997.................................................. 63,855 476,766
Income taxes refundable.............................................. -- 784
Prepaid expenses and other........................................... -- 9,409
Note receivable from officer......................................... 23,913 30,435
-------- --------
Total current assets.............................................. 103,436 715,711
Deferred offering costs................................................ -- 41,116
Deferred income tax asset.............................................. -- 30,883
Equipment and furniture, net........................................... 46,166 80,827
-------- --------
Total assets................................................. $149,602 $868,537
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank................................................. $ -- $ 90,286
Accounts payable..................................................... 51,917 117,459
Current taxes payable................................................ 1,277 --
Accrued offering costs............................................... -- 16,002
Accrued expenses..................................................... 618 28,046
Deferred revenue..................................................... -- 36,722
Note payable to director............................................. -- 15,000
Deferred income tax liabilities...................................... 4,059 100,769
Capitalized lease obligations........................................ -- 9,699
-------- --------
Total current liabilities......................................... 57,871 413,983
Deferred income tax liabilities........................................ 1,369 --
Commitments
Shareholders' equity:
Convertible preferred stock, no par value:
Authorized shares -- 1,000,000
Series A preferred stock:
Designated shares -- 59,524
Issued and outstanding shares -- 59,524 at January 31, 1997,
aggregate liquidation preference -- $250,000................. -- 239,918
Common stock, no par value:
Authorized shares -- 9,000,000
Issued and outstanding shares -- 1,055,541 at January 31, 1996 and
1997............................................................. 75,000 75,000
Retained earnings................................................. 15,362 139,636
-------- --------
Total shareholders' equity........................................ 90,362 454,554
-------- --------
Total liabilities and shareholders' equity................... $149,602 $868,537
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 47
FINE.COM CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
31,
----------------------------
1996 1997
--------- ----------
<S> <C> <C>
Gross revenue.................................................... $ 531,800 $1,485,869
Direct salaries and costs........................................ 258,532 774,242
--------- ----------
Gross profit..................................................... 273,268 711,627
Selling, general and administrative expenses..................... 225,517 514,059
--------- ----------
Operating income................................................. 47,751 197,568
Interest expense................................................. 2,721 8,840
--------- ----------
Income before income taxes....................................... 45,030 188,728
Provision for income taxes....................................... 14,948 64,454
--------- ----------
Net income....................................................... $ 30,082 $ 124,274
========= ==========
Net income per share............................................. $ 0.03 $ 0.11
========= ==========
Shares used in computation of net income per share............... 1,155,126 1,155,126
========= ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 48
FINE.COM CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED COMMON
STOCK -- SERIES A COMMON STOCK STOCK RETAINED TOTAL
----------------- -------------------- SUBSCRIPTION EARNINGS SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE (DEFICIT) EQUITY
------ -------- --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1,
1995................... -- $ -- 1,055,541 $ 75,000 $(25,000) $(14,720) $ 35,280
Payment of common stock
subscription
receivable.......... -- -- -- -- 25,000 -- 25,000
Net income............. -- -- -- -- -- 30,082 30,082
------ -------- --------- -------- -------- -------- --------
Balance at January 31,
1996................... -- -- 1,055,541 75,000 -- 15,362 90,362
Sale of Series A
Preferred Stock, net
of offering costs of
$10,082............. 59,524 239,918 -- -- -- -- 239,918
Net income............. -- -- -- -- -- 124,274 124,274
------ -------- --------- -------- -------- -------- --------
Balance at January 31,
1997................... 59,524 $239,918 1,055,541 $ 75,000 $ -- $139,636 $454,554
====== ======== ========= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 49
FINE.COM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
------------------------
1996 1997
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................... $30,082 $124,274
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization..................................... 25,475 29,791
Deferred income taxes............................................. 13,728 64,458
Changes in operating assets and liabilities:
Increase in accounts receivable................................... (44,638) (412,911)
Decrease (increase) in current income taxes....................... 1,277 (2,061)
Increase in prepaid expenses and other............................ -- (9,409)
Increase in deferred offering costs............................... -- (25,114)
Increase in accounts payable...................................... 2,531 65,542
Increase in accrued expenses...................................... 618 27,428
Increase in deferred revenue...................................... -- 36,722
-------- ---------
Net cash provided by (used in) operating activities................. 29,073 (101,280)
CASH FLOWS FROM INVESTING ACTIVITY
Purchase of equipment and furniture................................. (29,409) (50,372)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable to bank................................... -- 90,286
Payments on capital lease obligations............................... -- (4,381)
Note receivable from officer........................................ (18,065) (6,522)
Note payable to director............................................ -- 15,000
Cash received on collection of common stock subscription
receivable........................................................ 25,000 --
Net cash received from sale of preferred stock...................... -- 239,918
-------- ---------
Net cash provided by financing activities........................... 6,935 334,301
-------- ---------
Net increase in cash................................................ 6,599 182,649
Cash at beginning of period......................................... 9,069 15,668
-------- ---------
Cash at end of period............................................... $15,668 $198,317
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid................................................... $ -- $ 2,000
======== =========
Interest paid....................................................... $ 2,721 $ 8,840
======== =========
Equipment acquired through capitalized lease obligations............ $ -- $ 14,080
======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 50
FINE.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
fine.com Corporation (the "Company") was incorporated in the State of
Washington on October 15, 1994. The Company plans, creates, maintains and hosts
World Wide Web ("Web") sites for major national and international corporate
clients and others, utilizing marketing expertise and state of the art
interactive database compilation and dissemination techniques and technologies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company accounts for long-term contracts under the
percentage-of-completion method, generally measured on the attainment of
specific contract milestones. Estimated contract earnings are reviewed
periodically as work progresses. If such estimates indicate a loss would be
incurred on the contract, the estimated amount of such loss would be recognized
in the period the estimated loss was determined. All other revenue is recorded
on the basis of time and material for the performance of services.
RISKS AND UNCERTAINTIES
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company's customer base is dispersed across many different geographic areas
throughout the United States in a variety of industries. The Company does not
require collateral or other security to support credit sales, but provides an
allowance for bad debts based on historical experience and specific
identification. One customer accounted for 34% and 19% of the Company's gross
revenue in the fiscal years ended January 31, 1996 ("fiscal 1996") and 1997
("fiscal 1997"), respectively. In addition, two customers accounted for 11% and
14% of the Company's gross revenue during fiscal 1997. Except as noted above,
there were no other customers which accounted for greater than 10% of gross
revenue in fiscal 1996.
EQUIPMENT AND FURNITURE
Equipment and furniture are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to seven years. Leasehold improvements are amortized over
the lesser of the lease term or estimated useful life. Repairs and maintenance
that do not improve or extend the lives of the respective assets are expensed in
the period incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
F-7
<PAGE> 51
FINE.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to apply the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, the Company accounts for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's common stock
at the date of grant over the stock option exercise price.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $5,438
and $20,805 in the fiscal years ended January 31, 1996 and 1997, respectively.
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
common shares outstanding. In accordance with the Securities and Exchange
Commission requirements, common and common equivalent shares issued during the
12-month period prior to the filing of the Company's initial public offering
have been included in the calculation as if they were outstanding for all
periods presented using the treasury stock method and the assumed initial public
offering price of $7.00 per share. Common equivalent shares consist of the
common shares issuable upon the conversion of the convertible preferred stock
and shares issuable upon the exercise of stock options.
2. EQUIPMENT AND FURNITURE
Equipment and furniture consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1996 1997
------- --------
<S> <C> <C>
Equipment............................................... $75,169 $129,765
Office furniture and equipment.......................... 3,191 13,047
------- -------
78,360 142,812
Accumulated depreciation and amortization............... 32,194 61,985
------- -------
$46,166 $ 80,827
======= =======
</TABLE>
Fixed assets include $14,080 of assets capitalized under capital lease
obligations less accumulated amortization of $2,755 at January 31, 1997.
3. NOTE PAYABLE TO BANK
The Company has a $200,000 revolving line of credit agreement with a bank
which is due on March 31, 1997. Borrowings under this agreement bear interest at
the bank's prime interest rate plus 2% (effective rate of 10.25% at January 31,
1997). At January 31, 1997, $90,286 was outstanding under this agreement. This
obligation is collateralized by eligible accounts receivable.
This credit agreement expired on March 31, 1997 and was replaced with a new
credit agreement which provides for a revolving line of credit in the maximum
amount of $750,000 (the "Revolving Line of Credit") and a line of credit in the
maximum amount of $400,000 (the "Equipment Line of Credit"). The Revolving Line
of Credit expires on March 31, 1998, provides for interest at the bank's prime
rate plus 2% and is secured by all accounts receivable and the personal
guarantee of the Company's President and Chief Executive
F-8
<PAGE> 52
FINE.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. NOTE PAYABLE TO BANK (CONTINUED)
Officer. The Equipment Line of Credit expires on December 31, 2000, provides for
interest at the bank's prime rate plus 2.25% and is secured by the equipment
purchased utilizing such funds, all accounts receivable and the personal
guarantee of the Company's President and Chief Executive Officer. The credit
agreement contains certain covenants including maintenance of minimum levels of
working capital and tangible net worth and restrictions on change of control of
the Company.
4. LEASE COMMITMENTS
The Company leases certain equipment and facilities under capital and
operating leases. The operating lease contains an annual escalation clause based
on inflation and a five-year lease term.
The Company sublets a portion of its office space and offsets rent expense
through sublease billings. Net rent expense under the operating lease amounted
to $15,996 and $60,230 in fiscal 1996 and 1997, respectively.
Future minimum lease payments under noncancelable leases with terms in
excess of one year at January 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASE
---------
<S> <C>
1998............................................................ $ 71,128
1999............................................................ 83,734
2000............................................................ 87,913
2001............................................................ 85,945
2002............................................................ 16,808
--------
$ 345,528
========
</TABLE>
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Current.................................................. $ 1,220 $ (4)
Deferred................................................. 13,728 64,458
------- -------
$14,948 $64,454
======= =======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income before taxes as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Computed tax at federal statutory rate................... $15,310 $64,168
Other items, net......................................... (362) 286
------- -------
$14,948 $64,454
======= =======
</TABLE>
The Company has elected to use the cash method of accounting for income tax
purposes because they currently qualify for the small business exception. This
exception allows corporate taxpayers to use the cash method of accounting if
their gross receipts over the three immediately preceding taxable years do not
exceed $5,000,000 and they meet certain other requirements. The Company will
convert to the accrual method for income tax purposes when they no longer
satisfy the criteria for this exception. Deferred taxes reflect the net
F-9
<PAGE> 53
FINE.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
Significant components of the Company's net deferred income tax liabilities
are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1996 1997
------- ---------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation............................. $(1,369) $ (3,354)
Accrual to cash basis adjustments...................... (4,059) (100,769)
------- ---------
(5,428) (104,123)
Deferred tax asset:
Net operating loss carryforward........................ -- 34,237
------- ---------
$(5,428) $ (69,886)
======= =========
</TABLE>
At January 31, 1997, the Company had net operating loss carryforwards of
$92,097 which begin to expire in 2011. Utilization of net operating loss
carryforwards may be subject to certain limitations under Section 382 of the
Internal Revenue Code of 1986, as amended.
6. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
On January 31, 1997, the Company completed a private placement for the
issuance and sale of 59,524 shares of Series A Preferred Stock of the Company
for $250,000 less offering costs of $10,082. The terms and conditions of the
Series A Preferred Stock provide that upon the effectiveness of a registration
statement relating to an initial public offering of the Company's Common Stock
all outstanding shares of the Series A Preferred Stock will automatically
convert into shares of common stock, at a one-to-one conversion ratio. The
Series A Preferred Stock also has preferential rights in the event of any
distribution of assets upon liquidation of the Company, which preferential
rights are determined as a fixed amount per share of Series A Preferred Stock,
plus any declared but unpaid dividends. The Company's Articles of Incorporation
further provide that, upon the effective date of a registration statement, the
authority of the Company to issue preferred stock shall terminate and the number
of shares of preferred stock theretofore authorized shall be deemed additional
authorized shares of common stock.
STOCK OPTION PLAN
On February 4, 1996, the Board of Directors approved the fine.com
Corporation 1996 Incentive Stock Option Plan (the "Plan") that provides for the
issuance of nonqualified and incentive stock options to officers, employees, and
consultants. A committee of the Board of Directors determines the terms and
conditions of options granted under the plan, including the exercise price. The
exercise price for incentive stock options shall not be less than the fair
market value of common stock at the date of grant unless the incentive stock
option is granted to a person who owns greater than 10% of the Company for which
the exercise price shall not be less than 110% of the fair market value at the
date of grant. The exercise price of nonqualified stock options shall not be
less than 85% of the fair market value of the common stock at the date of grant.
Options expire between 5 and 10 years from the date of grant. Subject to the
maintenance of a continuous relationship from the date of grant, options vest
according to a schedule which provides that 5% of the total number of shares
granted will vest after one year, 15% will vest after two years, 30% after three
years, 50% is vested after four years, and the option grant is fully vested
after five years from the date of grant.
F-10
<PAGE> 54
FINE.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
At January 31, 1997, a total of 107,157 shares of common stock have been
reserved for issuance for outstanding options and 4,028 shares were exercisable.
The weighted-average exercise price for stock options outstanding at January 31,
1997 was $2.05 per share with a weighted-average remaining contractual life of
9.5 years.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Balance at February 1, 1996............................. -- $ --
Granted in fiscal 1997................................ 107,157 2.05
------- -----
Balance at January 31, 1997............................. 107,157 $ 2.05
======= =====
</TABLE>
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of SFAS No. 123. The fair value for these
options was estimated at the date of grant using the minimum value option
pricing model with the following weighted-average assumptions for fiscal year
1997: dividend yield of zero; average risk-free interest rate of 6.5%; and a
weighted-average expected life of the option term of seven years. As a result of
the Company being privately held, expected volatility is not applicable. These
assumptions are highly subjective. For purposes of the proforma disclosures, the
estimated fair value of the options ($0.75 per share) is amortized to expense
over the estimated options' vesting period.
Because option grants are expected to be made each year and as a result of
the options vesting over time, the above pro forma disclosure is not
representative of pro forma effects of reported results in future years. The pro
forma effect on fiscal year 1997 net income would have reduced net income of
$124,274 as reported to pro forma net income of $112,274. Additionally, the pro
forma effect on fiscal 1997 net income per share would not have changed.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At January 31, 1997, common stock reserved for future issuance was as
follows:
<TABLE>
<S> <C>
Conversion of Series A Preferred Stock............................. 59,524
1996 Incentive Stock Option Plan................................... 107,157
------
166,681
======
</TABLE>
7. TRANSACTIONS WITH OFFICERS AND DIRECTORS
The Company has a note receivable from an officer which is non-interest
bearing. Additionally, the Company has a note payable to a director bearing
interest at 9%; this note was repaid in March 1997.
8. SUBSEQUENT EVENTS
On April 14, 1997, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to permit the
Company to sell shares of common stock to the public. Additionally, the Board of
Directors approved a recapitalization of the issued and outstanding shares of
F-11
<PAGE> 55
FINE.COM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
common stock which became effective on May 9, 1997. All outstanding common and
common equivalent shares and per-share amounts in the accompanying financial
statements and the related notes to the financial statements have been
retroactively adjusted to give effect to such recapitalization.
Immediately prior to the date of the public offering of common stock, the
Company had authorized capital stock consisting of 9,000,000 shares of common
stock, of which 1,055,541 shares are issued and outstanding, and 1,000,000
shares of preferred stock, of which 59,524 shares have been designated as Series
A Preferred Stock, all of which are issued and outstanding. On the effective
date of the Registration Statement, relating to the initial public offering of
the Company's common stock, the issued and outstanding shares of Series A
preferred stock will automatically convert into 59,524 shares of common stock
(resulting in an aggregate of 1,115,065 shares of common stock outstanding at
such time). Additionally, on such date, all authorized shares of preferred stock
will automatically convert into additional authorized shares of common stock
and, as a result, the Company's authorized capital stock will, on such date,
consist solely of 10,000,000 shares of common stock. In April 1997, the Company
adopted the 1997 Option Plan and reserved 200,000 shares of Common Stock for
issuance thereunder. The 1997 Option Plan provides for the grant of both
incentive stock options and nonqualified stock options.
F-12
<PAGE> 56
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS TO WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 7
Use of Proceeds........................ 10
Dividend Policy........................ 11
Dilution............................... 11
Capitalization......................... 12
Selected Financial Data................ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 14
Business............................... 17
Management............................. 31
Certain Transactions................... 35
Principal Shareholders................. 36
Description of Securities.............. 36
Shares Eligible for Future Sale........ 38
Underwriting........................... 39
Legal Matters.......................... 41
Experts................................ 41
Available Information.................. 41
Index to Financial Statements.......... F-1
</TABLE>
------------------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
1,000,000 Shares
[FINE.COM CORPORATION LOGO]
Common Stock
------------------------
PROSPECTUS
------------------------
COLEMAN AND COMPANY
SECURITIES, INC.
OSCAR GRUSS & SON
INCORPORATED
, 1997
======================================================
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) Section 23B.08.500 et seq. of the Washington Business Corporation Act
(Title 23B of the Revised Code of Washington) permits indemnification by a
corporation of its directors, officers, employees and agents under certain
circumstances and subject to certain limitations.
(b) The Articles of Incorporation, as amended, of the Company (Exhibit 3.1
hereto), provide that the Registrant will indemnify its directors to the fullest
extent permitted by law. The Articles of Incorporation, as amended, contain
further provisions and conditions for indemnification by Registrant for
liabilities arising in connection with or by reason of the fact that a person is
an officer, director, employee or agent of Registrant.
(c) Section of the Underwriting Agreement (Exhibit 1.1 hereto) provides
for reciprocal indemnification between Registrant and Underwriters from and
against certain liabilities arising in connection with the offering which is the
subject of this Registration Statement, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated expenses other than
underwriting commissions and discounts (assuming an initial price to the public
of $7.00 per share and further assuming the Underwriter's over-allotment option
is exercised in full) for the issuance and distribution of securities in the
offering which is the subject of this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee..................... $ 2,887
NASD filing fee................................................... 1,454
Nasdaq SmallCap listing fee....................................... 7,673
Printing and engraving expenses................................... 50,000
Accounting fees and expenses...................................... 125,000
Legal fees and expenses........................................... 240,000
Blue Sky filing fees and expenses (including legal fees).......... 50,000
Miscellaneous expenses............................................ 12,986
--------
Total................................................... $490,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in October 1994, Registrant has issued securities in
reliance upon Securities Act sec. 4(2) and applicable rules thereunder
(including Regulation D) in transactions not involving public offerings, as
follows:
(a) October 1994 -- In connection with the initial capitalization of
the Company, the Company issued 633,323 shares of Common Stock to Daniel M.
Fine, Chief Executive Officer and Chairman of the Board, 211,109 shares of
Common Stock to Frank Hadam, Director, and 211,109 shares of Common Stock
to Herbert L. Fine, Director, resulting in net proceeds to the Company in
the amount of $75,000.
(b) From 1996 to March 1997 -- options to purchase 107,157 shares of
Registrant's common stock reserved for issuance under Registrant's 1996
Stock Option Plan (the "Plan"). The exercise price of all outstanding
options under the Plan at April 30, 1997 was $2.05 per share. No additional
shares can be reserved under the Plan.
(c) January 31, 1997 -- 59,524 shares of Series A Preferred Stock at
$4.20 per share ($250,000) to nine accredited investors pursuant to
Regulation D, such shares to be converted into common stock upon the
effective date of this Registration Statement.
II-1
<PAGE> 58
No brokers or underwriters were included in any of the above issuances. All
certificates for the shares of Series A Preferred Stock and Common Stock so
issued bear restrictive legends.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
*1.2 Form of Representative's Warrant Agreement
3.1 Articles of Incorporation, as amended, of the Company
3.2 Bylaws of the Company
*4.1 Specimen Common Stock Certificate
*4.2 Form of Representative's Warrant
*5.1 Opinion of Cairncross & Hempelmann, P.S.
10.1 1996 Incentive Stock Option Plan
*10.2 1997 Stock Option Plan
10.3 Employment Agreement dated May 9, 1997 with Daniel M. Fine
10.4 Employment Agreement dated May 9, 1997 with James P. Chamberlin
10.5A Loan Agreement dated March 31, 1997 with U.S. Bank of Washington
10.5B Promissory Note in principal amount of $750,000 dated March 31, 1997
10.5C Commercial Security Agreement dated March 31, 1997
10.5D Promissory Note in principal amount of $400,000 dated March 31, 1997
10.5E Commercial Security Agreement dated March 31, 1997
*10.5F Guaranty of Daniel M. Fine dated March 1997
10.6A Office Lease Agreement dated February 28, 1996 with Grand Pacific Limited
Partnership
10.6B Personal Guaranty of Daniel M. Fine dated February 29, 1996
10.6C First Amendment to Office Lease Agreement dated March 1997
11.1 Statement Regarding Computation of Net Income per Share
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cairncross & Hempelmann, P.S. (included in opinion filed as
Exhibit 5.1)
24.1 Powers of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters, at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
For determining any liability under the Securities Act, Registrant hereby
undertakes: (1) to treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act as part of this Registration Statement
as of the time the Commission declared it effective; and (2) to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time as the initial bona fide offering of
the securities.
II-2
<PAGE> 59
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to Item 24, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 60
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Seattle, State of Washington, on May 9, 1997.
fine.com Corporation
By /s/ DANIEL M. FINE
------------------------------------
Daniel M. Fine
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Daniel M. Fine and James P. Chamberlin,
or either of them, his or her attorneys-in-fact, with the power of substitution,
for him or her in any and all capacities, to sign any amendments to this
Registration Statement, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES CAPACITIES DATE
- --------------------------------------------- -------------------------------- -------------
<S> <C> <C>
/s/ DANIEL M. FINE Chairman of the Board of May 9, 1997
- --------------------------------------------- Directors
Daniel M. Fine Chief Executive Officer and
President
/s/ JAMES P. CHAMBERLIN Chief Financial Officer May 9, 1997
- --------------------------------------------- (principal financial and
James P. Chamberlin accounting officer) and Director
/s/ NORMAN W. LAUCHNER Director May 9, 1997
- ---------------------------------------------
Norman W. Lauchner
/s/ ANTHONY C. NAUGHTIN Director May 9, 1997
- ---------------------------------------------
Anthony C. Naughtin
/s/ HERBERT L. FINE Director May 9, 1997
- ---------------------------------------------
Herbert L. Fine
/s/ FRANK HADAM Director May 9, 1997
- ---------------------------------------------
Frank Hadam
</TABLE>
II-4
<PAGE> 61
INDEX TO EXHIBITS
TO
FORM SB-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
*1.2 Form of Representative's Warrant Agreement
3.1 Articles of Incorporation, as amended, of the Company
3.2 Bylaws of the Company
*4.1 Specimen Common Stock Certificate
*4.2 Form of Representative's Warrant
*5.1 Opinion of Cairncross & Hempelmann, P.S.
10.1 1996 Incentive Stock Option Plan
*10.2 1997 Stock Option Plan
10.3 Employment Agreement dated May 9, 1997 with Daniel M. Fine
10.4 Employment Agreement dated May 9, 1997 with James P. Chamberlin
10.5A Loan Agreement dated March 31, 1997 with U.S. Bank of Washington
10.5B Promissory Note in principal amount of $750,000 dated March 31, 1997
10.5C Commercial Security Agreement dated March 31, 1997
10.5D Promissory Note in principal amount of $400,000 dated March 31, 1997
10.5E Commercial Security Agreement dated March 31, 1997
*10.5F Guaranty of Daniel M. Fine dated March 1997
10.6A Office Lease Agreement dated February 28, 1996 with Grand Pacific Limited
Partnership
10.6B Personal Guaranty of Daniel M. Fine dated February 29, 1996
10.6C First Amendment to Office Lease Agreement dated March 1997
11.1 Statement Regarding Computation of Net Income per Share
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cairncross & Hempelmann, P.S. (included in opinion filed as Exhibit
5.1)
24.1 Powers of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INFORMATION
TO ARTICLES OF RESTATEMENT OF
FINE.COM CORPORATION
Pursuant to the provisions of RCW 23B.10.070, the following information
is provided together with the attached Amended and Restated Articles of
Incorporation for the above-named Washington corporation.
1. Name. The name of record of the corporation is:
fine.com Corporation
2. Text of Amendments. The attached Amended and Restated Articles of
Incorporation include amendments to the Articles of Incorporation which amend
the corporation's Articles of Incorporation in their entirety. Specifically, the
amendments: (a) describe generally the purposes of the corporation; (b) increase
the authorized capital stock; (c) state that the shares of common stock shall
have no par value; (d) eliminate preemptive rights; (e) eliminate cumulative
voting; (f) state that the Board of Directors may adopt, amend or repeal Bylaws;
(g) state the name and address of the current registered agent; (h) provide that
the number of directors shall be determined as provided in the Bylaws; (i)
provide for limitations of directors' liability; (j) provide for indemnification
of directors and officers; (k) add captions to each article; (l) eliminate the
article regarding the incorporators' names and addresses; and (m) renumber the
several articles.
3. Exchange, Reclassification or Cancellation of Issued Shares. The
amendments do not provide for an exchange, reclassification or cancellation of
issued shares.
4. Date of Adoption. The amendments and Articles of Restatement were
adopted:
By the Board of Directors on __________________. Shareholder
--- action was not required.
X By the shareholders on February 4, 1996, in accordance with
--- the provisions of RCW 23B.10.030 and RCW 23B.10.040.
5. Effective Date. The attached Articles of Restatement will be
effective upon filing unless an extended date and/or time appears here:
____________________________________
(Note: Extended effective date may not be set at more than 90 days
beyond the date of the document is stamped "Filed" by the Secretary
of State.)
Dated: February 4, 1996
/s/ Daniel Matthew Fine
-----------------------------------
Daniel Matthew Fine, President
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FINE.COM CORPORATION
ARTICLE I
NAME
The name of this corporation is fine.com Corporation.
ARTICLE II
PURPOSES
This corporation is organized for the following purposes:
A. To engage in any business, trade or activity which may be conducted
lawfully by a corporation organized under the Washington Business Corporation
Act.
B. To engage in all such activities as are incidental or conducive to
the attainment of the purposes of this corporation, or any of them, and to
exercise any and all powers authorized or permitted to be done by a corporation
under any laws that may be now or hereafter applicable or available to this
corporation.
ARTICLE III
SHARES
This corporation is authorized to issue 20,000,000 shares of common
stock, and each share will have no par value per share.
ARTICLE IV
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no
preemptive rights shall exist with respect to shares of stock or securities
convertible into shares of stock of this corporation.
ARTICLE V
NO CUMULATIVE VOTING
At each election for directors, every shareholder entitled to vote at
such election has the right to vote in person or by proxy the number of shares
held by such shareholder for as many persons as there are directors to be
elected. No cumulative voting for directors shall be permitted.
2
<PAGE> 3
ARTICLE VI
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal
the Bylaws or adopt new bylaws. Nothing herein shall deny the concurrent power
of the shareholders to adopt, alter, amend or repeal the Bylaws.
ARTICLE VII
REGISTERED AGENT AND OFFICE
The name of the current registered agent of this corporation and the
address of its current registered office are as follows:
Name Address
Daniel Matthew Fine 1109 First Avenue
Suite 212
Seattle, Washington 98101-2945
ARTICLE VIII
DIRECTORS
The number of directors of this corporation shall be determined in the
manner specified by the Bylaws and may be increased or decreased from time to
time in the manner provided therein.
ARTICLE IX
LIMITATION OF DIRECTORS' LIABILITY
A director shall have no liability to the corporation or its
shareholders for monetary damages for conduct as a director, except for acts or
omissions that involve intentional misconduct by the director, or a knowing
violation of law by the director, or for conduct violating RCW 23B.03.310, or
for any transaction from which the director will personally receive a benefit in
money, property or services to which the director is not legally entitled. If
the Washington Business Corporation Act is hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the full extent permitted by the Washington Business Corporation Act, as so
amended. Any repeal or modification of this Article shall not adversely affect
any right or protection of a director of the corporation existing at the time of
such repeal or modification for or with respect to an act or omission of such
director occurring prior to such repeal or modification.
3
<PAGE> 4
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was, or is
threatened to be made a party to or is otherwise involved (including, without
limitation, as a witness) in any actual or threatened action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the corporation
or, while a director or officer, he or she is or was serving at the request of
the corporation as a director, trustee, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
trustee, officer, employee or agent or in any other capacity while serving as a
director, trustee, officer, employee or agent, shall be indemnified and held
harmless by the corporation, to the full extent permitted by applicable law as
then in effect, against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts to be paid
in settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person who
has ceased to be a director, trustee, officer, employee or agent, and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that except as provided in section 2 of this Article with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the board of directors of
the corporation. The right to indemnification conferred in this Section 1 shall
be a contract right and shall include the right to be paid by the corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that the payment of such expenses in advance of
the final disposition of a proceeding shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section 1 or
otherwise.
Section 2. Right of Claimant to Bring Suit. If a claim under Section 1
of this Article is not paid in full by the corporation within sixty (60) days
after a written claim has been received by the corporation, except in the case
of a claim for expenses incurred in defending a proceeding in advance of its
final disposition, in which case the applicable period shall be twenty (20) day
s, the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, to the extent successful in whole or
in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. The claimant shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim (and, in
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the required undertaking
has been tendered to the corporation), and thereafter the corporation shall have
the burden of proof to overcome the presumption that the claimant is not so
entitled. Neither the failure of the corporation (including its board of
directors, independent legal counsel or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
or reimbursement or advancement of expenses to the claimant is proper in the
circumstances nor an actual determination by the corporation (including its
board of directors, independent legal counsel or its shareholders) that the
claimant is not entitled to indemnification or to have the reimbursement or
advancement of expenses shall be a defense to the action or create a presumption
that the claimant is not so entitled.
Section 3. Nonexclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any
4
<PAGE> 5
statute, provision of the Amended and Restated Articles of Incorporation,
Bylaws, agreement, vote of shareholders or disinterested directors or otherwise.
Section 4. Insurance, Contracts and Funding. The corporation may
maintain insurance, at its expense, to protect itself and any director, trustee,
officer, employee or agent of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the
Washington Business Corporation Act. The corporation may, without further
shareholder action, enter into contracts with any director or officer of the
corporation in furtherance of the provisions of this Article and may create a
trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article.
Section 5. Indemnification of Employees and Agents of the Corporation.
The corporation may, by action of its board of directors from time to time,
provide indemnification and pay expenses in advance of the final disposition of
a proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.
Dated: February 4, 1996 /s/ Daniel Matthew Fine
--------------------------------------
Daniel Matthew Fine, President
5
<PAGE> 6
CONSENT TO SERVE AS REGISTERED AGENT
I, Daniel Matthew Fine, hereby consent to serve as Registered Agent, in
the State of Washington, for fine.com Corporation. I understand that as agent
for the corporation, it will be my responsibility to receive service of process
in the name of the corporation; to forward all mail to the corporation; and to
immediately notify the office of the Secretary of State in the event of my
resignation, or of any changes in the registered office address of fine.com
Corporation.
Dated: February 4, 1996.
/s/ Daniel Matthew Fine
----------------------------------------
Daniel Matthew Fine, President
1109 First Avenue
Suite 212
Seattle, WA 98101-2945
<PAGE> 7
fine.com CORPORATION
CERTIFICATE RE ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION
Pursuant to the Washington Business Corporation Act, fine.com
Corporation, a Washington corporation (the "Corporation"), hereby delivers for
filing to the Secretary of State of the State of Washington Articles of
Amendment to Articles of Incorporation.
1. The name of the Corporation is "fine.com Corporation."
2. The Articles of Incorporation have been amended as set forth in the
attached Articles of Amendment.
3. The amendments were adopted on December 27, 1996.
4. The amendments were duly approved by the shareholders on December
27, 1996 in accordance with the provisions of RCW 23B.10.030 and 23B.10.040.
DATED as of the 27th day of December, 1996.
fine.com CORPORATION
/s/ Dan Fine
By:______________________________________
Dan Fine, Chairman and CEO
<PAGE> 8
fine.com CORPORATION
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the Washington Business Corporation Act, fine.com
Corporation, a Washington corporation (the "Corporation"), hereby adopts the
following Articles of Amendment to its Amended and Restated Articles of
Incorporation.
1. The name of the Corporation is fine.com Corporation.
2. The text of the amendment as adopted is as follows:
Article III is hereby amended to read as follows:
ARTICLE III
SHARES
3.1 Authorized Shares. The total number of shares which the
Corporation is authorized to issue is ten million (10,000,000),
consisting of nine million (9,000,000) shares of common stock and one
million (1,000,000) shares of preferred stock. Each share shall have no
par value per share.
3.2 Issuance of Preferred Stock in Series. The preferred stock may
be issued from time to time in one or more series in any manner
permitted by law and the provisions of these Articles of Incorporation
of the Corporation, as determined from time to time by the board of
directors and stated in the resolution or resolutions providing for the
issuance thereof, prior to the issuance of any shares thereof. The
board of directors shall have the authority to fix and determine and to
amend, subject to the provisions hereof, the rights and preferences of
the shares of any series that is wholly unissued or to be established.
Unless otherwise specifically provided in the resolution establishing
any series, the board of directors shall further have the authority,
after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to
decrease the number of shares of that series, but not below the number
of shares of such series then outstanding.
3.3 Dividends. The holders of shares of the preferred stock shall
be entitled to receive dividends, out of the funds of the Corporation
legally available therefor, at the rate and at the time or times,
whether cumulative or noncumulative, as may be provided by the board of
directors in designating a
Articles of Amendment to the
Articles of Incorporation Page 8
<PAGE> 9
particular series of preferred stock. If such dividends on the
preferred stock shall be cumulative, then if dividends shall not have
been paid, the deficiency shall be fully paid or the dividends declared
and set apart for payment at such rate, but without interest on
cumulative dividends, before any dividends on the common stock shall be
paid or declared and set apart for payment. The holders of the
preferred stock shall not be entitled to receive any dividends thereon
other than the dividends referred to in this section.
3.4 Redemption. The preferred stock may be redeemable at such
price, in such amount, and at such time or times as may be provided by
the board of directors in designating a particular series of preferred
stock. In any event, such preferred stock may be repurchased by the
Corporation to the extent legally permissible.
3.5 Liquidation. In the event of any liquidation, dissolution, or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, then, before any distributions shall be made to the
holders of the common stock, the holders of the preferred stock at the
time outstanding shall be entitled to be paid the preferential amount
or amounts per share as may be provided by the board of directors in
designating a particular series of preferred stock and dividends
accrued thereon to the date of such payment. The holders of the
preferred stock shall not be entitled to receive any distributive
amounts upon the liquidation, dissolution or winding up of the affairs
of the Corporation other than the distributive amounts referred to in
this section, unless otherwise provided by the board of directors in
designating a particular series of preferred stock.
3.6 Conversion. Shares of preferred stock may be convertible to
common stock of the Corporation upon such terms and conditions, at such
rate and subject to such adjustments as may be provided by the board of
directors in designating a particular series of preferred stock.
3.7 Voting Rights. Holders of preferred stock shall have such
voting rights as may be provided by the board of directors in
designating a particular series of preferred stock.
3.8 Automatic Conversion. Upon the closing of an underwritten
public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offering and sale
of the Corporation's common stock: (a) each authorized but unissued
share of the preferred stock shall automatically be converted, without
any further act of the Corporation or its stockholders, into shares of
authorized but unissued common stock of the Corporation; and (b) each
outstanding share of the preferred stock shall automatically be
converted, without any further act of the Corporation or its
stockholders, into fully paid and nonassessable shares of common stock
of the
Articles of Amendment to the
Articles of Incorporation Page 9
<PAGE> 10
Corporation. The initial conversion rate shall be one share of common
stock for each share of the preferred stock (whether unissued or
outstanding), subject to such adjustments as may be provided by the
board of directors.
3.9 Series A Preferred Stock. The terms and provisions of Series A
Preferred Stock are as set forth in Exhibit A attached hereto and
incorporated herein by reference.
4. This amendment was adopted by the shareholders as of December 27,
1996 in accordance with the provisions of RCW 23B.10.030 and 23B.10.040.
DATED as of December 27, 1996.
fine.com CORPORATION
/s/ Dan Fine
By:_________________________________
Dan Fine, Chairman and CEO
Articles of Amendment to the
Articles of Incorporation Page 10
<PAGE> 11
Exhibit A
fine.com CORPORATION
TERMS AND PROVISIONS OF SERIES A PREFERRED STOCK
1. Preference on Liquidation, etc. In the event of any voluntary or
involuntary liquidation, distribution of assets (other than the payment of
dividends), dissolution or winding-up of the Corporation, before any payment or
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of shares of Common Stock, the holders
of shares of Series A Preferred Stock shall be entitled to receive payment of
$4.20 per share of Series A Preferred Stock held by them (as appropriately
adjusted for any stock dividend, stock split, recapitalization or combination of
shares).
If, upon any liquidation, distribution of assets, dissolution or
winding-up of the Corporation, the assets of the Corporation, or proceeds
thereof, distributable among the holders of shares of Series A Preferred Stock
shall be insufficient to pay in full the respective preferential amounts on the
shares of Series A Preferred Stock, then such assets, or the proceeds thereof,
shall be distributed among such holders ratably in accordance with the
respective amounts which would be payable on such shares if all amounts payable
thereon were paid in full.
After the payment or setting apart of payment to the holders of Series
A Preferred Stock of the preferential amounts so payable to them, the remaining
assets shall be distributed to the holders of Common Stock and Series A
Preferred Stock pro rata based upon the number of shares of Common Stock held by
each (assuming full conversion of all Series A Preferred Stock).
The merger or consolidation of the Corporation into or with another
corporation, or the effectuation of a statutory exchange of shares, or the sale,
lease or transfer of all or substantially all of the assets of the Corporation,
shall be regarded as a liquidation, dissolution or winding up of the Corporation
within the meaning of this Section 1; provided, however, that the merger or
consolidation of the Corporation into or with another corporation or the
effectuation of a statutory exchange of shares, in which the shareholders of the
Corporation immediately prior to such transaction hold, immediately after such
transaction, at least 50% of the general voting power of the surviving or
acquiring entity (or a parent corporation thereof) by virtue of their ownership
of the Corporation's equity securities, shall not be regarded as a liquidation,
dissolution or winding-up of the Corporation within the meaning of this Section
1. In any such case the valuation of the Corporation, and the amount of any
liquidation preference to which the holders of Series A Preferred Stock shall be
entitled, shall be computed in the same manner as if the Corporation's available
assets (valued at the value being given for the Corporation's shares or assets
in such transactions) were actually being distributed to all shareholders in
connection with such transaction (even though holders of Common Stock and other
classes or series of Preferred Stock are not or may not be entitled to receive
any actual distribution upon such deemed liquidation or dissolution). In any
such case, the Corporation shall not enter into or consummate any such merger,
consolidation, exchange, sale, transfer, lease, reorganization or other
transaction without making adequate provision for the protection and
implementation of the rights of the holders of Series A Preferred Stock upon
such deemed liquidation or dissolution.
2. Voting. In addition to the special voting rights provided by
applicable law, the holders of shares of Series A Preferred Stock shall be
entitled to vote upon all matters upon which holders of the Common Stock have
the right to vote, and each share of Series A Preferred Stock shall be entitled
to the number of votes equal to the largest number of full shares of Common
Stock into which such shares of
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Series A Preferred Stock could be converted pursuant to the applicable
provisions of Section 3, at the record date established by the Board of
Directors of the Corporation for the determination of the stockholders entitled
to vote on such matters, or, if no such record date is so established, at the
record date provided by law, such votes to be counted together with all other
shares of capital stock having general voting powers and not separately as a
class. In all cases where the holders of shares of Series A Preferred Stock have
the right provided by applicable law to vote separately as a class, such holders
shall be entitled to one vote for each such share held by them respectively.
3. Automatic Conversion. Each outstanding share of Series A
Preferred Stock shall automatically be converted, without any further act of the
Corporation or its stockholders, into one fully paid and nonassessable share of
Common Stock upon the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offering and sale of the Corporation's Common Stock.
(a) Series A Conversion Price. Each share of Series A Preferred
Stock shall be converted into that number of shares of Common Stock determined
by dividing (x) $4.20 by (y) the Series A Conversion Price in effect on the
Series A Conversion Date. The Series A Conversion Price at which shares of
Common Stock shall initially be issuable upon conversion of the shares of Series
A Preferred Stock shall be $4.20. The Series A Conversion Price shall be subject
to adjustment as set forth in Subsection 3(d). No payment or adjustment shall be
made for any dividends on the Common Stock issuable upon such conversion.
(b) Mechanics of Conversion. Upon the occurrence of such
underwritten public offering, the outstanding shares of Series A Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however, that
the Corporation shall not be obligated to issue to any such holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
certificates evidencing the shares of Series A Preferred Stock are delivered to
the Corporation or any transfer agent of the Corporation. Conversion of the
Series A Preferred Stock shall be deemed to have been effected on the date on
which the effective date of such underwritten public offering shall have
occurred, and such date is referred to herein with respect to the Series A
Preferred Stock as the "Series A Conversion Date." Subject to the provisions of
Subsection 3(d)(viii), as promptly as practicable thereafter (and after
surrender of the certificate or certificates representing shares of Series A
Preferred Stock to the Corporation or any transfer agent of the Corporation) the
Corporation shall issue and deliver to such holder a certificate or certificates
for the number of full shares of Common Stock to which such holder is entitled
and a check or cash with respect to any fractional interest in a share of Common
Stock as provided in Subsection 3(c) and any dividends on the Series A Preferred
Stock which such holder is entitled to receive, but has not yet received.
Subject to the provisions of Subsection 3(d)(viii), the Person in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of record of such Common Stock on the Series A Conversion
Date.
(c) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of shares of Series A Preferred Stock. If more than
one share of Series A Preferred Stock shall be surrendered for conversion at any
one time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series A Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock, the Corporation shall pay a cash adjustment
in respect of such fractional interest in an amount equal to that
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fractional interest of the then fair value per share of Common Stock, as
determined by the Board of Directors.
(d) Conversion Adjustments for the Series A Preferred Stock. The
Conversion Price for the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) Common Stock Issued at a Price Less than the Series A
Conversion Price. If the Corporation shall issue Common Stock other
than Excluded Stock as defined in Subsection 3(d)(ii) for a
consideration per share less than $4.20 (as adjusted pursuant to this
Subsection 3(d)), then the Series A Conversion Price in effect
immediately prior to each such issuance shall immediately be reduced to
the price determined by dividing (1) an amount equal to the sum of (A)
the number of shares of Common Stock outstanding immediately prior to
such issuance plus the number of shares of Common Stock then issuable
upon conversion of shares of Series A Preferred Stock, multiplied by
the Series A Conversion Price in effect immediately prior to such
issuance and (B) the consideration, if any, received by the Corporation
upon such issuance, by (2) the total number of shares of Common Stock
outstanding immediately after such issuance plus the number of shares
of Common Stock then issuable upon conversion of shares of Series A
Preferred Stock.
For the purposes of any such adjustment of the Series A Conversion
Price, the following provisions shall be applicable:
(A) Cash. In the case of the issuance of Common Stock for
cash, the amount of the consideration received by the Corporation
shall be deemed to be the amount of the cash proceeds received by
the Corporation for such Common Stock before deducting therefrom
any reasonable discounts, commissions, taxes or other expenses
allowed, paid or incurred by the Corporation for any underwriting
or otherwise in connection with the issuance and sale thereof.
(B) Consideration Other Than Cash. In the case of the
issuance of Common Stock for a consideration in whole or in part
other than cash, including securities acquired in exchange
therefor, the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors.
(C) Options and Convertible Securities. In the case of the
issuance of (i) options, warrants or other rights to purchase or
acquire Common Stock (whether or not at the time exercisable), (ii)
securities by their terms convertible into or exchangeable for
Common Stock (whether or not at the time so convertible or
exercisable) or (iii) options, warrants or rights to purchase such
convertible or exchangeable securities (whether or not at the time
exercisable), other than options, warrants, rights or convertible
or exchangeable securities which are or, when exercised or
converted, would constitute Excluded Stock, the following
provisions shall apply:
(1) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options, warrants or
other rights to purchase or acquire Common Stock shall be
deemed to have been issued at the time such options, warrants
or rights were issued and for a consideration equal to the
consideration (determined in the manner
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provided in sub-clauses (A) and (B) above), if any, received
by the Corporation upon the issuance of such options,
warrants or rights plus the minimum purchase price provided
in such options, warrants or rights for the Common Stock
covered thereby;
(2) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities, or upon the
exercise of options, warrants or other rights to purchase or
acquire such convertible or exchangeable securities and the
subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities were issued or
such options, warrants or rights were issued and for a
consideration equal to the consideration, if any, received by
the Corporation for any such securities and related options,
warrants or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the
Corporation upon the conversion or exchange of such
securities and the exercise of any related options, warrants
or rights (the consideration in each case to be determined in
the manner provided in subclauses (A) and (B) above);
(3) on any change in the number of shares of Common
Stock deliverable upon exercise of any such options, warrants
or rights or conversion of or exchange for such convertible
or exchangeable securities or any change in the consideration
to be received by the Corporation upon such exercise,
conversion or exchange, including, but not limited to, a
change resulting from the antidilution provisions thereof,
the Series A Conversion Price as then in effect shall
forthwith be readjusted to such Series A Conversion Price as
would have been obtained had an adjustment been made upon the
issuance of such options, warrants or rights not exercised
prior to such change, or securities not converted or
exchanged prior to such change, upon the basis of such
change;
(4) on the expiration or cancellation of any such
options, warrants or rights, or the termination of the right
to convert or exchange such convertible or exchangeable
securities, if the Series A Conversion Price shall have been
adjusted upon the issuance thereof, such Series A Conversion
Price shall forthwith be readjusted to such Series A
Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options,
warrants, rights or securities on the basis of the issuance
of only the number of shares of Common Stock actually issued
upon the exercise of such options, warrants or rights, or
upon the conversion or exchange of such securities; and
(5) if the Series A Conversion Price shall have been
adjusted upon the issuance of any such options, warrants,
rights or convertible or exchangeable securities, no further
adjustment of the Series A Conversion Price shall be made for
the actual issuance of Common Stock upon the exercise
thereof;
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provided, however, that no increase in the Series A Conversion
Price shall be made pursuant to sub-clauses (1) or (2) of this
subclause (C).
(ii) Excluded Stock. "Excluded Stock" shall mean shares of
Common Stock issued or reserved for issuance by the Corporation (A) as
a stock dividend payable in shares of Common Stock; (B) upon any
subdivision or split-up of the outstanding shares of Common Stock or
Series A Preferred Stock; (C) upon conversion of shares of Series A
Preferred Stock; (D) pursuant to stock options granted under the
Corporation's Incentive Stock Option Plan, as such plan may be amended
from time to time; (E) pursuant to stock options granted to Cairncross
& Hempelmann, P.S., or its designee; and (F) as of the Issue Date.
(iii) Stock Dividends. If the number of shares of Common Stock
outstanding at any time after the Issue Date is increased by a stock
dividend or other distribution on Common Stock payable in shares of
Common Stock or by a subdivision, split-up or reclassification of
outstanding shares of Common Stock, then immediately after the record
date fixed for the determination of holders of Common Stock entitled to
receive such stock dividend or the effective date of such subdivision,
split-up or reclassification, as the case may be, the Series A
Conversion Price shall be appropriately reduced so that the holder of
any shares of Series A Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock of the
Corporation which he would have owned immediately following such action
had such shares of Series A Preferred Stock been converted immediately
prior thereto.
(iv) Combination of Stock. If the number of shares of Common
Stock outstanding at any time after the Issue Date is decreased by a
combination or reclassification of the outstanding shares of Common
Stock, then, immediately after the effective date of such combination
or reclassification, the Series A Conversion Price shall be
appropriately increased so that the holder of any shares of Series A
Preferred Stock thereafter converted shall be entitled to receive the
number of shares of Common Stock of the Corporation which the holder
would have owned immediately following such action had such shares of
Series A Preferred Stock been converted immediately prior thereto.
(v) Capital Reorganization or Reclassification. If the
Common Stock issuable upon the conversion of the Series A Preferred
Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination
of shares or stock dividend provided for elsewhere in this Subsection
3(d)), then in each such event the holder of each share of Series A
Preferred Stock shall have the right thereafter to convert such share
into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other
change by the holders of the number of shares of Common Stock into
which such share of Series A Preferred Stock might have been converted
immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
(vi) Merger or Consolidation. If at any time or from time to
time there shall be an acquisition of the Corporation by another entity
by means of merger, consolidation or
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otherwise, resulting in the exchange of the outstanding shares of the
Corporation for securities or consideration issued or caused to be
issued by the acquiring entity or any of its affiliates, and such
exchange is not otherwise regarded as a liquidation, dissolution or
winding up of the Corporation within the meaning of Section 1, then, as
a part of such acquisition, provision shall be made so that the holders
of Series A Preferred Stock shall thereafter be entitled to receive,
upon conversion of the Series A Preferred Stock, the number of shares
of stock or other securities or property of the acquiring corporation
resulting from such acquisition to which such holder would have been
entitled if such holder had converted its shares of Series A Preferred
Stock immediately prior to such acquisition. In any such case
appropriate adjustments shall be made in the application of the
provisions of this Subsection 3(d) with respect to the rights of the
holders of the Series A Preferred Stock after such acquisition to the
end that the provisions of this Subsection 3(d) (including adjustment
of the Series A Conversion Price then in effect and the number of
shares issuable upon conversion of the Series A Preferred Stock) shall
be applicable after that event in as nearly equivalent a manner as may
be practicable.
(vii) Rounding of Calculations; Minimum Adjustment. All
calculations under this Subsection 3(d) shall be made to be nearest
cent or to the nearest one hundredth (1/100th) of a share, as the case
may be. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Series A Conversion Price shall
be made if the amount of such adjustment would be less than 1% of the
Series A Conversion Price then in effect, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward,
shall aggregate 1% or more of the Series A Conversion Price then in
effect.
(viii) Timing of Issuance of Additional Common Stock Upon
Certain Adjustments. In any case in which the provisions of this
Subsection 3(d) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event (A) issuing to the holder of any
share of Series A Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock
issuable upon such conversion before giving effect to such adjustment
and (B) paying to such holder any amount of cash in lieu of a
fractional share of Common Stock pursuant to Subsection 3(c); provided
that the Corporation upon request shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares, and such cash, upon the occurrence of
the event requiring such adjustment.
(e) Statement Regarding Adjustments. Whenever the Series A
Conversion Price shall be adjusted as provided in Subsection 3(d), the
Corporation shall forthwith file, at the office of any transfer agent for the
Series A Preferred Stock and at the principal office of the Corporation, a
statement showing in detail the facts requiring such adjustment and the Series A
Conversion Price that shall be in effect after such adjustment, and the
Corporation shall also cause a copy of such statement to be sent by mail,
first-class postage prepaid, to each holder of shares of Series A Preferred
Stock at its address appearing on the Corporation's records. Where appropriate,
such copy may be given in advance and may be included as part of a notice
required to be mailed under the provisions of Subsection 3(f).
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<PAGE> 17
(f) Notice to Holders. In the event the Corporation shall propose
to take any action of the type described in clause (i) (but only if the action
of the type described in clause (i) would result in an adjustment in the Series
A Conversion Price), (iii), (iv), (v) or (vi) of Subsection 3(d), the
Corporation shall give notice to each holder of shares of Series A Preferred
Stock, in the manner set forth in Subsection 3(e), which notice shall specify
the record date, if any, with respect to any such action and the approximate
date on which such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the date of
such notice) on the Series A Conversion Price and the number, kind or class of
shares or other securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion of shares of
Series A Preferred Stock. In the case of any action which would require the
fixing of a record date, such notice shall be given at least 15 days prior to
the date so fixed, and in case of all other action, such notice shall be given
at least 20 days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
any such action.
(g) Costs. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock of the Corporation upon conversion of any shares of
Series A Preferred Stock; provided that the Corporation shall not be required to
pay any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series A Preferred Stock in respect of which
such shares are being issued.
(h) Reservation of Shares. The Corporation shall reserve at all
times so long as any shares of Series A Preferred Stock remain outstanding, free
from preemptive rights, out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
Series A Preferred Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series A Preferred Stock.
(i) Approvals. If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series A Preferred Stock require registration
with or approval of any governmental authority under any federal or state law
before such shares may be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If, and so long as,
any Common Stock into which the shares of Series A Preferred Stock are then
convertible is listed on any national securities exchange, the Corporation will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, upon official notice of issuance, all shares of such Common Stock
issuable upon conversion.
(j) Valid Issuance. All shares of Common Stock which may be issued
upon conversion of the shares of Series A Preferred Stock will upon issuance by
the Corporation be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof and
the Corporation shall take no action which will cause a contrary result.
4. Redemption. Except as the holders of Series A Preferred Stock are
entitled to have their shares redeemed pursuant to Section 1, the Corporation
shall not redeem the Series A Preferred Stock, in whole or in part.
5. Dividends. Dividends shall be declared and set aside for any shares
of the Series A Preferred Stock only upon resolution of the Board of Directors
of the Corporation; provided, that if the Board of Directors declares a dividend
payable on the Common Stock, the holders of the Series A
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<PAGE> 18
Preferred Stock shall be entitled to dividends per share of the Series A
Preferred Stock as would be declared payable on the largest number of whole
shares of Common Stock into which each share of the Series A Preferred Stock
held by each holder thereof would be converted (as of the record date for the
determination of the holders of Common Stock entitled to receive such dividend)
pursuant to Subsection 3(d).
6. Retirement of Shares. Shares of Series A Preferred Stock which have
been issued and have been redeemed, repurchased or reacquired in any manner by
the Corporation shall be retired and shall not be reissued.
7. General Provisions
(a) The term "Person" as used herein means any corporation,
partnership, trust, organization, association, other entity or individual.
(b) The term "outstanding," when used with reference to shares of
stock, shall mean issued shares, excluding shares held by the Corporation or a
subsidiary.
(c) All accounting terms used herein and not expressly defined
herein shall have the meanings given to them in accordance with generally
accepted accounting principles.
(d) The headings of the sections, subsections, clauses and
subclauses herein are for convenience of reference only and shall not define,
limit or affect any of the provisions hereof.
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<PAGE> 19
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
FINE.COM CORPORATION
Pursuant to the Washington Business Corporation Act, fine.com
Corporation, a Washington corporation (the "Corporation"), hereby amends its
Amended and Restated Articles of Incorporation as follows:
1. The name of the corporation is: FINE.COM CORPORATION
2. The first sentence of Section 3 of the Terms and Provisions of Series A
Preferred Stock is amended to read in its entirety as follows:
"Each outstanding share of Series A Preferred Stock shall
automatically be converted, without any further act of the
Corporation or its shareholders, into one fully paid and
nonassessable share of Common Stock upon the effective date of
a registration statement for an underwritten public offering
under the Securities Act of 1933, as amended, covering the
offering and sale of the Corporation's Common Stock."
3. The total number of shares of Series A Preferred Stock to be issued by
the Corporation shall not exceed 59,524 shares.
4. The terms and provisions of a Series consisting of the balance of
authorized but unissued shares of preferred stock of the Corporation
are as set forth below:
"Each authorized but unissued share of a Series consisting of
the balance of authorized but unissued shares of preferred
stock of the Corporation shall automatically be converted,
without any further act of the Corporation or its
shareholders, into one authorized but unissued share of Common
Stock upon the effective date of a registration statement for
an underwritten public offering under the Securities Act of
1933, as amended, covering the offering and sale of the
Corporation's Common Stock."
5. The foregoing amendments do not provide for an exchange,
reclassification or cancellation of issued shares.
6. The amendment set forth above in paragraph 2 was duly adopted by the
Board of Directors on April 14, 1997 and approved by the shareholders
on May 9, 1997, in accordance with the provisions of RCW 23B.10.030 and
RCW 23B.10.040. The amendments set forth above in paragraphs 3 and 4
were duly adopted by the Board of
<PAGE> 20
Directors on May 9, 1994 , in accordance with the provisions of RCW
23B.10.020, and shareholder approval was not required.
DATED as of May 9, 1997.
fine.com Corporation
/s/ Daniel M. Fine
By ___________________________________________________
Daniel M. Fine, President and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.2
================================================================================
BYLAWS
OF
FINE.COM CORPORATION
ADOPTED: FEBRUARY 4, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I REGISTERED OFFICE AND REGISTERED AGENT 1
ARTICLE II SHAREHOLDERS' MEETING 1
Section 1. Annual Meetings........................................ 1
Section 2. Special Meetings....................................... 1
Section 3. Notice of Meetings..................................... 1
Section 4. Waiver of Notice....................................... 2
Section 5. Record Date............................................ 2
Section 6. Shareholders List for Meeting.......................... 2
Section 7. Quorum and Adjourned Meetings.......................... 2
Section 8. Proxies................................................ 3
Section 9. Voting of Shares....................................... 3
ARTICLE III DIRECTORS 3
Section 1. General Powers......................................... 3
Section 2. Number................................................. 3
Section 3. Tenure and Qualifications.............................. 3
Section 4. Election............................................... 3
Section 5. Vacancies.............................................. 4
Section 6. Resignation............................................ 4
Section 7. Removal of Directors................................... 4
Section 8. Meetings............................................... 4
Section 9. Quorum and Voting...................................... 5
Section 10. Compensation........................................... 5
Section 11. Presumption of Assent.................................. 5
Section 12. Committees............................................. 5
ARTICLE IV SPECIAL MEASURES FOR CORPORATE ACTION 6
Section 1. Actions by Written Consent............................. 6
Section 2. Meetings by Conference Telephone....................... 6
ARTICLE V OFFICERS
Section 1. Officers Designated.................................... 6
Section 2. Election, Qualification and Term of Office............. 7
Section 3. Powers and Duties...................................... 7
Section 4. Assistant Secretaries and Assistant Treasurers......... 7
Section 5. Removal................................................ 7
Section 6. Vacancies.............................................. 8
Section 7. Compensation........................................... 8
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ARTICLE VI SHARE CERTIFICATES 8
Section 1. Issuance, Form and Execution of Certificates........... 8
Section 2. Transfers.............................................. 8
Section 3. Loss or Destruction of Certificates.................... 8
ARTICLE VII BOOKS AND RECORDS 9
Section 1. Books of Accounts, Minutes and Share Register.......... 9
Section 2. Financial Statements................................... 9
Section 3. Copies of Resolutions.................................. 9
ARTICLE VIII CORPORATE SEAL 10
ARTICLE IX AMENDMENT OF BYLAWS 10
Section 1. By the Shareholders.................................... 10
Section 2. By the Board of Directors.............................. 10
ARTICLE X FISCAL YEAR 10
ARTICLE XI RULES OF ORDER 10
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<PAGE> 4
BYLAWS OF
FINE.COM CORPORATION
ARTICLE I
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the corporation shall be located in the State
of Washington at such place as may be fixed from time to time by the board of
directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. Any change in the registered agent or registered office shall be
effective upon filing such change with the office of the Secretary of State of
the State of Washington.
ARTICLE II
SHAREHOLDERS ' MEETINGS
Section 1. Annual Meetings. The annual meeting of the shareholders of
this corporation, for the purpose of election of directors and for such other
business as may come before it, shall be held either (a) at the registered
office of the corporation, on the [first week of January] of each and every
year, at [time of day], but if such day shall be a legal holiday, the meeting
shall be held at the same hour and place on the next succeeding day not a
holiday, or (b) at such other place and time which may be within or without the
State of Washington, as may be determined by the board of directors and
specified in the notice of the meeting.
Section 2. Special Meetings. Special meetings of the shareholders of
this corporation may be called at any time by the holders of ten percent (10%)
of the voting shares of the corporation, or by the president, or by the board of
directors. No business shall be transacted at any special meeting of
shareholders except as is specified in the notice calling for said meeting. The
place of any special meeting shall be the registered office of the corporation
or as otherwise determined, within or without the State of Washington, by the
board of directors and specified in the notice of the meeting.
Section 3. Notice of Meetings. Written notice of annual or special
meetings of shareholders stating the place, day, and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given by the secretary or persons authorized to call the
meeting to each shareholder of record entitled to vote at the meeting. Such
notice shall be given no fewer than ten (10) nor more than sixty (60) days
before the meeting date, except that notice of a meeting to act on an amendment
to the Articles of Incorporation, a plan of merger or share exchange, a proposed
sale, lease, exchange or other disposition of all or substantially all of the
assets of the corporation other than in the usual or regular course of business,
or the dissolution of the corporation shall be given no fewer than twenty (20)
nor more than sixty (60) days before the meeting date. Notice may be transmitted
by
<PAGE> 5
mail, private carrier or personal delivery, telegraph or teletype, or telephone,
wire or wireless equipment which transmits a facsimile of the notice. If mailed,
such notice shall be effective when deposited in the United States mail,
first-class postage prepaid, and addressed to the shareholder at his or her
address as it appears on the stock transfer books of the corporation. Otherwise,
such notice shall be effective when received.
Section 4. Waiver of Notice. Notice of the time, place, and purpose of
any meeting may be waived in writing (either before or after such meeting).
Notice of time or place of a meeting will be waived by any shareholder by that
shareholder's attendance in person or by proxy, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting. Objection to consideration of a particular matter that is not
within the purposes described in a special meeting notice will be waived unless
the shareholder objects to considering the matter when it is presented. Any
shareholder so waiving shall be bound by the proceedings of any such meeting in
all respects as if due notice thereof had been given.
Section 5. Record Date. The board of directors may fix in advance a
record date in order to determine the shareholders entitled to notice of a
shareholders' meeting, to demand a special meeting, to vote, or to take any
other action, such date to be not more than seventy (70) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a share dividend or a distribution (other than
one involving the purchase, redemption, or other acquisition of the
corporation's shares), the day before the date on which notice of the meeting is
effective or the date on which the board of directors authorizes such share
dividend or distribution, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination is effective for any adjournment thereof, unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting.
Section 6. Shareholders' List for Meeting. After fixing a record date
for a shareholders' meeting, the corporation shall prepare an alphabetical list
of the names of all shareholders on the record date who are entitled to notice
of the shareholders' meeting. The list shall be arranged by voting group, and
within each voting group by class or series of shares, and show the address of
and number of shares held by each shareholder. A shareholder, shareholder's
agent, or shareholder's attorney may inspect the shareholder list, beginning ten
(10) days prior to the shareholders' meeting and continuing through the meeting,
at the corporation's principal office or at a place identified in the meeting
notice in the city where the meeting will be held, during regular business hours
and at the shareholder's expense. The shareholders' list shall be kept open for
inspection during such meeting or any adjournment.
Section 7. Quorum and Adjourned Meetings. A majority of the votes
entitled to be cast on a matter by a voting group shall constitute a quorum of
that voting group at a meeting of shareholders. Once a share is represented for
any purpose at a meeting, in person or by proxy, other than solely to object to
holding the meeting or transacting business at the meeting, it is
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<PAGE> 6
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting, unless a new record date is or must be set for that
adjourned meeting.
Section 8. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by the shareholder's
attorney-in-fact or agent. An appointment of a proxy is effective when received
by the secretary or other officer or agent authorized to tabulate votes. An
appointment is valid for eleven (11) months unless a longer period is expressly
provided in the appointment of the proxy.
Section 9. Voting of Shares. Except as otherwise provided in the
Articles of Incorporation or in these Bylaws, every shareholder of record shall
have the right at every shareholders' meeting to one vote for every share
standing in his or her name on the books of the corporation. If a quorum exists,
action on a matter, other than election of directors, is approved by a voting
group of shareholders if the votes cast within the voting group favoring the
action exceed the votes cast within the voting group opposing the action, unless
a greater number of affirmative votes is required by the Washington Business
Corporation Act or by the Articles of Incorporation.
ARTICLE III
DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, the board of directors except as otherwise
provided by the laws under which this corporation exists or in the Articles of
Incorporation.
Section 2. Number. The number of directors of the corporation shall be
two (2). The number of directors can be increased or decreased by resolution of
the board of directors or the shareholders; provided, that no decrease in the
number of directors shall shorten the term of any incumbent director.
Section 3. Tenure and Qualifications. The term of each director shall
expire at the next annual meeting of shareholders. Despite the expiration of a
director's term, the director shall continue to serve until the director's
successor shall have been elected and qualified or until there is a decrease in
the number of directors. Directors need not be residents of the state or
shareholders of the corporation.
Section 4. Election. The directors shall be elected at the
shareholders' annual meeting each year, and if, for any cause, the directors
shall not have been elected at an annual meeting, they may be elected at a
special meeting of shareholders called for that purpose in the manner provided
by these Bylaws. Directors shall be elected by the holders of classes or series
of shares entitled to elect them.
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<PAGE> 7
Section 5. Vacancies. In case of any vacancy in the board of directors,
including a vacancy resulting from an increase in the number of directors, the
board of directors, a majority of the remaining directors if they do not
constitute a quorum, or the shareholders may fill the vacancy.
Section 6. Resignation. Any director may resign at any time by
delivering written notice to the board of directors, its chairperson, or the
president or secretary of the corporation. A resignation shall be effective when
the notice is delivered, unless the notice specifies a later effective date.
Section 7. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, the entire board of directors, or any member
thereof, may be removed, with or without cause, by a vote of the holders of the
shares entitled to vote at an election of such directors.
Section 8. Meetings.
(a) The board of directors shall hold an annual meeting
immediately after the annual shareholders' meeting, at the same place as the
annual shareholders' meeting or at such other place and at such time as may be
determined by the directors. No notice of the annual meeting of the board of
directors shall be necessary.
(b) Special meetings may be called at any time and place by
the president, secretary, or any two (2) directors. Notice of the time and place
of each special meeting shall be given by the secretary, or the persons calling
the meeting. The notice may be written or oral and shall be given at least two
(2) days in advance of the meeting. Written notice may be given by mail, private
carrier or personal delivery, telegraph or teletype, or telephone, wire or
wireless equipment which transmits a facsimile of the notice. Oral notice may be
communicated in person or by telephone, wire or wireless equipment which does
not transmit a facsimile of the notice. Such notice shall be effective at the
earlier of (i) when it is received, or (ii) five (5) days after it is deposited
in the United States mail, first-class postage prepaid, and correctly addressed.
The purpose of the meeting need not be given in the notice. Notice of any
special meeting may be waived in writing (either before or after such meeting)
and will be waived by any director by attendance at or participation in the
meeting, unless the director at the beginning of the meeting, or promptly upon
the director's arrival, objects and does not thereafter vote for or assent to
action taken at the meeting.
(c) Regular meetings of the board of directors may be held at
such place and on such day and hour as shall from time to time be fixed by
resolution of the board of directors. No notice of regular meetings of the board
of directors shall be necessary.
(d) At any meeting of the board of directors, any business may
be transacted, and the board may exercise all of its powers.
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Section 9. Quorum and Voting.
(a) A majority of the number of directors specified in or
fixed in accordance with the Articles of Incorporation or these Bylaws shall
constitute a quorum, but a lesser number may adjourn any meeting from time to
time until a quorum is obtained, and no further notice thereof need be given.
(b) If a quorum is present when a vote is taken, the
affirmative vote of a majority of the directors present at the meeting is the
act of the board of directors. If enough directors withdraw from a meeting to
leave less than a quorum, the remaining directors may not continue to transact
business at such meeting.
Section 10. Compensation. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 11. Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be deemed to have assented to the action taken unless:
(i) the director objects at the beginning of the meeting,
or promptly upon the director's arrival, to holding
it or transacting business at the meeting;
(ii) the director's dissent or abstention from the action
taken is entered in the minutes of the meeting; or
(iii) the director delivers written notice of the
director's dissent or abstention to the presiding
officer of the meeting before its adjournment or to
the corporation within a reasonable time after
adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 12. Committees. The board of directors, by resolution approved
by a majority of the full board of directors, may designate from among its
members one or more committees, each of which must have two (2) or more members
and, to the extent provided in such resolution, such committees shall have and
may exercise all the authority of the board of directors, except that no such
committee shall have the authority to: authorize or approve a distribution
except according to a general formula or method prescribed by the board of
directors; approve or propose to shareholders action that the Washington
Business Corporation Act requires to be approved by shareholders, fill vacancies
on the board of directors or on any of its committees, adopt amendments to the
Articles of Incorporation not requiring shareholder approval; adopt, amend or
repeal the Bylaw; approve a plan of merger not requiring shareholder approval;
or authorize or
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<PAGE> 9
approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences, and limitations of a class or
series of shares, except that the board of directors may authorize a committee,
or a senior executive officer of the corporation, to do so within limits
specifically prescribed by the board of directors.
ARTICLE IV
SPECIAL MEASURES FOR CORPORATE ACTION
Section 1. Actions by Written Consent. Any corporate action required or
permitted by the Articles of Incorporation, Bylaws, or the Washington Business
Corporation Act, to be voted upon or approved at a duly called meeting of the
directors, committee of directors, or shareholders may be accomplished without a
meeting if one or more unanimous written consents of the respective directors,
committee members, or shareholders entitled to vote on the actions, setting
forth the actions so taken, shall be signed by all the directors, committee
members, or shareholders entitled to vote thereon, as the case may be. Such
consents may be signed in counterpart. In the case of action by-the directors or
a committee of the directors, the consents may be signed before or after the
action is taken. Action taken by unanimous written consent of the directors or a
committee of the directors is effective when the last director or committee
member signs the consent, unless the consent specifies a later effective date.
Action taken by unanimous written consent of the shareholders is effective when
all consents are in possession of the corporation, unless the consent specifies
a later effective date.
Section 2. Meetings by Conference Telephone. Members of the board of
directors, members of a committee of directors, or shareholders may participate
in or conduct their respective meetings by means of a conference telephone or
similar communications equipment by which all persons participating in the
meeting can hear each other at the same time, and participation in a meeting by
such means shall constitute presence in person at such meeting.
ARTICLE V
OFFICERS
Section 1. Officers Designated. The officers of the corporation shall
be a president, one or more vice presidents (the number thereof to be determined
by the board of directors), a secretary, and a treasurer, each of whom shall be
elected by the board of directors. Such other officers and assistant officers as
may be deemed necessary may be elected or appointed by the board of directors.
Any two or more offices may be held by the same person.
The board of directors may, in its discretion, elect a chairperson of
the board of directors and, if a chairperson has been elected, the chairperson
shall, when present, preside at all meetings of the board of directors and the
shareholders and shall have such other powers as the board may prescribe.
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<PAGE> 10
Section 2. Election, Qualification and Term of Office. Each of the
officers shall be elected by the board of directors. None of said officers,
except the president and the chairperson of the board of directors, need be a
director, but a vice president who is not a director cannot succeed to or fill
the office of president. The officers shall be elected by the board of directors
at each annual meeting of the board of directors. Except as hereinafter
provided, each of said officers shall hold office from the date of his or her
election until the next annual meeting of the board of directors and until a
successor shall have been duly elected and qualified.
Section 3. Powers and Duties.
(a) President. Unless otherwise determined by the board of
directors, the president shall be the chief executive officer of the corporation
and, subject to the direction and control of the board of directors, shall have
general charge and supervision over its property, business, and affairs. The
president shall, unless a chairperson of the board of directors has been elected
and is present, preside at meetings of the shareholders and the board of
directors.
(b) Vice President. In the absence of the president or the
president's inability to act, the senior vice president shall act in the
president's place and stead and shall have all the powers and authority of the
president, except as limited by resolution of the board of directors.
(c) Secretary. The secretary shall: (1) keep the minutes of
the shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (2) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (3) be custodian of
the corporate records and of the seal of the corporation and affix the seal of
the corporation to all documents as may be required; (4) keep, or cause to be
kept, a register of the post office address of each shareholder which shall be
furnished to the secretary by such shareholder; (5) have general charge of the
stock transfer books of the corporation; and (6) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to the secretary by the president or by the board of directors.
(d) Treasurer. Subject to the direction and control of the
board of directors, the treasurer shall have the custody, control, and
disposition of the funds and securities of the corporation and shall account for
the same, and at the expiration of term of office, the treasurer shall turn over
to his or her successor all property of the corporation in his or her
possession.
Section 4. Assistant Secretaries and Assistant Treasurers. The
assistant secretaries and assistant treasurers shall perform such duties as
shall be assigned to them by the secretary or the treasurer, respectively, or by
the president or the board of directors.
Section 5. Removal. The board of directors shall have the right to
remove any officer whenever in its judgment the best interests of the
corporation will be served thereby.
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Section 6. Vacancies. The board of directors shall fill any office
which becomes vacant with a successor who shall hold office for the unexpired
term and until a successor shall have been duly elected and qualified.
Section 7. Compensation. The compensation of all officers of the
corporation shall be fixed by the board of directors.
ARTICLE VI
SHARE CERTIFICATES
Section 1. Issuance, Form and Execution of Certificates. No shares of
the corporation shall be issued unless authorized by the board. Such
authorization shall include the maximum number of shares to be issued, the
consideration to be received for each share, and a statement that the board has
determined that such consideration is adequate. Certificates for shares of the
corporation shall be in such form as is consistent with the provisions of the
Washington Business Corporation Act and shall state:
(i) the name of the corporation and that the corporation
is organized under the laws of this state;
(ii) the name of the person to whom issued; and
(iii) the number and class of shares and the designation of
the series, if any, which such certificate
represents.
Certificates shall be signed by two (2) officers of the corporation, and the
seal of the corporation may be affixed thereto. If any officer who has signed or
whose facsimile signature has been placed upon any certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if the person were such officer at the date
of its issue. Certificates may be issued for fractional shares. No certificate
shall be issued for any share until the consideration established for its
issuance has been paid.
Section 2. Transfers. Shares may be transferred by delivery of the
certificate therefor, accompanied either by an assignment in writing on the back
of the certificate or by a written power of attorney to assign and transfer the
same, signed by the record holder of the certificate. The board of directors
may, by resolution, provide that beneficial owners of shares shall be deemed
holders of record for certain specified purposes. Except as otherwise
specifically provided in these Bylaws, no shares shall be transferred on the
books of the corporation until the outstanding certificate therefor has been
surrendered to the corporation.
Section 3. Loss or Destruction of Certificates. In case of loss or
destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory
indemnity bond to the corporation. A new certificate may be
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<PAGE> 12
issued without requiring any bond when, in the judgment of the board of
directors, it is proper to do so.
ARTICLE VII
BOOKS AND RECORDS
Section 1. Books of Accounts, Minutes and Share Register. The
corporation shall keep as permanent records minutes of all meetings of its
shareholders and board of directors, a record of all actions taken by the
shareholders and board of directors without a meeting, and a record of all
actions taken by a committee of the board of directors exercising the authority
of the board of directors on behalf of the corporation. The corporation shall
maintain appropriate accounting records. The corporation or its agent shall
maintain a record of its shareholders, in a form that permits preparation of a
list of the names and addresses of all shareholders, in alphabetical order by
class of shares showing the number and class of shares held by each. The
corporation shall keep a copy of the following records at its principal office:
the Articles or Restated Articles of Incorporation and all amendments to them
currently in effect; the Bylaws or Restated Bylaws and all amendments to them
currently in effect; the minutes of all shareholders' meetings and records of
all actions taken by shareholders without a meeting, for the past three (3)
years; its financial statements for the past three (3) years, including balance
sheets showing in reasonable detail the financial condition of the corporation
as of the close of each fiscal year, and an income statement showing the results
of its operations during each fiscal year; all written communications to
shareholders generally within the past three (3) years; a list of the names and
business addresses of its current directors and officers; and its most recent
annual report delivered to the Secretary of State of Washington.
Section 2. Financial Statements. The annual financial statements for
shareholders shall be prepared not later than four (4) months after the close of
each fiscal year and in any event prior to the annual meeting of shareholders.
If financial statements are prepared by the corporation for any purpose on a
particular basis (i.e., on the basis of generally accepted accounting principles
or on some other basis), the annual financial statements must be prepared, and
disclose that they are prepared, on that same basis. If the annual financial
statements are-reported upon by a public accountant, the accountant's report
must accompany them. If not, the statements must be accompanied by a statement
of the president or the person responsible for the corporation's accounting
records, stating the person's reasonable belief whether the statements were
prepared on the basis of generally accepted accounting principles and, if not,
describing the basis of preparation, and describing any respects in which the
statements were not prepared on a basis of accounting consistent with the basis
used for statements prepared for the preceding year.
Section 3. Copies of Resolutions. Any person dealing with the
corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the board of directors or shareholders, when certified
by the president or secretary.
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ARTICLE VIII
CORPORATE SEAL
The board of directors may provide for a corporate seal which shall
have inscribed thereon the name of the corporation, the year and state of
incorporation and the words "corporate seal".
ARTICLE IX
AMENDMENT OF BYLAWS
Section 1. By the Shareholders. These Bylaws may be amended, altered,
or repealed at any annual or special meeting of the shareholders; provided that,
in the case of a special meeting, notice of the proposed alteration or amendment
is contained in the notice of the meeting.
Section 2. By the Board of Directors. These Bylaws may be amended,
altered, or repealed by the board of directors at any annual, regular or special
meeting of the board.
ARTICLE X
FISCAL YEAR
The fiscal year of the corporation shall be set by resolution of the
board of directors.
ARTICLE XI
RULES OF ORDER
The rules contained in the most recent edition of Robert's Rules of
Order, Newly Revised, shall govern all meetings of shareholders and directors
where those rules are not inconsistent with the Articles of Incorporation, these
Bylaws, or special rules of order of the corporation.
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<PAGE> 1
EXHIBIT 10.1
FINE.COM CORPORATION
INCENTIVE STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of this Incentive Stock Option Plan (this
"Plan") is to provide a means whereby fine.com Corporation (the "Company") or
any parent or subsidiary of the Company, as defined in Subsection 5.9 (the
"related Corporations"), may continue to attract, motivate and retain selected
employees, officers and independent contractors who can materially contribute to
the Company's growth and success, and to encourage stock ownership in the
Company through granting incentive stock options and/or nonqualified stock
options to purchase the Common Stock of the Company (as defined in Section 3),
so that such key employees will more closely identify their interests with those
of the Company and its shareholders.
SECTION 2. Administration. This Plan shall be administered by the
Board of Directors of the Company (the "Board") or, in the event the Board
shall appoint and/or authorize a committee to administer this Plan, by such
committee. The administrator of this Plan shall hereinafter be referred to
as the "Plan Administrator."
If the Company registers any of its equity securities pursuant to Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), then the following provisions shall apply to the administration of this
Plan with respect to grants made to officers or other optionees affected by
Section 16(b) of the Exchange Act. The Plan Administrator shall be constituted
at all times so as to meet the requirements of Section 16(b) of the Exchange
Act, as amended from time to time. Currently, the Plan Administrator shall be
the Board, of which all the Directors are disinterested, or may be a committee
which consists solely of two or more disinterested directors of the Company. The
members of any committee serving as Plan Administrator shall be appointed by the
Board for such term as the Board may determine. The Board may from time to time
remove members from, or add members to, the committee. Vacancies on the
committee, however caused, may be filled by the Board. If at any time an
insufficient number of disinterested directors is available to serve on such
committee, interested directors may serve on the committee; however, during such
time, no options shall be granted under this Plan to any person if the granting
of such option would not meet the requirements of Section 16(b) of the Exchange
Act.
For purposes of this Section 2, a disinterested director is a member of
the Board who meets the definition of "disinterested person" as set forth in the
rules and regulations promulgated under Section 16(b) of the Exchange Act, as
amended from time to time. Currently, a disinterested director for purposes of
this Section 2 is a member of the Board who for one year prior to service as an
administrator of this Plan has not been (and during service as a Plan
Administrator will not be) granted or awarded equity securities, including
options for equity securities, pursuant to this Plan or any other plan of the
Company or its affiliates, except for certain exclusions described in Rule
16b-
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<PAGE> 2
3.
2.1 Procedures. The Board may designate one of the members of the
Plan Administrator as chairperson. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of a majority of the
members of the Plan Administrator present at meetings at which a quorum exists,
or acts reduced to or approved in writing by all Plan Administrator members,
shall be valid acts of the Plan Administrator.
2.2 Responsibilities. Except for the terms and conditions explicitly
set forth in this Plan, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be granted under
this Plan, including selection of the individuals to be granted options, the
number of shares to be subject to each option, the exercise price, and all other
terms and conditions of the options. Grants under this Plan need not be
identical in any respect, even when made simultaneously. The interpretation and
construction by the Plan Administrator of any terms or provisions of this Plan
or any option issued under this Plan, or of any rule or regulation promulgated
in connection with this Plan, shall be conclusive and binding on all interested
parties, so long as such interpretation and construction with respect to
incentive stock options correspond to the requirements of Internal Revenue Code
(the "Code") Section 422, the regulations thereunder, and any amendments
thereto.
2.3 Section 16(b) Compliance and Bifurcation of Plan. It is the
intention of the Company that this Plan comply in all respects with Rule 16b-3
under the Exchange Act and, if any Plan provision is later found not to be in
compliance with such Section, the provision shall be deemed null and void, and
in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3. Notwithstanding anything in the Plan to the
contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to
participants who are officers and directors subject to Section 16(b) of the
Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other participants.
SECTION 3. Stock Subject to This Plan. The stock subject to this Plan
shall be the Company's Common Stock (the "Common Stock"), presently authorized
but unissued or now held or subsequently acquired by the Company as treasury
shares. Subject to adjustment as provided in Section 7 of this Plan, the
aggregate amount of Common Stock to be delivered upon the exercise of all
options granted under this Plan shall not exceed 2,000,000 shares as such Common
Stock was constituted on the effective date of this Plan. If any option granted
under this Plan expires or is surrendered, canceled, terminated or exchanged for
another option, for any reason without having been exercised in full, the
unpurchased shares subject to such option shall again be available for purposes
of this Plan, including for replacement options which may be granted in exchange
for such surrendered, canceled or terminated options.
SECTION 4. Eligibility. An incentive stock option may be granted only to
an individual who, at the time the option is granted, is an employee of the
Company and who the Board may
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<PAGE> 3
from time to time select for participation in this Plan. Members of the Board
shall not be eligible for grants of incentive stock options unless they are also
employees of the Company. At the discretion of the Plan Administrator, employees
and independent contractors of the Company (excluding nonemployee directors) may
receive nonqualified stock options. Any party to whom an option is granted under
this Plan shall be referred to in this Plan as an "Optionee."
SECTION 5. Terms and Conditions of Options. Options granted under this
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following terms
and conditions:
5.1 Number of Shares. The maximum number of shares that may be
purchased pursuant to the exercise of each option shall be as established by the
Plan Administrator.
5.2 Price of Shares. The price per share at which each option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator, provided that the Plan Administrator shall act in good faith to
establish the exercise price as follows:
5.2.1 Incentive Stock Options and Nonqualified Stock Options.
With respect to incentive stock options intended to qualify under Section 422 of
the Internal Revenue Code, and subject to Subsection 5.2.2 below, the exercise
price shall be not less than the fair market value per share of the Common Stock
at the time the option is granted. With respect to nonqualified stock options,
the exercise price shall be the amount set by the Plan Administrator, provided
that if the Company has registered any of its equity securities pursuant to
Section 12(b) or 12(g) of the Exchange Act, the exercise price shall not be less
than 85 percent of the fair market value of a share of the Common Stock at the
time the option is granted.
5.2.2 Incentive Stock Options to Greater than 10%
Shareholders. With respect to incentive stock options granted to greater than
10% shareholders of the Company, the exercise price shall be as required by
Section 6.
5.2.3 Fair Market Value. The fair market value per share of
the Common Stock for the purpose of determining the exercise price under this
Section 5.2 shall be determined by the Board in good faith at the time the
option is granted.
5.3 Term and Maturity. Subject to the restrictions contained in
Section 6 with respect to granting incentive stock options to greater than 10%
shareholders of the Company, the term of each incentive stock option shall be 10
years from the date it is granted unless a shorter period of time is established
by the Plan Administrator, but in no event shall the term of any incentive stock
option exceed 10 years. The term of each nonqualified stock option shall also be
10 years from the date it is granted unless a shorter period of time is
established by the Plan Administrator. To ensure that the Company or related
corporation will achieve the purpose and
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<PAGE> 4
receive the benefits contemplated in this Plan, any option granted to any
Optionee under this Plan shall, unless the condition of this sentence is waived
or modified in the agreement evidencing the option or by resolution adopted by
the Plan Administrator, be exercisable according to the following schedule:
<TABLE>
<CAPTION>
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option
the Option Is Granted Which Is Exercisable
--------------------- --------------------
<S> <C>
after 1 year 5%
after 2 years 15%
after 3 years 30%
after 4 years 50%
after 5 years 100%
</TABLE>
5.4 Exercise. Subject to the vesting schedule described in
subsection 5.3 above and to any additional holding period required by applicable
law, each option may be exercised in whole or in part; provided, however, that
only whole shares will be issued pursuant to the exercise of any option and that
the exercise price shall not be less than the par value per share of the Common
Stock at the time the option is exercised. During an Optionee's lifetime, any
incentive stock options granted under this Plan are personal to him or her and
are exercisable solely by such Optionee. Options shall be exercised by delivery
to the Company of notice of the number of shares with respect to which the
option is exercised, together with payment of the exercise price.
5.5 Payment of Exercise Price. Payment of the option exercise price
shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's check
or personal check (unless at the time of exercise the Plan Administrator in a
particular case determines not to accept a personal check) for the Common Stock
being purchased.
The Plan Administrator can determine at the time the option is
granted for incentive stock options, or at any time before exercise for
nonqualified stock options, that additional forms of payment will be permitted,
including installment payments on such terms and over such period as the Plan
Administrator may determine in its discretion. To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state corporate
law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by an Optionee
having a fair market value equal to the exercise price, such fair market value
to be determined in good faith by the Plan Administrator;
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<PAGE> 5
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise;
provided, that the Plan Administrator, in its sole discretion, may at any time
determine that this Subparagraph (c), to the extent the instructions to the
broker call for an immediate sale of the shares, shall not be applicable to any
Optionee who is subject to Section 16(b) of the Exchange Act if such transaction
would result in a violation of Section 16(b), or is not an employee at the time
of exercise; or
(c) delivery of a properly executed exercise notice together with
instructions to the Company to withhold from the shares that would otherwise be
issued upon exercise that number of shares having a fair market value equal to
the option exercise price.
5.6 Shareholders' Agreement. The Optionee shall agree to enter into
and be bound by the agreement which is in effect at the time an option is
exercised by the Optionee between the Company and its shareholders relating to
the repurchase by the Company of its outstanding Common Stock.
5.7 Withholding Tax Requirement. The Company or any related
corporation shall have the right to retain and withhold from any payment of cash
or Common Stock under this Plan the amount of taxes required by any government
to be withheld or otherwise deducted and paid with respect to such payment. At
its discretion, the Company may require an Optionee receiving shares of Common
Stock to reimburse the Company for any such taxes required to be withheld by the
Company and may withhold any distribution in whole or in part until the Company
is so reimbursed. In lieu of such withholding or reimbursement, the Company
shall have the right to withhold from any other cash amounts due or to become
due from the Company to the Optionee an amount equal to such taxes or to retain
and withhold a number of shares having a market value not less than the amount
of such taxes required to be withheld by the Company to reimburse the Company
for any such taxes and cancel (in whole or in part) any such shares so withheld.
If required by Section 16(b) of the Exchange Act, the election to pay
withholding taxes by delivery of shares held by any person who at the time of
exercise is subject to Section 16(b) of the Exchange Act, shall be made during
the quarterly 10-day window period required under Section 16(b) of the Exchange
Act for exercises of stock appreciation rights.
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<PAGE> 6
5.8 Nontransferability of Option. Options granted under this Plan
and the rights and privileges conferred by this Plan may not be transferred,
assigned, pledged or hypothecated in any manner (whether by operation of law or
otherwise) other than by will or by the applicable laws of descent and
distribution, and shall not be subject to execution, attachment or similar
process. Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of any option under this Plan or of any right or privilege conferred by
this Plan, contrary to the Code or to the provisions of this Plan, or the sale
or levy or any attachment or similar process upon the rights and privileges
conferred by this Plan shall be null and void. Notwithstanding the foregoing, an
Optionee may during the Optionee's lifetime, designate a person who may exercise
the option after the Optionee's death by giving written notice of such
designation to the Plan Administrator. Such designation may be changed from time
to time by the Optionee by giving written notice to the Plan Administrator
revoking any earlier designation and making a new designation.
5.9 Termination of Relationship. If the Optionee's relationship with
the Company or any related corporation ceases for any reason other than
termination for cause, death or total disability, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a sixty
(60) day period after such cessation, that portion of the Optionee's option
which is exercisable at the time of such cessation. The Optionee's option,
however, shall terminate at the end of the sixty (60) day period following such
cessation as to all Shares for which it has not been exercised, unless such
provision is waived in the agreement evidencing the option or by resolution
adopted by the Plan Administrator. If, in the case of an incentive stock option,
an Optionee's relationship with the Company or related corporation changes
(i.e., from employee to nonemployee, such as a consultant), such change shall
constitute a termination of an Optionee's employment with the Company or related
corporation and the Optionee's incentive stock option shall terminate in
accordance with this subsection. Upon the expiration of the sixty (60) day
period following cessation of employment, the Plan Administrator shall have sole
discretion in a particular circumstance to extend the exercise period following
such cessation beyond that specified above. If, however, in the case of an
incentive stock option, the Optionee does not exercise the Optionee's option
within three months after cessation of employment, the option will no longer
qualify as an incentive stock option under the Code. Upon an Optionee's
termination of employment for cause, all of the optionee's outstanding (i.e.,
unexercised) options issued under this Plan shall immediately expire and no
longer be available for exercise.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates and expires). As used in
this Plan, the term "total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or which has lasted or is
expected to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after
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<PAGE> 7
the Company and the two independent physicians have furnished their opinion of
total disability to the Plan Administrator.
For purposes of this subsection 5.9, a transfer of relationship
between or among the Company and/or any related corporation shall not be deemed
to constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5.9, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used in this Plan, the term "related corporation," when referring
to a subsidiary corporation, shall mean any corporation (other than the Company)
which, at the time of the granting of the option, is in an unbroken chain of
corporations ending with the Company, if stock possessing 50% or more of the
total combined voting power of all classes of stock of each of the corporations
other than the Company is owned by one of the other corporations in such chain.
When referring to a parent corporation, the term "related corporation" shall
mean any corporation in an unbroken chain of corporations ending with the
Company if, at the time of the granting of the option, each of the corporations
other than the Company owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
5.10 Death of Optionee. If an Optionee dies while he or she has a
relationship with the Company or any related corporation or dies within the
60-day period (or 12-month period in the case of totally disabled Optionees)
following cessation of such relationship, any option held by such Optionee to
the extent that the Optionee would have been entitled to exercise such option,
may be exercised within one year after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the applicable laws
of descent and distribution.
5.11 Status of Shareholder. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the option may pass shall be,
or have any of the rights or privileges of, a shareholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under this Plan unless and until such option has been exercised.
5.12 Continuation of Employment. Nothing in this Plan or in any
option granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any related corporation
to terminate his or her employment or other relationship with the Company at any
time.
5.13 Modification and Amendment of Option. Subject to the
requirements of Code Section 422 with respect to incentive stock options and to
the terms and conditions and within
Page 7 - INCENTIVE STOCK OPTION PLAN
<PAGE> 8
the limitations of this Plan, the Plan Administrator may modify or amend
outstanding options granted under this Plan. The modification or amendment of an
outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company under
such option. Except as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee. Unless the Optionee
agrees otherwise, any changes or adjustments made to outstanding incentive stock
options granted under this Plan shall be made in such a manner so as not to
constitute a "modification" as defined in Code Section 424(h) and so as not to
cause any incentive stock option issued hereunder to fail to continue to qualify
as an incentive stock option as defined in Code Section 422(b).
5.14 Limitation on Value for Incentive Stock Options. As to all
incentive stock options granted under the terms of this Plan, to the extent that
the aggregate fair market value (determined at the time the incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the Optionee during any calendar year
(under this Plan and all other incentive stock option plans of the Company, a
related corporation or a predecessor corporation) exceeds $100,000, those
options (or the portion of an option) beyond the $100,000 threshold shall be
treated as nonqualified stock options. The previous sentence shall not apply if
the Internal Revenue Service publicly rules, issues a private ruling to the
Company, any Optionee, or any legatee, personal representative or distributee of
an Optionee or issues regulations changing or eliminating such annual limit.
SECTION 6. Greater Than 10% Shareholders.
6.1 Exercise Price and Term of Incentive Stock Options. If incentive
stock options are granted under this Plan to employees who own more than 10% of
the total combined voting power of all classes of stock of the Company or any
related corporation, the term of such incentive stock options shall not exceed
five years and the exercise price shall be not less than 110% of the fair market
value of the Common Stock at the time the incentive stock option is granted.
This provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document.
6.2 Attribution Rule. For purposes of subsection 6.1, in determining
stock ownership, an employee shall be deemed to own the stock owned, directly or
indirectly, by or for his brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or warrant to purchase stock
of the Company, the stock subject to that portion of the option or warrant which
is unexercised shall not be counted in determining stock ownership. For purposes
of this Section 6, stock owned by an employee shall include all stock actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
SECTION 7. Adjustments Upon Changes in Capitalization. The aggregate
number and
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<PAGE> 9
class of shares for which options may be granted under this Plan, the number and
class of shares covered by each outstanding option and the exercise price per
share thereof (but not the total price), and each such option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or any like capital adjustment, or the payment of any stock dividend.
7.1 Effect of Liquidation, Reorganization or Change in Control.
7.1.1 Cash, Stock or Other Property for Stock. Except as
provided in subsection 7.1.2, upon a merger (other than a merger of the Company
in which the holders of Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or the creation of
a holding company) or liquidation of the Company, as a result of which the
shareholders of the Company receive cash, stock or other property in exchange
for or in connection with their shares of Common Stock, any option granted under
this Plan shall terminate. Notwithstanding the foregoing, the Optionee shall
have the right immediately prior to any such merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation to exercise such
option in whole or in part, to the extent the vesting requirements set forth in
this Plan have been satisfied, unless stated otherwise in the optionee's
individual option agreement.
7.1.2 Conversion of Options on Stock for Stock Exchange. If
the shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted under this Plan shall be converted into
options to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion, determine that
any or all such options granted under this Plan shall not be converted into
options to purchase shares of Exchange Stock, but instead shall terminate in
accordance with the provisions of subsection 7.1.1. The amount and price of
converted options shall be determined by adjusting the amount and price of the
options granted under this Plan in the same proportion as used for determining
the number of shares of Exchange Stock the holders of the Common Stock receive
in such merger, consolidation, acquisition of property or stock, separation or
reorganization. Unless accelerated by the Board, the vesting schedule set forth
in the option agreement shall continue to apply for the Exchange Stock.
7.1.3 Change in Control. In the event of a "Change in
Control", as defined in Section 7.1.4 below, of the Company after the Company
has registered any of its equity securities pursuant to Section 12(b) or 12(g)
of the Exchange Act, unless otherwise determined by the Board prior to the
occurrence of such Change in Control, any options or portions of such options
outstanding as of the date such Change in Control is determined to have occurred
that are
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<PAGE> 10
not yet fully vested on such date shall become immediately exercisable in full.
7.1.4 Definition of "Change in Control." For purposes of this
Plan, a "Change in Control" shall mean (a) the first approval by the Board or by
the stockholders of the Company of an Extraordinary Event, (b) a Purchase, or
(c) a Board Change.
For purposes of the Plan, an "Extraordinary Event" shall mean any of the
following actions:
(i) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which shares
of Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of
Common Stock immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately after
the merger;
(ii) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or substantially all, the
assets of the Company; or
(iii) the adoption of any plan or proposal for liquidation or
dissolution of the Company.
For purposes of the Plan, a "Purchase" shall mean the acquisition by any
person (as such term is defined in Section 13(d) of the Exchange Act) of any
shares of Common Stock or securities convertible into Common Stock) without the
prior approval of a majority of the Continuing Directors (as defined below) of
the Company, if after making such acquisition such person is the beneficial
owner (as such term is defined in Rule 13d-3 under the Exchange Act) directly or
indirectly of securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities (calculated as
provided in paragraph (d) of such Rule 13d-3).
For purposes of the Plan, a "Board Change" shall have occurred if
individuals who constitute the Board of the Company at the time of adoption of
this Plan (the "Continuing Directors") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a Director
subsequent to the date of adoption of this Plan whose nomination for election
was approved by a vote of at least a majority of the Continuing Directors (other
than a nomination of an individual whose initial assumption of office is in
connection with an actual threatened election contest relating to the election
of the Directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) shall be deemed to be a Continuing
Director.
7.2 Fractional Shares. In the event of any adjustment in the number
of shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
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<PAGE> 11
7.3 Determination of Board to Be Final. All Section 7 adjustments
shall be made by the Board, and its determination as to what adjustments shall
be made, and the extent of such adjustments, shall be final, binding and
conclusive. Unless an Optionee agrees otherwise, any change or adjustment to an
incentive stock option shall be made in such a manner so as not to constitute a
"modification" as defined in Code Section 424(h) and so as not to cause his or
her incentive stock option issued under this Plan to fail to continue to qualify
as an incentive stock option as defined in Code Section 422(b).
SECTION 8. Securities Regulation. Shares shall not be issued with respect
to an option granted under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant to the exercise of such option
shall comply with all relevant provisions of law, including, without limitation,
any applicable state securities laws, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including the availability of an exemption from registration
for the issuance and sale of any shares under this Plan. Inability of the
Company to obtain from any regulatory body having jurisdiction, the authority
deemed by the Company's counsel to be necessary for the lawful issuance and sale
of any shares under this Plan or the unavailability of an exemption from
registration for the issuance and sale of any shares under this Plan shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted under this Plan be listed on a national securities
exchange, all stock issued under this Plan if not previously listed on such
exchange shall be authorized by that exchange for listing on such exchange prior
to the issuance of such stock.
SECTION 9. Amendment and Termination.
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<PAGE> 12
9.1 Board Action. The Board may at any time suspend, amend or
terminate this Plan, provided that except as set forth in Section 7, the
approval of the Company's shareholders is necessary within 12 months before or
after the adoption by the Board of any amendment which will:
(a) increase the number of shares which are to be reserved
for the issuance of options under this Plan;
(b) permit the granting of stock options to a class of persons
other than those presently permitted to receive stock options under this Plan;
or
(c) require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act.
Any amendment made to this Plan which would constitute a "modification" to
incentive stock options outstanding on the date of such amendment, shall not be
applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 Automatic Termination. Unless sooner terminated by the Board,
this Plan shall terminate ten years from the earlier of (a) the date on which
this Plan is adopted by the Board or (b) the date on which this Plan is approved
by the shareholders of the Company. No option may be granted after such
termination or during any suspension of this Plan. The amendment or termination
of this Plan shall not, without the consent of the option holder, alter or
impair any rights or obligations under any option previously granted under this
Plan.
SECTION 10. Effectiveness of This Plan. This Plan shall become effective
upon adoption by the Board so long as it is approved by the Company's
shareholders any time within 12 months before or after the adoption of this
Plan.
Adopted by the Board of Directors on _______________ , 1996 and approved by
the shareholders on _______________ , 1996.
Page 12 - INCENTIVE STOCK OPTION PLAN
<PAGE> 1
EXHIBIT 10.5A
LOAN AGREEMENT
<TABLE>
<S> <C> <C> <C>
BORROWER: FINE.COM CORPORATION LENDER: U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
1118 POST AVENUE WESTERN WASHINGTON LOAN SERVICING
SEATTLE, WA 98101 1420 FIFTH AVENUE
P.O. BOX 1050
SEATTLE, WA 98101
</TABLE>
THIS LOAN AGREEMENT BETWEEN FINE.COM CORPORATION ("BORROWER") AND U.S. BANK OF
WASHINGTON, NATIONAL ASSOCIATION ("LENDER") IS MADE AND EXECUTED ON THE
FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS
FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER
FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT
OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS
FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE
"LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT:
(a) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON
BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS
AGREEMENT; (b) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT
ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (c)
ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND
CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of MARCH 31, 1997, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity obligated
upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.
BORROWER. The word "Borrower" means FINE.COM CORPORATION. The word "Borrower"
also includes, as applicable, all subsidiaries and affiliates of Borrower
as provided below in the paragraph titled "Subsidiaries and Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender from
time to time, the lesser of (a) $750,000.00; or (b) 75.000% of the
aggregate amount of Eligible Accounts.
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL."
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a subsidiary of, or
affiliated with or related to Borrower or its shareholders, officers,
or directors.
(c) Accounts with respect to which goods are placed on consignment, guaranteed
sale, or other terms by reason of which the payment by the Account
Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account
Debtor to Borrower.
(e) Accounts which are subject to dispute, counterclaim, or setoff.
(f) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account
Debtor.
(g) Accounts with respect to which Lender, in its sole discretion, deems the
creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
(h) Accounts of any Account Debtor who has filed or has had filed against it a
petition in bankruptcy or an application for relief under any
provision of any state or federal bankruptcy, insolvency, or
debtor-in-relief acts; or who has had appointed a trustee, custodian,
or receiver for the assets of such
<PAGE> 2
Account Debtor; or who has made an assignment for the benefit of
creditors or has become insolvent or fails generally to pay its debts
(including its payrolls) as such debts become due.
(i) Accounts with respect to which the Account Debtor is the United States
government or any department or agency of the United States.
(j) Accounts which have not been paid in full within 90 DAYS from the invoice
date. The entire balance of any Account of any single Account debtor
will be ineligible whenever the portion of the Account which has not
been paid within 90 DAYS from the invoice date is in excess of 25.000%
of the total amount outstanding on the Account.
(k) Datings, Retainages, Foreign, Cash Sales, C.O.D. and Service Charges.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of termination of
Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each and all
of the persons or entities granting a Security Interest in any Collateral
for the Indebtedness, including without limitation all Borrowers granting
such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each and
all of the guarantors, sureties, and accommodation parties in connection
with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION,
its successors and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility described
in the Section titled "LINE OF CREDIT" below.
LOAN. The word "Loan" or "Loans" means and includes without limitation any and
all commercial loans and financial accommodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time
to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or
carriers, or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property acquired or
held by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of Borrower's
assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances outstanding at any time does not exceed
the Borrowing Base. Within the foregoing limits, Borrower may borrow,
partially or wholly prepay, and reborrow under this Agreement as follows.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any Advance
to or for the account of Borrower under this Agreement is subject to the
following conditions precedent, with all documents, instruments, opinions,
reports, and other items required under this Agreement to be in form and
substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and all Related
Documents have been duly authorized, executed, and delivered by
Borrower to Lender.
<PAGE> 3
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly authorized,
created, and perfected with first lien priority and shall be in full
force and effect.
(d) All guaranties required by Lender for the Line of Credit shall have been
executed by each Guarantor, delivered to Lender, and be in full force
and effect.
(e) Lender, at its option and for its sole benefit, shall have conducted an
audit of Borrower's Accounts, books, records, and operations, and
Lender shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses specified
in this Agreement and the Related Documents as are then due and
payable.
(g) There shall not exist at the time of any Advance a condition which would
constitute an Event of Default under this Agreement, and Borrower
shall have delivered to Lender the compliance certificate called for
in the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need
not, require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and for
the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with
the instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in which
Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower
(and others, if required) shall grant to Lender Security Interests in such
property and assets as Lender may require (the "Collateral"), including
without limitation Borrower's present and future Accounts and general
intangibles. Lender's Security Interests in the Collateral shall be
continuing liens and shall include the proceeds and products of the
Collateral, including without limitation the proceeds of any insurance.
With respect to the Collateral, Borrower agrees and represents and warrants
to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's security interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender
in writing prior to any change in address or location of Borrower's
principal governance office or should Borrower merge or consolidate with
any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall
be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and such other matters and
information relating to Borrower's Accounts as Lender may request.
Supplemental schedules shall be delivered according to the following
schedule: BORROWER TO SUBMIT TO LENDER ACCOUNTS PAYABLE AND ACCOUNTS
RECEIVABLE AGINGS (60 DAYS PAST DUE) AND DEBTOR NAME AND ADDRESS LISTINGS
ANNUALLY RECONCILED ON BORROWER'S CERTIFICATE. AUDITS PERFORMED ANNUALLY
BY A COLLATERAL EVALUATION WITH BORROWER BEARING ALL COSTS OF AUDIT. DIRECT
VERIFICATIONS ARE REQUIRED.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Borrower's
incorporation and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which it
is presently engaged or presently proposes to engage. Borrower also is
duly qualified
<PAGE> 4
as a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered
or performed by Borrower, have been duly authorized by all necessary action
by Borrower; do not require the consent or approval of any other person,
regulatory authority or governmental body; and do not conflict with, result
in a violation of, or constitute a default under (a) any provision of its
articles of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender
truly and completely disclosed Borrower's financial condition as of the
date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases
and waives any future claims against Lender for indemnity or contribution
in the event Borrower becomes liable for cleanup or other costs under any
such laws, and (b) agrees to indemnify and hold harmless Lender against
any and all claims, losses, liabilities, damages, penalties, and expenses
which Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in the properties,
whether or not the same was or should have been known to Borrower. The
provisions of this section of the Agreement, including the obligation to
indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 1118 POST AVENUE, SEATTLE, WA 98101. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
<PAGE> 5
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with generally
accepted accounting principles, applied on a consistent basis, and permit
Lender to examine and audit Borrower's books and records at all reasonable
times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than thirty (30) days after the end of
each fiscal quarter, Borrower's balance sheet and profit and loss statement
for the period ended, prepared and certified as correct to the best
knowledge and belief by Borrower's chief financial officer or other officer
or person acceptable to Lender. All financial reports required to be
provided under this Agreement shall be prepared in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability insurance,
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions
spelled out in those guaranties.
GUARANTOR AMOUNT
DANIEL FINE UNLIMITED
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as
(a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and provisions set
forth in this Agreement and in the Related Documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any
event which constitutes an Event of Default under this Agreement or under
any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially the
same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with
all minimum funding standards and other requirements of ERISA and other
laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
<PAGE> 6
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender NOT
REQUIRED and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including
any request or policy not having the force of law) shall impose, modify or
make applicable any taxes (except U.S. federal, state or local income or
franchise taxes imposed on Lender), reserve requirements, capital adequacy
requirements or other obligations which would (a) increase the cost to
Lender for extending or maintaining the credit facilities to which this
Agreement relates, (b) reduce the amounts payable to Lender under this
Agreement or the Related Documents, or (c) reduce the rate of return on
Lender's capital as a consequence of Lender's obligations with respect to
the credit facilities to which this Agreement relates, then Borrower agrees
to pay Lender such additional amounts as will compensate Lender therefor,
within five (5) days after Lender's written demand for such payment, which
demand shall be accompanied by an explanation of such imposition or charge
and a calculation in reasonable detail of the additional amounts payable by
Borrower, which explanation and calculations shall be conclusive in the
absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written
consent of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any
other entity, change ownership, change its name, dissolve or transfer or
sell Collateral out of the ordinary course of business, (c) pay any
dividends on Borrower's stock (other than dividends payable in its stock),
provided, however that notwithstanding the foregoing, but only so long as
no Event of Default has occurred and is continuing or would result from the
payment of dividends, if Borrower is a "Subchapter S Corporation" (as
defined in the Internal Revenue Code of 1986, as amended), Borrower may pay
cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or
is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; (d) any Guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (e)
Lender in good faith deems itself insecure, even though no Event of Default
shall have occurred.
ACCESS LAWS. Without limiting the generality of any provision of this agreement
requiring Borrower to comply with applicable laws, rules, and regulations,
Borrower agrees that it will at all times comply with applicable laws
relating to disabled access including, but not limited to, all applicable
titles of the Americans with Disabilities Act of 1990.
STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
WORKING CAPITAL. Borrower shall maintain a Working Capital of no less than
$250,000.00 from the date of this Loan Agreement until December 31, 1997 at
which time Working Capital requirements shall increase to no less than
$550,000.00. Working Capital excludes outstanding balances on the equipment
Line of Credit from current liabilities.
TANGIBLE NET WORTH. Borrower shall maintain a Tangible Net Worth of no less
than $375,000.00 from the date of this Loan Agreement until December 31,
1997 at which time Tangible Net Worth requirements shall increase to no less
than $700,000.00.
<PAGE> 7
CAPITAL EXPENDITURE. Borrower to maintain a maximum Capital Expenditure of no
more than $600,000.00 for the 1997 year.
COMPLIANCE TESTING. Borrower agrees and understands that all covenants and
ratios in the Loan Agreement will be tested on a quarterly basis.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers
to Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on
the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on
the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Borrower or any Grantor under this Agreement
or the Related Documents is false or misleading in any material respect at
the time made or furnished, or becomes false or misleading at any time
thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor
against any collateral securing the Indebtedness, or by any governmental
agency. This includes a garnishment, attachment, or levy on or of any of
Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to
any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under,
any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that in the case of an Event of Default of
the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law,
in equity, or otherwise. Except as may be prohibited by applicable law, all
of Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall
not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Borrower or of
any Grantor shall not affect Lender's right to declare a default and to
exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF WASHINGTON. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF KING
COUNTY, THE STATE OF WASHINGTON. SUBJECT TO THE PROVISIONS ON ARBITRATION,
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF WASHINGTON.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated,
<PAGE> 8
provided however that no arbitrator shall have the right or the power to
enjoin or restrain any act of any party. Judgment upon any award rendered
by any arbitrator may be entered in any court having jurisdiction. Nothing
in this Agreement shall preclude any party from seeking equitable relief
from a court of competent jurisdiction. The statute of limitations,
estoppel, waiver, laches, and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The
Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests
in the Loans to one or more purchasers, whether related or unrelated to
Lender. Lender may provide, without any limitation whatsoever, to any one
or more purchasers, or potential purchasers, any information or knowledge
Lender may have about Borrower or about any other matter relating to the
Loan, and Borrower hereby waives any rights to privacy it may have with
respect to such matters. Borrower additionally waives any and all notices
of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to
any other persons or circumstances. If feasible, any such offending
provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be
so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall
not, however, have the right to assign its rights under this Agreement
or any interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT,
AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MARCH 31,
1997.
BORROWER:
FINE.COM CORPORATION
/s/ Daniel Fine
BY:___________________________________________________________
DANIEL FINE, PRESIDENT
LENDER:
U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
<PAGE> 9
/s/
BY:__________________________________________________________
AUTHORIZED OFFICER
<PAGE> 1
EXHIBIT 10.5B
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C>
BORROWER: FINE.COM CORPORATION LENDER: U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
1118 POST AVENUE WESTERN WASHINGTON LOAN SERVICING
SEATTLE, WA 98101 1420 FIFTH AVENUE
P.O. BOX 1050
SEATTLE, WA 98101
</TABLE>
PRINCIPAL AMOUNT: $750,000.00 INITIAL RATE: 10.500% DATE OF NOTE:
MARCH 31, 1997
PROMISE TO PAY. FINE.COM CORPORATION ("BORROWER") PROMISES TO PAY TO U.S. BANK
OF WASHINGTON, NATIONAL ASSOCIATION ("LENDER"), OR ORDER, IN LAWFUL MONEY OF
THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF SEVEN HUNDRED FIFTY
THOUSAND & 00/100 DOLLARS ($750,000.00) OR SO MUCH AS MAY BE OUTSTANDING,
TOGETHER WITH INTEREST ON EACH OF THE UNPAID OUTSTANDING PRINCIPAL BALANCES
FROM THE DATE OF THE ADVANCE, UNTIL REPAYMENT OF THE ADVANCE OR MATURITY,
WHICHEVER OCCURS FIRST.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MARCH 31, 1998. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING
APRIL 30, 1997, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF
EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/360 simple
interest basis; that is, by applying the ratio of the annual interest rate over
a year of 360 days, multiplied by the outstanding principal balance, multiplied
by the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the LENDER'S PRIME
RATE. THIS IS THE RATE OF INTEREST WHICH LENDER FROM TIME TO TIME ESTABLISHES
AS ITS PRIME RATE AND IS NOT, FOR EXAMPLE, THE LOWEST RATE OF INTEREST WHICH
LENDER COLLECTS FROM ANY BORROWER OR CLASS OF BORROWERS (the "Index"). The
interest rate shall be adjusted without notice effective on the day Bank's
prime rate changes. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. THE INDEX CURRENTLY IS 8.500% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 2.000
PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 10.500% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d)
Any representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is
impaired. (i) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Note to 7.000 percentage points over the Index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF WASHINGTON. IF
THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF KING COUNTY, THE STATE OF WASHINGTON. SUBJECT TO
THE PROVISIONS ON ARBITRATION, THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested either orally or in writing by Borrower or by
an authorized person. Lender may, but need not, require that all oral requests
be confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address
shown above written notice of revocation of their authority: DANIEL FINE,
PRESIDENT. Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant
to this Note for purposes other than those authorized by Lender; or (e) Lender
in good faith deems itself insecure under this Note or any other agreement
between Lender and Borrower.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS NOTE OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT AND
TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to Article
9 of the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or exercise of any
right, concerning any collateral securing this Note, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing this Note, shall also be arbitrated, provided however that no
arbitrator shall have the right or the power to enjoin or restrain any act of
any party. Judgment upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Note shall preclude any
party from seeking equitable relief from a court of competent jurisdiction.
The statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act shall apply to the construction,
interpretation, and enforcement of this arbitration provision.
LATE CHARGE. If a payment is 15 days or more past due, borrower will be
charged a late charge of 5% of the delinquent payment.
STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW. ALTERNATE INTEREST RATE. The borrowing rate
on this Line of Credit will be reduced to Prime plus .25% on the first day of
the month following the successful Initial Public Offering.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by
Lender without the consent of or notice to anyone. All such parties also agree
that Lender may modify this loan without the consent of or notice to anyone
other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
FINE.COM CORPORATION
/s/ Daniel Fine
BY:___________________________________________________________
DANIEL FINE, PRESIDENT
LENDER:
U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
/s/
BY:__________________________________________________________
AUTHORIZED OFFICER
<PAGE> 1
EXHIBIT 10.5C
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<S> <C> <C> <C>
BORROWER: FINE.COM CORPORATION LENDER: U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
1118 POST AVENUE WESTERN WASHINGTON LOAN SERVICING
SEATTLE, WA 98101 1420 FIFTH AVENUE
P.O. BOX 1050
SEATTLE, WA 98101
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN FINE.COM CORPORATION
(REFERRED TO BELOW AS "GRANTOR"); AND U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION (REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION,
GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE
INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS
AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH
LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
ALL CHATTEL PAPER, ACCOUNTS AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All accessions, accessories, increases, and additions to and all
replacements of and substitutions for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means FINE.COM CORPORATION, its successors and
assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated March 31,
1997, in the principal amount of $750,000.00 from FINE.COM CORPORATION to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be prohibited
by law. Grantor authorizes Lender, to the extent permitted by applicable law,
to
<PAGE> 2
charge or setoff all Indebtedness against any and all such accounts, and, at
Lender's option, to administratively freeze all such accounts to allow Lender
to protect Lender's charge and setoff rights provided in this paragraph.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Washington, without the prior written consent of
Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security
interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous
<PAGE> 3
waste" and "hazardous substance" shall also include, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.
The representations and warranties contained herein are based on Grantor's
due diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest
in such Collateral. Until otherwise notified by Lender, Grantor may collect
any of the Collateral consisting of accounts. At any time and even though no
Event of Default exists, Lender may exercise its rights to collect the accounts
and to notify account debtors to make payments directly to Lender for
application to the Indebtedness. If Lender at any time has possession of any
Collateral, whether before or after an Event of Default, Lender shall be deemed
to have exercised reasonable care in the custody and preservation of the
Collateral if Lender takes such action for that purpose as Grantor shall
request or as Lender, in Lender's sole discretion, shall deem appropriate under
the circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall not
be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the
Note and be apportioned among and be payable with any installment payments to
become due during either (i) the term of any applicable insurance policy or
(ii) the remaining term of the Note, or (c) be treated as a balloon payment
which will be due and payable at the Note's maturity. This Agreement also will
secure payment of these amounts. Such right shall be in addition to all other
rights and remedies to which Lender may be entitled upon the occurrence of an
Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
<PAGE> 4
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Washington Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following rights
and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days before the time of the sale or disposition.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of retaking, holding, insuring, preparing
for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not Indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts of
the State of Washington. Subject to the provisions on arbitration, this
Agreement shall be governed by and construed in accordance with the laws of
the State of Washington.
ARBITRATION. LENDER AND GRANTOR AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE
<PAGE> 5
RULES OF THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER
PARTY. No act to take or dispose of any Collateral shall constitute a
waiver of this arbitration agreement or be prohibited by this arbitration
agreement. This includes, without limitation, obtaining injunctive relief
or a temporary restraining order; invoking a power of sale under any deed
of trust or mortgage; obtaining a writ of attachment or imposition of a
receiver; or exercising any rights relating to personal property, including
taking or disposing of such property with or without judicial process
pursuant to Article 9 of the Uniform Commercial Code. Any disputes,
claims, or controversies concerning the lawfulness or reasonableness of any
act, or exercise of any right, concerning any Collateral, including any
claim to rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Agreement shall preclude
any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply
to the construction, interpretation, and enforcement of this arbitration
provision.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishs
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 31,
1997.
GRANTOR:
FINE.COM CORPORATION
/s/ Daniel Fine
BY:___________________________________________________________
DANIEL FINE, PRESIDENT
<PAGE> 1
EXHIBIT 10.5E
COMMERCIAL SECURITY AGREEMENT
BORROWER: FINE.COM CORPORATION LENDER: U.S. BANK OF WASHINGTON, NATIONAL
1118 POST AVENUE ASSOCIATION
SEATTLE, WA 98101 WESTERN WASHINGTON LOAN SERVICING
1420 FIFTH AVENUE
P.O. BOX 1050
SEATTLE, WA 98101
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN FINE.COM CORPORATION
(REFERRED TO BELOW AS "GRANTOR"); AND U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION (REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR
GRANTS TO LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE
INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS
AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH
LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
ALL EQUIPMENT, TOGETHER WITH THE FOLLOWING SPECIFICALLY
DESCRIBED PROPERTY: WHEREVER LOCATED.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described
in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means FINE.COM CORPORATION, its successors
and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" includes all other obligations,
debts and liabilities, plus interest thereon, of Grantor, or any one or
more of them, to Lender, as well as all claims by Lender against
Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others; whether
Grantor may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such indebtedness may be or hereafter
may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated March
31, 1997, in the principal amount of $400,000.00 from FINE.COM
CORPORATION to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions
for the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust
<PAGE> 2
accounts for which the grant of a security interest would be prohibited by law.
Grantor authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all Indebtedness against any and all such accounts, and, at Lender's
option, to administratively freeze all such accounts to allow Lender to protect
Lender's charge and setoff rights provided in this paragraph.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Washington, without the prior written consent of
Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security
interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
<PAGE> 3
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
<PAGE> 4
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Washington Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of the
State of Washington. Subject to the provisions on arbitration, this
Agreement shall be governed by and construed in accordance with the laws of
the State of Washington.
ARBITRATION. LENDER AND GRANTOR AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right,
<PAGE> 5
concerning any Collateral, including any claim to rescind, reform, or
otherwise modify any agreement relating to the Collateral, shall also be
arbitrated, provided however that no arbitrator shall have the right or the
power to enjoin or restrain any act of any party. Judgment upon any award
rendered by any arbitrator may be entered in any court having jurisdiction.
Nothing in this Agreement shall preclude any party from seeking equitable
relief from a court of competent jurisdiction. The statute of limitations,
estoppel, waiver, laches, and similar doctrines which would otherwise be
applicable in an action brought by a party shall be applicable in any
arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The
Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors. For
notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishs all
claims against such other person which Borrower has or would otherwise have
by virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 31,
1997.
GRANTOR:
FINE.COM CORPORATION
/s/ Daniel Fine
BY:___________________________________________________________
DANIEL FINE, PRESIDENT
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.23 (c) 1997 CFI ProServices, Inc.
All rights reserved. [WA-E40 FINE2.LN C3.OVL]
<PAGE> 1
EXHIBIT 10.6A
OFFICE LEASE AGREEMENT
----------------------
Dated February 28, 1996
BETWEEN
GRAND PACIFIC LIMITED PARTNERSHIP,
A WASHINGTON LIMITED PARTNERSHIP, LANDLORD
AND
fine.com CORPORATION,
A WASHINGTON CORPORATION, TENANT
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
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1. BASIC LEASE PROVISIONS AND EXHIBITS 1
1.1 Basic Terms 1
1.2 Exhibits and Addenda 4
2. LEASE OF PREMISES 5
2.1 Building Premises 5
2.2 Parking 5
3. COMMENCEMENT AND EXPIRATION DATES 5
3.1 Commencement Date 5
3.2 Expiration Date 5
3.3 Option to Extend 5
3.4 Tenant's Obligations 7
4. RENT 7
4.1 Minimum Rent 7
4.2 Minimum Rent Increases 7
4.3 Additional Charges 7
4.4 Method of Payment 7
4.5 Prorated Installments 8
4.6 Interest and Late Charges 8
4.7 Security Deposit 8
5. TENANT'S SHARE OF EXPENSES 9
5.1 Direct Expenses 9
5.2 Base Year 11
5.3 Excess Expenses 11
5.4 Tenant's Share of Excess Expenses 11
5.5 Books of Account 12
6. PROPERTY TAXES 12
7. USE AND CARE OF PREMISES 12
i
<PAGE> 3
7.1 Permitted Use 12
7.2 Operation 12
7.3 Insurance 13
7.4 Disturbance of Other Occupants 13
7.5 Care of the Premises 13
7.6 Compliance with Rules and Regulations 13
7.7 Signs 14
7.8 Compliance with Laws 14
7.9 Hazardous Material 15
Page
----
8. LANDLORD MAINTENANCE; SERVICES AND UTILITIES 16
8.1 Maintenance 16
8.2 Other Services and Utilities 16
8.3 Tenant's Negligence 17
8.4 Landlord's Negligence 17
8.5 Rent 18
8.6 Failure or Interruption of Services 18
8.7 Waiver of Self Help and Deduct 18
9. COMMON AREAS 18
9.1 Definition 18
9.2 Licenses 19
10. IMPROVEMENTS AND ALTERATIONS TO THE PREMISES 19
10.1 Initial Improvements 19
10.2 Alterations 19
10.3 Rules and Regulations 20
10.4 Landlord's Property 20
10.5 Locks, Plumbing and Wiring 21
11. LIENS 21
11.1 Mechanics' Liens 21
11.2 Landlord's Lien 21
12. INSURANCE AND INDEMNIFICATION 22
12.1 Indemnification 22
ii
<PAGE> 4
12.2 Concurrent Negligence 22
12.3 Liability Insurance 23
12.4 Property Insurance 23
12.5 Policy Requirements 23
12.6 Delivery of Policies 24
12.7 Failure to Maintain 24
12.8 Waiver of Subrogation 24
12.9 Landlord's Insurance 24
13. CASUALTY DAMAGE OR DESTRUCTION 25
13.1 Obligation to Repair 25
13.2 Option to Repair 25
13.3 Right to Terminate 25
13.4 Rent 25
13.5 Scope of Repairs 26
Page
----
14. CONDEMNATION 26
14.1 Definitions 26
14.2 Total Taking 26
14.3 Partial Taking 26
14.4 Restoration and Repair 27
14.5 Exercise of Options 27
14.6 Unearned Rent and Rent Adjustment 27
14.7 Award 27
14.8 Temporary Taking 28
15. ASSIGNMENT AND SUBLETTING 28
15.1 General 28
15.2 Notice of Proposed Assignment
or Sublease 28
15.3 Landlord's Options 29
15.4 Limitations on Landlord's Options 29
15.5 Approved Assignment or Sublease 30
15.6 Costs Paid by Tenant 30
15.7 Transfer of Stock or Other Assets 31
16. INVOLUNTARY TRANSFER 31
iii
<PAGE> 5
16.1 Bankruptcy; Insolvency 31
16.2 Receivership 31
16.3 Attachment; Judicial Seizure 32
17. QUIET ENJOYMENT 32
18. ACCESS TO PREMISES 32
18.1 Access to Building 32
18.2 Pipes, Ducts and Conduits 32
18.3 Access to Premises 32
18.4 Obstruction of Windows 33
18.5 Access to Premises One Month Prior
to Expiration 33
18.6 Building Changes 33
19. SURRENDER OF PREMISES AND HOLDING OVER 33
19.1 Condition of Premises 33
19.2 Removal of Tenant's Property 33
19.3 Holding Over with Landlord's
Written Consent 34
19.4 Holding Over without Landlord's
Written Consent 34
19.5 Survival of Tenant's Obligations 34
Page
----
20. ESTOPPEL CERTIFICATES 34
21. SUBORDINATION 35
21.1 Priority 35
21.2 Mortgagee Protection 36
22. DEFAULT BY TENANT 36
22.1 Events of Default 36
23. LANDLORD'S REMEDIES 37
23.1 Right to Reenter and Relet 37
iv
<PAGE> 6
23.2 Right to Receiver 37
23.3 Right to Terminate Lease 38
23.4 Right to Cure 38
24. DEFAULT BY LANDLORD 38
25. TENANT'S REMEDIES 39
26. WAIVER 39
26.1 Nonwaiver of Defaults 39
26.2 Surrender of Premises 39
26.3 Consents and Approvals 39
26.4 Written Waivers 39
27. NOTICES 40
27.1 Method 40
27.2 Effective Date 40
27.3 Notice of Occurrences 40
28. MISCELLANEOUS PROVISIONS 40
28.1 Time of Essence 40
28.2 Authority 40
28.3 Commissions 41
28.4 Attorneys' Fees 41
28.5 Exhibits and Addenda 41
28.6 Interpretation and Construction 41
28.7 Integrated Agreement and
Modifications 41
28.8 Appointment of Landlord as Agent 41
28.9 Captions 42
28.10 Singular and Plural 42
28.11 Joint and Several Obligations 42
28.12 Severability 42
Page
----
28.13 Recordation 42
28.14 Transfer and Assignment of Premises
by Landlord 42
28.15 Light and Air 42
28.16 Name 42
v
<PAGE> 7
28.17 Cumulative Remedies 43
28.18 Successors and Assigns 43
28.19 "Landlord" - Release 43
28.20 Corporate Representatives 43
vi
<PAGE> 8
OFFICE LEASE AGREEMENT
dated February 28, 1996
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord
and
fine.com CORPORATION, a Washington corporation, Tenant
1. BASIC LEASE PROVISIONS AND EXHIBITS
1.1 Basic Terms. As used in this Lease, unless the context clearly
requires otherwise, or it is otherwise expressly provided, the following terms
shall have the following meanings, and the parties agree to the following basic
terms and provisions:
1.1.1 Building and Property. The Property is the commercial
portion of the building in Seattle, Washington commonly known as the Grand
Pacific Building ("Building"), as more particularly described in Exhibit 1
("Legal Description"), and appurtenant areas, facilities, equipment and other
improvements and property in the Building.
1.1.2 Commercial Complex. The Commercial Complex is that portion
of the Property leased or available for lease for retail and office uses,
together with common and public areas and facilities provided for the general
use and convenience of Tenant and other tenants and occupants of the Building.
1.1.3 Premises. Premises is 1118 Post Alley, Seattle,
Washington, which consists of four thousand six hundred ninety-five (4,695)
square feet of rentable area on the second floor of the Building, outlined in
red on the Floor Plan of Premises attached as Exhibit 2. Pursuant to Addendum A
hereof, the Premises may be increased to include the Expansion Space located on
the second floor of the Building and outlined in blue on Exhibit 2.
1.1.4 Areas and Percentages. Landlord and Tenant agree to the
following areas and percentages.
1.1.4.1 Rentable Area of Premises: 4,695 square feet.
1.1.4.2 Tenant's Percentage of Direct
<PAGE> 9
Expenses of Commercial Complex: 12.08%
1.1.5 (a) Occupancy Commencement Date. Tenant shall be entitled
to occupy the Premises for the purpose of performing tenant improvements on the
date that this Lease is duly executed by Landlord and Tenant and Tenant has paid
to Landlord the Security Deposit described in Section 1.1.9 below.
1.1.5 (b) Minimum Rent Commencement Date. The Minimum Rent
Commencement Date shall be the earlier of (i) six (6) weeks from the date
hereof, and (ii) the date that Tenant occupies the Premises for the purpose of
conducting its business therein.
1.1.6 Expiration Date. The fifth anniversary of the Minimum Rent
Commencement Date.
1.1.7 Minimum Rent. Three Thousand Five Hundred Ninety-Nine and
50/100 Dollars ($3,599.50) per month calculated as follows: Twelve Dollars and
50/100 ($12.50) per square foot per annum, less a credit (the "Construction
Credit") equal to Three Dollars and 30/100 ($3.30) per square foot per annum for
the first twelve (12) months of the Lease term. Minimum Rent will increase each
year as provided in Section 1.1.8 hereof.
The Construction Credit is granted to Tenant to compensate
Tenant for general disturbances, disruptions and inconveniences (including,
without limitation, dust, construction noise, and street closures) associated
with the ongoing construction on the adjacent property known as the Harbor
Steps. Changes in construction activity on the Harbor Steps project, including
cessation or early completion of construction, shall not modify the Construction
Credit. Tenant's acceptance of the Construction Credit shall not be deemed to be
a waiver of its right to quiet enjoyment of the Premises and shall not relieve
Landlord of its obligations or maintenance and repair under this Lease. Tenant
shall be granted a Construction Credit for the second twelve (12) month period
of the Lease term equal to One Dollar and 5/100 ($1.05) per square foot per
annum.
1.1.8 Minimum Rent Increases.
Rent Per
Square Foot New Monthly
2
<PAGE> 10
<TABLE>
<CAPTION>
Effective Date Per Annum Minimum Rent
-------------- --------- ------------
<S> <C> <C>
April 15, 1997 11.95* $4,675.44
April 15, 1998 14.00 $5,477.50
April 15, 1999 14.50 $5,673.12
April 15, 2000 15.00 $5,868.75
</TABLE>
(*Includes a Construction Credit of One Dollar and 5/100 ($1.05) per
square foot per annum.)
The Effective Date shall be adjusted to the anniversary of the Minimum
Rent Commencement Date if such date occurs before April 15, 1996. The parties
agree that the Premises shall be deemed to contain the number of square feet
referred to in Section 1.1.4.1 hereof and there shall be no adjustment in
Minimum Rent set forth hereinabove (other than as provided in Sections 14.6 and
15.3.1 hereof) due to the fact that the Premises contain less or more than the
number of square feet set forth in Section 1.1.4.1.
1.1.9 Security Deposit. Five Thousand Eight Hundred Sixty-Eight
and 75/100 Dollars ($5,868.75) is to be held as a security deposit pursuant to
Section 4.7, below.
1.1.10 Permitted Use. Office use.
1.1.11 Normal Business Hours. For the purposes of Section 8.2
hereof, Normal Business Hours shall be from 7:30 a.m. to 7:30 p.m. on weekdays
and 8:00 a.m. to 12:00 p.m. on Saturdays. Subject to additional charges for
services as provided herein, Tenant has the right to access to and use of the
Premises at all times.
1.1.12 Tenant Improvement Allowance. Up to Fifty-Two Thousand
Two Hundred Fifty-Five and No/100 Dollars ($52,255.00), to be provided and
applied as more specifically set forth in Exhibit 3. Any portion of the Tenant
Improvement Allowance not paid by Landlord for improvements to the Premises, up
to a maximum of Fourteen Thousand Eighty-Five and No/100 Dollars ($14,085.00)
shall be deemed to be a credit against Minimum Rent and shall be deducted in
equal monthly installments over the first twenty-four (24) months of the term of
this Lease. Up to Ten Thousand and No/100 Dollars of the Tenant Improvement
Allowance may be used by Tenant to pay for costs incurred for improvements to
the Expansion Space (as defined in Addendum A
3
<PAGE> 11
hereto). Any payments made by Landlord for tenant improvements shall be subject
to the terms and conditions set forth in Exhibit 3 hereof.
1.1.13 Guaranty. The Guaranty is the Personal Guaranty of Dan
Fine in the form attached hereto as Exhibit 6, which Guaranty shall be executed
simultaneously with this Lease as a condition to Landlord's obligations
hereunder.
1.1.14 Minimum Liability Insurance Limits.
(a) One Million Dollars ($1,000,000) combined single
limit (for policies without a general aggregate limit); or
(b) One Million Dollars ($1,000,000) and Two Million
Dollars ($2,000,000) general aggregate.
1.1.15 Notice Addresses.
(a)Landlord:
Grand Pacific Limited Partnership
c/o The Whitehall Companies
7425 East Gainey Ranch Road, #10
Scottsdale, Arizona 85258-1516
Attention: Mr. Elgin C. White
With a Copy to:
Mr. Frank R. Buchanan
MaKensay Real Estate Services, Inc.
76 South Washington Street
Suite M-102
Seattle, Washington 98104
And a Copy to:
Mr. Henry H. Happel, III
Mundt, MacGregor, Happel, Falconer,
Zulauf & Hall
4200 First Interstate Center
Seattle, Washington 98104-4082
(b)Tenant: (before Commencement Date)
fine.com CORPORATION
1109 - 1st Avenue, Suite 212
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Seattle, Washington 98101-2945
Attention: Jim Chamberlin
(c)Tenant: (after Commencement Date)
fine.com CORPORATION
1118 Post Alley
Seattle, Washington 98101
Attention: Jim Chamberlin
1.1.16 Broker. MaKensay Real Estate Services, Inc.
Landlord shall be responsible for payment of all the
aforementioned Broker's fees and commissions.
1.1.17 Tenant. fine.com CORPORATION, a Washington corporation.
1.1.18 Moving Allowance. Upon completion of Tenant Improvements
and Tenant's occupancy of the Premises for the purpose of conducting its
business therein, Landlord shall pay to Tenant a Moving Allowance of Four
Thousand Six Hundred Ninety-Five and No/100 Dollars ($4,695.00).
1.2 Exhibits and Addenda. The following exhibits or riders are
attached to this Lease and incorporated herein:
Exhibit 1: Legal Description
Exhibit 2: Floor Plan of Premises
Exhibit 3: Tenant Improvements
Exhibit 4: Rules and Regulations
Exhibit 5: Declaration of Condominium
Exhibit 6: Personal Guaranty
Addendum A: First Right of Refusal for
Expansion Space
2. LEASE OF PREMISES
2.1 Building Premises. On and subject to the terms, covenants and
conditions set forth in this Lease, Landlord hereby leases the Premises to
Tenant and Tenant hereby leases the Premises from Landlord.
2.2 Parking. Landlord is undertaking to obtain use of
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at least two (2) outside parking stalls located north of the Building on Seneca
Street (the "Parking Area"). For the fee set forth hereinbelow, Tenant shall
have the right to the exclusive use of two (2) parking stalls in the Parking
Area during all periods throughout the Lease Term, as it may be extended, that
Landlord has the right to use the Parking Area. Tenant shall pay to Landlord a
monthly fee for use of the two (2) stalls equal to the current monthly parking
rate for two (2) spaces charged by the Watermark Garage (located west of the
Building), less forty dollars ($40.00). Throughout the Lease Term, Landlord
shall provide Tenant with at least ten (10) days' notice of any period during
which the parking stalls will not be available for Tenant's exclusive use.
During all periods throughout the Lease Term, as it may be extended, that
Landlord does not make the parking stalls in the Parking Area available for
Tenant's exclusive use, Tenant shall be entitled to a credit against Monthly
Minimum Rent equal to Eighty Dollars ($80.00) per month.
3. COMMENCEMENT AND EXPIRATION DATES
3.1 Commencement Date.
3.1.1 The Commencement Date shall be the date specified in
Section 1.1.5(a).
3.1.2 Tenant shall be obligated to pay Minimum Rent to Landlord
on the date first set forth in Section 1.1.5(b).
3.2 Expiration Date. The Lease Term shall expire on the Expiration
Date specified in Section 1.1.6, unless extended pursuant to Section 3.3 below.
3.3 Option to Extend. Landlord hereby grants Tenant an option to
extend the Lease Term for one (1) period of three (3) years and zero (0) months,
commencing on the day after the Expiration Date.
3.3.1 Exercise of Option. To exercise this option, Tenant shall
give written notice to Landlord of its desire to extend the Lease Term at least
two hundred twenty (220) days prior to the Expiration Date (the "Option
Notice"). Landlord is under no obligation to notify Tenant of this deadline.
Tenant understands and agrees that time is of the essence and unless so
exercised by this deadline, the option hereby granted shall
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terminate and be null and void. This option to renew is expressly conditioned on
the full and faithful compliance by Tenant with each and every of its
obligations contained in the Lease.
3.3.2 Terms of Lease During Option Period. If Tenant properly
exercises the option to renew, it shall thereby bind itself to the lease of the
Leased Premises for the period of three (3) years. During the extended term,
each and every provision of the Lease shall remain unchanged and in full force
and effect, including periodic Additional Charges, except as provided in this
Section 3.3.2.
3.3.2.1 The monthly Minimum Rent for the extended term
shall be ninety-five percent (95%) of the "Market Minimum Rental" for the Leased
Premises. The Market Minimum Rental for the Leased Premises shall be specified
by Landlord and shall be the then current monthly base rental rate being offered
by landlords for comparable space in comparable locations in downtown Seattle,
Washington for a term equal to the extended term. Landlord shall notify Tenant
in writing of the Market Minimum Rental for the extended term within twenty (20)
business days after receipt of the Option Notice. If Tenant disagrees with the
Market Minimum Rental specified by Landlord in such notice, it shall so notify
Landlord within twenty (20) business days of delivery thereof by Landlord, and
the parties shall meet as soon as possible thereafter in a good faith effort to
resolve their disagreement. If the parties are still in disagreement twenty (20)
business days after delivery of such notice from Tenant to Landlord, Tenant
shall have three (3) business days thereafter to notify Landlord in writing of
its irrevocable election to (i) cancel its option to extend to Lease Term, in
which event the Lease shall terminate on the Expiration Date, or (ii) agree to
submit the disagreement concerning the Market Minimum Rental to an M.A.I
appraiser, as set forth herein below, whose decision shall be binding on the
parties. Landlord and Tenant shall have five (5) business days to choose an
M.A.I. appraiser familiar with rental rates for Seattle, Washington office
space, and the appraiser shall then have twenty (20) business days to determine
the Market Minimum Rental for the Leased Premises as provided herein. If
Landlord and Tenant are unable to agree on the selection of an M.A.I. appraiser
within such five (5) business days, each party shall have three (3) business
days thereafter to select their own appraiser and such party appraisers shall
have five (5) business days to select a
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third appraiser whose appraisal shall be completed within twenty (20) business
days and shall be determinative of the Market Minimum Rental. The appraiser
shall be instructed to set the Market Minimum Rental based on all relevant
market factors for a new lease and considering the new Base Year for expenses as
set forth in Section 3.3.2.2 and the tenant improvement allowance set forth in
Section 3.3.2.3. Until the Market Minimum Rental is determined as provided
herein, the Tenant shall pay Minimum Rent based on the Market Minimum Rental
specified by the Landlord, and if the Market Minimum Rental is subsequently
determined to be different than the Market Minimum Rental specified by the
Landlord, the Landlord or Tenant, as the case may be, shall reimburse the other
for such difference.
3.3.2.2 Tenant's Share of Excess Expenses payable during
the extended term shall be calculated based on the Base Year of 2001.
3.3.2.3 Landlord shall reimburse Tenant for up to Nine
Thousand Three Hundred Ninety and No/100 Dollars ($9,390.00) for tenant
improvements undertaken by Tenant after Tenant exercises its option to renew the
Lease in accordance with this Section 3.3. Landlord shall pay Tenant's cost of
such improvements upon completion of the tenant improvements and delivery to
Landlord of satisfactory evidence of the cost of such improvements. All such
improvements shall comply with the terms of Sections 10.2 and 10.3 hereof.
3.4 Tenant's Obligations. If the Tenant Improvements, as defined
in Exhibit 3 hereto, are not completed within ninety (90) days of the date
specified in Section 1.1.5(a) due to delays caused by Tenant or Tenant's failure
to fulfill any of its obligations under this Lease (including, without
limitation, Tenant's failure to comply with the plan delivery dates described in
Exhibit 3), Landlord may at its option terminate this Lease. In the event of
termination pursuant to this Section 3.3, Landlord shall retain any monies
previously deposited by Tenant, and the parties shall have no further rights or
obligations hereunder. Landlord shall not be liable or responsible for any
claims, damages, or liabilities in connection with any delay in the completion
of the Tenant Improvements, or any termination of this Lease as a result hereof.
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4. RENT
4.1 Minimum Rent. Commencing on the date set forth in Section 1.1.5(b),
Tenant agrees to pay to Landlord the minimum rent set forth in Section 1.1.7
("Minimum Rent").
4.2 Minimum Rent Increases. The monthly Minimum Rent shall be increased
as set forth in Section 1.1.8, effective on the dates provided therein, and
Tenant shall promptly pay the same.
4.3 Additional Charges. In addition to Minimum Rent (as it may be
increased), Tenant shall also pay, as additional charges, all other sums of
money as shall become due and payable by Tenant to Landlord under this Lease,
including, but not limited to, Tenant's Share of Excess Expenses defined in
Section 5.4 (collectively called "Rent").
4.4 Method of Payment. Tenant shall pay Rent to Landlord in lawful
money of the United States without demand and without any reduction, abatement,
counterclaim or offset at Landlord's address set forth in Section 1.1.15(a) or
to such other person or entity or at such address as may be designated by
Landlord from time to time, as follows:
4.4.1 The Minimum Rent set forth in Sections 1.1.7 and 1.1.8 shall
be due and payable in advance on the first day of each calendar month during the
Lease Term and any extension or renewals thereof.
4.4.2 Except as otherwise expressly provided in this Lease, all
other Rent (including, but not limited to, Tenant's Share of Excess Expenses)
shall be due and payable in twelve (12) equal monthly installments in advance on
the first day of each calendar month during the Lease Term and any extensions or
renewals thereof.
4.5 Prorated Installments. If the Lease Term commences on other than
the first day of a month or ends on other than the last day of a month, then the
Rent provided for herein for such month or months shall be prorated and the
installment or installments so prorated shall be paid in advance.
4.6 Interest and Late Charges. All payments of Rent not received by
Landlord on or before each respective due date
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shall bear interest at an annual rate equal to eighteen percent (18%), from the
date the Rent is due until paid; provided that if the maximum annual rate of
interest permitted by applicable law shall be less than the rate of interest
provided for herein, then all past due payments shall bear interest at the
maximum rate permitted by applicable law from due date until paid. Tenant
acknowledges the late payment by Tenant to Landlord of Rent will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of such costs
being extremely difficult and economically impractical to ascertain. Therefore,
if any payment of Rent due from Tenant is not received by Landlord within ten
(10) days after the due date, Tenant shall pay to Landlord (in addition to the
interest above provided) a late charge of Fifty Dollars ($50.00) or two percent
(2%) of the overdue Rent, whichever shall be greater. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant and is in addition to
any interest charges on past due Rent. Acceptance of any late charge shall not
constitute a waiver of Tenant's default with respect to the overdue amount nor
prevent Landlord from exercising any of the other rights and remedies available
to Landlord. The provisions of this Section 4.8 in no way relieve Tenant of the
obligation to payment Rent on or before the due dates.
4.7 Security Deposit. Upon execution of this Lease, Tenant shall
deposit with Landlord as a security deposit the amount set forth in Section
1.1.9. This deposit shall constitute a security deposit for the performance by
Tenant of the provisions of this Lease. If Tenant is in default, Landlord may,
but shall not be obligated to, use the security deposit or any portion of it to
cure Tenant's default or to compensate Landlord for any loss or damage which
Landlord may suffer by reason of Tenant's default. In such event, Tenant shall,
within five (5) days of written demand by Landlord, deposit with Landlord the
amount so applied. The Security Deposit shall not be available to Landlord to
repair ordinary wear and tear to the Premises or to remove any of the approved
Tenant Improvements installed by Tenant. Landlord shall have no obligation to
keep the security deposit separate from its general funds. Tenant shall not be
entitled to interest on the deposit. If Tenant is not in default under this
Lease, then the security deposit or the balance not so used or retained shall be
returned to Tenant within thirty (30) days after the end of the Lease Term. If
Landlord sells, assigns or otherwise transfer its
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interest in this Lease, Landlord shall also transfer the security deposit. On
such transfer, Landlord shall be relieved from all liability for the return of
the deposit, and Tenant shall look solely to the new landlord for the return of
the deposit. Tenant may not assign or encumber its deposit, and Landlord may
treat any attempted assignment or encumbrance as void.
5. TENANT'S SHARE OF EXPENSES
5.1 Direct Expenses. As used in this Lease, "Direct Expenses" shall
mean all costs and expenses (except specific costs which are separately billed
to and paid by specific tenants) of every kind and nature which Landlord shall
pay or become obligated to pay because of or in connection with the ownership,
operation, maintenance and repair of the Property and such additional facilities
now and in subsequent years as may be determined by Landlord to be necessary to
the Property. All such Direct Expenses shall be determined by Landlord in
accordance with generally accepted accounting and management practices which
shall be consistently applied (with reserves appropriate to Landlord's
business). Direct Expenses include but are not limited to the following:
5.1.1 All taxes, payments in lieu of taxes, excises, assessments
(other than assessments that were levied in connection with the original
construction of the Building), levies, fees, charges, general and special,
ordinary and extraordinary, unforeseen as well as foreseen, of any kind which
are assessed, levied, charged, confirmed or imposed by any public authority upon
the Property, its operations or the rent provided for in this Lease (excluding
any income taxes payable by Landlord). If any assessments are payable in annual
installments, Tenant shall be responsible only for the pro-rata portion thereof
due during the Lease Term. Tenant will be directly responsible for all taxes and
assessments or payments in lieu thereof on Tenant's Personal Property, Tenant's
Tenant Improvements and Tenant's Alterations which are not part of the Premises,
as set forth in Section 6;
5.1.2 Costs of all insurance, including but not limited to fire,
casualty, liability and rental abatement insurance applicable to the Property
and Landlord's equipment and other property used in connection therewith;
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5.1.3 All supplies, material and equipment used in the operation
and maintenance of the Property;
5.1.4 Wages, salaries and related expenses and benefits of all
employees engaged in the operation, maintenance and security (if any) of the
Property;
5.1.5 Costs of repairs, replacements and general maintenance
(excluding repairs and general maintenance paid by proceeds of insurance or by
Tenant and third parties, and alterations attributable solely to tenants of the
Property other than Tenant);
5.1.6 Costs of utilities, including water, sewer, trash, power,
heating, lighting, air conditioning and ventilating the entire Property (except
specific costs which are separately billed to and paid by specific tenants).
This is a "full service" Lease and Tenant's utility costs for usage during
Normal Business Hours in the quantities set forth in Sections 8.2.2 and 8.2.3
hereof shall be included in the Direct Expenses (and Excess Expenses after the
Base Year) of the Commercial Complex;
5.1.7 Management costs and the costs of all maintenance, janitorial
and service agreements for the Property and the equipment therein, including,
without limitation, fire and life safety system, alarm service (if any), window
cleaning (if any), and elevator maintenance (if any);
5.1.8 Amortization of capital improvements made to the Property
subsequent to the execution of this Lease which will improve the operating
efficiency of the Property or which may be required by governmental authorities,
provided that amortization of tenant improvements of Tenant or any other tenants
shall not be considered a Direct Expense;
5.1.9 Any license, permit, and inspection fees (except those
incurred in connection with tenant improvement work);
5.1.10 Reasonable reserves as determined by Landlord to cover costs
of long-term programmed maintenance, including but not limited to air
conditioning, heating and elevator maintenance (if any);
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5.1.11 If any equipment, repairs, replacements or improvements are
capital in nature with a useful life in excess of one (1) year, Landlord shall
bill Tenant in any one (1) year only that fraction of such cost as represents
the cost divided by the useful life of such repair, capital improvement or
assessment. Such useful life shall be determined by Landlord in accordance with
generally accepted accounting and management practices and the bases of such
determination shall be available to Tenant pursuant to Section 5.5;
5.1.12 Fees, charges and other costs, including management fees,
consulting fees and accounting fees, of all independent contractors engaged by
Landlord or reasonably charged by Landlord if Landlord performs management
services in connection with the Commercial Complex; and
5.1.13 Assessments levied against the Property by the downtown
business association.
5.2 Base Year. The "Base Year" for the purpose of calculating Direct
Expenses for the initial five year term of the Lease shall be the 1996 calendar
year. The Base Year for the extended term of the Lease, if any (as provided in
Section 3.3), shall be 2001.
5.3 Excess Expenses. Excess Expenses with respect to any Expense Year
(defined below) after the initial year of the Lease Term shall be the amount by
which the Direct Expenses for such Expense Year exceed the annualized Direct
Expenses for the Base Year. No Excess Expenses shall be due or payable by Tenant
during the 1996 calendar year. Provided, however, that if the Commercial Complex
is less than ninety-five percent (95%) occupied in the Base Year, Landlord shall
calculate Direct Expenses for 1996 as if the Commercial Complex was ninety-five
percent (95%) occupied. As used herein, "Expense Year" shall mean each twelve
(12) consecutive month period commencing on January 1st of each year.
5.4 Tenant's Share of Excess Expenses. Tenant shall pay to Landlord as
Additional Charges, one twelfth (1/12) of Tenant's Share of Excess Expenses for
each Expense Year on or before the first day of each month of such Expense Year,
in advance, in an amount estimated by Landlord and billed by Landlord to Tenant.
Tenant's Share shall mean the total of Landlord's
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Excess Expenses for the Commercial Complex, multiplied by the percentage set
forth in Section 1.1.4.2 hereof. With reasonable promptness after the expiration
of each Expense Year in which Tenant is obligated to pay Excess Expenses,
Landlord shall furnish Tenant with a statement ("Landlord's Expense Statement"),
setting forth in reasonable detail the Direct Expenses for such Expense Year,
and Tenant's Share. If Tenant's Share exceeds the estimated Excess Expenses paid
by Tenant for such Expense Year, Tenant shall pay to Landlord the difference
between the amount paid by Tenant and Tenant's Share of actual Excess Expenses
within fifteen (15) days after the receipt of Landlord's Expense Statement. If
the total amount paid by Tenant for Excess Expenses for any such Expense Year
shall exceed Tenant's Share of actual Excess Expenses for such Expense Year,
such excess shall be credited against the next installment of estimated Excess
Expenses or other Rent due from Tenant to Landlord hereunder. If any part of the
first or last years of the Lease Term, as extended, includes less than an entire
Expense Year, Tenant's obligations under this Section 5.4 shall be apportioned
so that Tenant shall pay only for such parts of such Expense Year as are
included in the Lease Term. Landlord may, pending the determination of the
amount of actual Excess Expenses for the partial Expense Year in which the term
ends, furnish Tenant with a statement of estimated Excess Expenses and Tenant's
Share thereof for such partial Expense Year. Within fifteen (15) days after
receipt of such estimated statement, Tenant shall remit to Landlord, as
Additional Charges, the amount of Tenant's Share of anticipated Excess Expenses.
After the actual Excess Expenses have been determined, Tenant shall remit the
amount of any underpayment to Landlord within fifteen (15) days of receipt of
Landlord's Expense Statement, and, if there shall have been an overpayment by
Tenant, Landlord shall remit the amount of any such overpayment to Tenant within
fifteen (15) days of the issuance of Landlord's Expense Statement.
5.5 Books of Account. Landlord shall keep full and accurate books of
account covering Direct Expenses and Excess Expenses at the office of Landlord
stated in Section 1.1.15 or another convenient location in Seattle selected by
Landlord. During the term of this Lease, Tenant shall have the right to inspect
such books of account annually at a reasonable time on ten (10) days prior
written notice to Landlord.
6. PROPERTY TAXES
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Tenant shall pay or cause to be paid, before delinquency, any and all taxes
or charges in lieu thereof, levied or assessed and which become payable during
the Term hereof upon Tenant's Personal Property located on the Property and any
Tenant Improvements and Alterations which are not part of the Premises. In the
event any or all such improvements or Personal Property shall be assessed and
taxed with the Building, Tenant shall pay to Landlord Tenant's share of such
taxes within ten (10) days after delivery to Tenant by Landlord of a statement
in writing setting forth the amount of such taxes owed by Tenant.
7. USE AND CARE OF PREMISES
7.1 Permitted Use. The Premises shall be used and occupied by Tenant
solely for the Permitted Use described in Section 1.1.10 and for no other use or
purpose without the prior written consent of Landlord. Tenant agrees that it has
determined to its satisfaction that the Premises can be used for these purposes,
and waives any right to terminate this Lease in the event the Premises cannot be
used for such purposes during the Lease Term.
7.2 Operation. Tenant shall occupy the Premises subject to the
following:
7.2.1 If the Premises are damaged or destroyed or partially taken by
condemnation and this Lease shall remain in full force and effect, Tenant shall
continue the operation of its business at the Premises to the extent reasonably
practical during any period of repair.
7.2.2 If the Premises should be closed and the business of Tenant
temporarily discontinued because of strikes, walkouts, or similar causes beyond
Tenant's control, Tenant shall be temporarily relieved of its obligation to keep
the Premises open for, and to conduct business on, the Premises during the hours
and days specified above; provided that if Tenant's business on the Premises
shall be discontinued for a period of sixty (60) consecutive days by reason of
any such cause beyond Tenant's control, then Landlord may, at its option,
terminate this Lease by written notice to Tenant. Such notice shall be effective
on receipt thereof by Tenant. All Rent owed up to the time of effective date of
such notice shall be paid by Tenant and this Lease shall terminate as of the
effective date of such notice.
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The parties agree that lack of financial resources is not a cause beyond
Tenant's control.
7.3 Insurance. Tenant shall not do, bring, keep or permit anything to
done, brought, or kept in or about the Premises or the Property that will
increase the existing rate of insurance on the Property or any part thereof, or
any of its contents, or that will cause the cancellation of any insurance
policies covering the Premises, the Property, any part, or any of the contents
thereof. If any insurance premium is increased as a result of Tenant's use or
activity, Tenant shall pay the increase within ten (10) days after receipt of
Landlord's invoice therefor.
7.4 Disturbance of Other Occupants. Tenant shall conduct its business
and control its agents, employees, contractors and invitees in such a manner as
not to obstruct or interfere with the rights of other tenants or occupants of
the Building or injure, annoy or disturb them. Tenant shall not use or allow the
Premises to be used for any improper, unlawful, disreputable or objectionable
purpose, nor shall Tenant cause or permit any nuisance in, on or about the
Premises or the Property, nor do or permit anything to be done in the Premises
at any time which impairs the character and reputation of the Commercial Complex
as a first-class retail and office complex as reasonably determined by Landlord.
7.5 Care of the Premises. Tenant's taking possession of the Premises
shall constitute Tenant's acknowledgment that the Premises are in good condition
and repair; provided, however, that the foregoing acknowledgement shall not
limit Landlord's obligations of maintenance and repair set forth in this Lease.
Tenant shall take good care of the Premises and shall not commit or suffer to be
committed any waste, damage or injury to the Premises or the Property.
7.6 Compliance with Rules and Regulations. The Rules and Regulations
attached to this Lease as Exhibit 4 are a part of this Lease and Tenant shall
comply with them. Landlord shall have the right from time to time to promulgate
amendments and additional rules and regulations for the safety, care and
cleanliness of the Premises and the Property, and for the preservation of good
order. On delivery of a copy of such amendments and additional rules and
regulations to Tenant, Tenant shall comply with them, and a violation of any of
them shall
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constitute a default by Tenant under this Lease. The Rules and Regulations are
not made to restrict Tenant unnecessarily, but to enable Landlord to operate the
Property in a way which will be beneficial and advantageous to both parties. If
there is an express and direct conflict between the Rules and Regulations and
any of the provisions of this Lease, the provisions of the Lease shall control.
Landlord shall not be liable to Tenant or to any third parties for failure of
other tenants and occupants of the building to perform or observe the Rules and
Regulations.
7.7 Signs. Landlord will include Tenant's name on the existing building
directory located in the lobby of the Post Alley entrance, and will provide, at
Landlord's expense, signage indicating Tenant's name on the exterior of the
doors of the Building on Post Alley and Seneca Street. All such signage shall be
of a size, style and character consistent with existing signage at those
locations and consistent with the character of the building and the
neighborhood. At Tenant's expense, Tenant may install a sign bearing its name on
the exterior of the building at Post Alley and Seneca Street of a size, style
and character comparable to the existing signage at such location for the tenant
William Polk & Associates. Tenant shall submit the design and placement of such
signage to Landlord in advance for Landlord's approval. Tenant shall not place
upon or install in windows, walls or exterior doors of the Premises or any part
of the Premises visible from the exterior of the Premises any signs, symbols,
canopies, awning, window coverings or other advertising or decorative material
without obtaining the prior written consent of Landlord.
7.8 Compliance with Laws. Tenant shall not use the Premises or suffer
or permit anything to be done in or about the Premises or the Property at any
time which will in any way conflict with any judicial decision, constitution,
statute, ordinance, resolution, regulation, rule, administrative order, or other
requirement of any municipal, county, state, federal, or other governmental
agency or authority having jurisdiction over the parties, the Premises or the
Property in effect now or at any time during the Lease Term, including, without
limitation, any regulation or order of a quasi-official entity or body such as a
board of fire examiners, underwriters or public utility. Tenant shall, at its
sole cost and expense, promptly comply with all laws relating to or affecting
the condition, use or occupancy of the Premises, except that Tenant shall not be
required to make any
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repairs, alterations or additions to the roof, foundations, bearing walls or
other structural parts of the Property ("structural alterations") required by
law or to cure a violation of codes or laws existing prior to the Occupancy
Commencement Date. Landlord shall make or cause to be made structural
alterations required by law provided that if such structural alterations are
required as a result of Tenant's particular and specific use of the Premises at
the time, Tenant shall pay all costs and expenses incurred by Landlord in making
such structural alterations within ten (10) days after receipt of Landlord's
invoice therefor. Tenant shall pay all the costs, expenses, fines, penalties and
damages which may be imposed upon Landlord by reason of or arising out of
Tenant's failure to fully and promptly comply with and observe the provisions of
this Section 7.8.
7.9 Hazardous Material.
7.9.1 Tenant's Obligations. As used herein, the term "Hazardous
Material" means any hazardous, dangerous, toxic or harmful substance, material
or waste which is or becomes regulated by any local governmental authority, the
State of Washington or the United States Government. Tenant shall not cause or
permit any Hazardous Material to be brought upon, kept or used in or about the
Premises by Tenant, its agents, employees, contractors or invitees, without the
prior written consent of Landlord. If Tenant breaches the obligations stated in
the preceding sentence, or if the presence of Hazardous Material on the Premises
caused or permitted by Tenant results in contamination of the Premises or any
part of the Building, or if contamination of the Premises or any part of the
Building by Hazardous Material otherwise occurs for which Tenant is legally
liable to Landlord for damage resulting therefrom, then Tenant shall indemnify,
defend and hold Landlord harmless for any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses (including, without limitation,
diminution in value of the Property, damages for the loss or restriction on use
of rentable or usable space, or of any amenity of the building or the Premises,
damages arising from any adverse impact on marketing of space at the Building,
and sums paid in settlement of claims, attorneys' fees, consultant fees and
expert fees) which arise during or after the Lease Term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions, or any clean-up, remedial, removal or restoration work required by
any federal,
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state or local governmental agency or political subdivision because of Hazardous
Material present in the soil or ground water on or under the Building, without
limiting the foregoing, if the presence of any Hazardous Material on the
Premises caused or permitted by Tenant results in any contamination of the
Premises or any part of the Building. Tenant shall promptly take all actions at
its sole expense as are necessary to return the Premises and the Building to the
condition existing prior to the introduction of any such Hazardous Material
caused or permitted by Tenant; provided that Landlord's approval of such actions
shall first be obtained, which approval shall not be unreasonably withheld or
delayed so long as such action would not potentially have any material adverse
long-term or short-term effect on the Premises or the Building.
7.9.2 Landlord's Obligation. If the presence of Hazardous
Materials on the Premises caused or permitted by Landlord (and not caused by
Tenant) results in contamination of the Premises or any part of the Building, or
if contamination of the Premises or any part of the Building by Hazardous
Materials otherwise occurs for which Landlord is legally liable to Tenant for
damage resulting therefrom, then Landlord will remove or encapsulate such
Hazardous Materials, at its sole cost and expense, as necessary to correct such
contamination or comply with applicable laws and regulations.
8. LANDLORD MAINTENANCE; SERVICES AND UTILITIES
Landlord covenants and agrees with Tenant that so long as Tenant is not
in default of any of its obligations under this Lease, Landlord shall undertake
the following:
8.1 Maintenance. Landlord shall maintain or cause to be maintained
in reasonably good order and condition the Premises and the Common Areas,
including lobbies, stairs, restrooms, the central heating, ventilation and air
conditioning system, water, sewer, fire protection and mechanical and electrical
distribution systems and equipment serving the Property and the structural
portions of the Property. Any injury to or interference with Tenant's business
arising from any repairs, maintenance, alteration or improvement in or to any
portion of the Property, including the Premises, or in or to the fixtures,
appurtenances and equipment therein, shall not be deemed to be an eviction of
Tenant or relieve Tenant of any of its obligations hereunder, it
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being agreed that such repairs, maintenance, alterations and improvements will
be accomplished with as little inconvenience to Tenant as reasonably possible.
The costs of any maintenance of or repairs to the Premises provided or caused to
be provided by Landlord which are in addition to the maintenance and repair
services ordinarily provided to tenants in the Commercial Complex will be paid
in the manner provided for payment of extra electricity in Section 8.2.3 of this
Lease.
8.2 Other Services and Utilities. Landlord shall:
8.2.1 Furnish or cause to be furnished janitorial services to the
Premises Monday through Thursday and Sundays (excluding legal holidays) of the
kind and with the frequency that such services are, in Landlord's judgment,
customarily furnished to tenants in comparable retail buildings in the immediate
marketing area. Such janitorial services shall include lamp replacement service
for Building Standard light fixtures, rest room supplies and exterior window
washing at reasonable intervals. The cost of any janitorial services that are
provided or caused to be provided by Landlord which are in addition to service
ordinarily provided to tenants in the Commercial Complex shall be paid in the
manner provided for the payment of extra electricity in Section 8.2.3 of this
Lease.
8.2.2 Provide or cause to be provided HVAC required in Landlord's
judgment for the comfortable use and occupancy of the Premises during Normal
Business Hours set forth in Section 1.1.11 of this Lease.
8.2.3 Furnish or cause to be furnished to the Premises during
Normal Business Hours electricity for lighting and the operation of low power
usage office machinery, and water, both in quantities usually furnished or
supplied by Landlord to tenants leasing space in the Commercial Complex. The
cost of furnishing HVAC, electricity and water in the quantities set forth in
Sections 8.2.2 and this Section 8.2.3 during Normal Business Hours shall be
included in Direct Expenses (as defined in Section 5.1).
8.2.4 The Building's mechanical system is designed to accommodate
heating loads generated by lights and equipment using up to two and one-half
(2.5) watts per square foot. Before installing lights and equipment in the
Premises which in the
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aggregate would exceed such amount, Tenant shall obtain the prior written
consent of Landlord. Landlord may refuse to grant its consent unless Tenant
agrees to pay the costs of installing supplementary air conditioning capacity or
electrical systems necessitated by such equipment or lights. In addition, Tenant
shall, on the first day of each month during the Lease Term, pay Landlord in
advance the reasonable amount estimated by the Landlord as the cost of (i)
furnishing electricity for the operation of such equipment or lights, (ii)
operating and maintaining supplementary air conditioning units necessitated by
Tenant's use of such equipment or lights, and (iii) electricity and HVAC to
Tenant during other than Normal Business Hours. Landlord shall be entitled to
install and operate at Tenant's cost a monitoring/metering system in the
Premises to measure the added demands on electricity and the HVAC systems
resulting from such equipment and lights and from Tenant's HVAC or electricity
requirements during other than Normal Business Hours. Tenant shall comply with
Landlord's instruction for the use of drapes, blinds and thermostats in the
Building.
8.2.5 Furnish elevator service, which shall mean service by
nonattended automatic elevators.
8.2.6 Maintain or cause to be maintained in the lobby of the
Property a directory board which shall include the name of Tenant.
8.3 Tenant's Negligence. Tenant has a positive obligation to care for
the Premises as set forth in Section 7.5. In the event any repair or maintenance
described in Section 8.1 is occasioned by the act, omission, or neglect of
Tenant or any persons who may be in or upon the Premises or the Property with
the express or implied consent of Tenant (including Tenant's officers,
contractors, agents, invitees, guests and employees), Tenant shall pay Landlord
the costs of such maintenance and repair on Landlord's demand.
8.4 Landlord's Negligence. Landlord shall not be in default under this
Lease and shall not be liable to Tenant for any loss or damage to person or
property, or any inconvenience or interference with Tenant's business caused by
or resulting from Landlord's failure to perform its obligations under Section
8.1 unless such failure shall persist, due to Landlord's negligence,
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for an unreasonable period of time after written notice of the need for repair
or maintenance has been given by Tenant to Landlord.
8.5 Rent. There shall be no abatement of rent (except as provided in
Sections 13.4 and 14.6) and Landlord shall not be liable or responsible to
Tenant for any loss or damage to person or property or for inconvenience to, or
interference with Tenant which may arise through repair, maintenance or
alteration of any part of the Property.
8.6 Failure or Interruption of Services. Landlord does not warrant that
any of the services and utilities described above will be free from variation,
interruption, or failure. Should any of the facilities utilized in bringing the
above-described services to the Premises break down, or for any cause cease to
function properly, Landlord shall use reasonable diligence to repair the same
promptly, but Tenant shall have no right to terminate this Lease, and shall have
no claim for rebate of Rent or for damages directly or indirectly caused by or
resulting from:
8.6.1 The installation, use or interruption of use of any equipment
in connection with the furnishing of any of the foregoing utilities or services.
8.6.2 The failure to perform or furnish, or the delay in performing
or furnishing, any such maintenance, repair, utilities or services where such
failure or delay is caused by acts of God, the elements, labor disturbances of
any character, any other accidents or other conditions beyond the reasonable
control of Landlord, or by the making of repairs or improvements to the Premises
or the Building; or
8.6.3 The limitation, curtailment, rationing or restriction of use
of water or electricity, gas or any other form of energy or any other service or
utility serving the Premises or the Property. Landlord shall be entitled to
cooperate voluntarily in a reasonable manner with the efforts of national, state
or local government agencies or utility suppliers in reducing energy or other
resource consumption.
8.7 Waiver of Self Help and Deduct. Tenant waives the right to make
repairs at Landlord's expense under any law,
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statute, ordinance now or hereafter in effect.
9. COMMON AREAS
9.1 Definition. The term "Common Areas" means those parts of the
Property in which the Premises are located and related areas and facilities
outside the Premises that are provided and designated by Landlord from time to
time for the general use and convenience of Tenant and of other tenants of the
Building and their respective authorized representatives, guests and invitees.
Common Areas may include, without limitation, designated pedestrian walkways and
patios, landscaped areas, public lobbies, elevators, sidewalks, loading areas,
parking areas, service corridors, rest rooms, stairways, arcades and roads, and
mechanical, telephone and electrical rooms.
9.2 License. Landlord gives to Tenant and its agents, employees,
contractors, authorized representatives, invitees and guests, the nonexclusive
right to use the Common Areas with others who are entitled to use the Common
Areas, subject to Landlord's rights to:
9.2.1 Establish and enforce reasonable rules and regulations
applicable to all tenants concerning the maintenance, management, use and
operation of the Common Areas;
9.2.2 Close any of the Common Areas to the extent required in the
reasonable opinion of Landlord to prevent a dedication of any of the Common
Areas or the accrual of any rights of any person or of the public to the Common
Areas;
9.2.3 Close temporarily any of the Common Areas for purposes of
cleaning, maintenance, repair, alterations, improvements or additions;
9.2.4 Designate other property to become part of the Common Areas;
and
9.2.5 Makes changes to the Common Areas including, without
limitation, changes in the arrangement and/or location of passageways, doors,
doorways, corridors, elevators, stairs, or toilets; provided, however, Landlord
shall not make any change which will prevent access to the Premises.
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10. IMPROVEMENTS AND ALTERATIONS TO THE PREMISES
10.1 Initial Improvements. The design and construction of, and
payment for, all initial leasehold improvements to the Premises ("Tenant
Improvements") shall be as provided in Exhibit 3.
10.2 Alterations. After the completion of Tenant Improvements,
Tenant may make, at its expense (except as provided in Section 3.3.2.3), such
non-structural alterations, additions and improvements (collectively called
"Alterations") to the interior of the Premises during the term of this Lease
that Tenant requires in order to use the Premises for the Permitted Use,
provided that the following requirements have first been satisfied:
10.2.1 Tenant shall submit to Landlord reasonably detailed
final plans and specifications and working drawings of the proposed Alterations,
and the name of Tenant's proposed contractor who must provide Landlord with a
Certificate of Insurance covering Contractor's Liability, Workmen's Compensation
and Property Damage, and naming Landlord as additional insured. Said Certificate
shall be issued prior to the commencement of the Alterations.
10.2.2 Landlord shall have given Tenant written notice of
Landlord's approval of said final plans, specifications, working drawings, the
proposed contractor, and insurance carried by the proposed contractor. Landlord
shall be deemed to have approved said plans, specifications, drawings,
contractor and insurance if Landlord has not disapproved the same within ten
(10) business days after Landlord receives them. Landlord may withhold its
approval for any reason which Landlord deems sufficient, but shall give Tenant
written notice of the reasons for Landlord's disapproval.
10.2.3 The Alterations shall be approved by all appropriate
government agencies and all applicable permits and authorizations shall be
obtained before commencement of any Alterations.
10.2.4 Prior to the commencement of construction of any
Alterations which will cost more than $5,000.00 (exclusive of the costs of
decorating work and items constituting Tenant's
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Property), as estimated by a reputable contractor designated by Landlord, Tenant
as its sole cost shall cause its selected contractor to furnish to Landlord a
performance and completion bond (issued by a corporate surety or an insurance
company qualified to do business in the State of Washington) in a sum equal to
one hundred twenty-five percent (125%) of the estimated cost of such Alterations
(as determined by the construction contract between Tenant and its contractor)
guaranteeing the completion of such Alterations free and clear of all liens and
other charges in accordance with the plans and specifications approved by
Landlord.
10.2.5 Tenant's Contractor shall carry the minimum liability
limits as specified for Tenant in Section 1.1.14 of the Lease.
Alterations shall be completed with due diligence in compliance with all
applicable laws, with plans, specifications and working drawings approved by
Landlord, and by the contractor approved by Landlord.
10.3 Rules and Regulations. All work by Tenant or Tenant's
contractor shall be done in compliance with the Rules and Regulations attached
as Exhibit 4 to this Lease. All debris, trash, refuse and waste materials shall
be stored only within the Premises and shall be regularly removed therefrom by
Tenant at its cost. All Alterations shall be made in a manner that will not
unreasonably disturb or interfere with other tenants in the Building. Tenant
shall also comply with the use restrictions set forth in the Declaration of
Condominium for the Building attached hereto as Exhibit 5.
10.4 Landlord's Property. All Tenant Improvements and Alterations
(expressly including without limitation all light fixtures and floor coverings,
but expressly excluding any unattached trade fixtures, appliances, and equipment
which do not become a part of the Premises) shall become the property of
Landlord and shall remain on and be surrendered with the Premises on expiration
or earlier termination of the Lease, except that Landlord may, at the time of
Landlord's approval of Alterations as set forth in Section 10.2.2 above,
identify any Alterations which Tenant shall be required to remove upon
expiration or termination of the Lease Term, and Tenant shall remove the same
and, at its sole cost and expense, shall repair and restore the Premises to
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its standard condition. For purposes of this Section, "standard condition" means
the Premises with the Tenant Improvements described in Exhibit 3, reasonable
wear and tear excepted.
10.5 Locks, Plumbing and Wiring. Tenant shall not make changes to
locks on doors or add to, disturb or in any way change any plumbing or wiring
without the prior written consent of Landlord and in accordance with the
requirements of this Section.
11. LIENS
11.1 Mechanics' Liens. Tenant shall keep the Premises and the
Property free and clear from any liens or lien claims arising out of work
performed, materials furnished or obligations incurred by or on behalf of
Tenant. Tenant shall indemnify and hold Landlord harmless from any liability for
losses or damages resulting directly or indirectly from any such liens or lien
claims and from any work performed on or about the Premises by Tenant, its
agents, employees, contractors or subcontractors. If any lien or lien claim is
filed against any part of the Property (including the Premises) by any person
claiming by, through or under Tenant, Tenant shall, upon request of Landlord at
Tenant's expense, immediately furnish to Landlord a bond in form and amount and
issued by a surety satisfactory to Landlord indemnifying Landlord and the
Property against all liability, cost and expenses, including attorneys' fees,
which may result therefrom. If such bond has been furnished to Landlord, Tenant,
at its sole cost and expense and after written notice to Landlord, may contest
by appropriate proceeding conducted in good faith and with due diligence any
lien, encumbrance or charge against the Premises arising from work done or
materials provided to or for Tenant if such proceedings suspend the enforcement
and collection of the lien or lien claim and neither the Premises nor any part
of the Property nor any interest therein is or will be in any danger of being
sold, forfeited or lost.
11.2 Landlord's Lien. In addition to any statutory lien for rent in
Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a
continuing security interest for all rentals and other sums of money becoming
due hereunder from Tenant, upon all fixtures, furniture, and inventory,
including all proceeds thereof, of Tenant situated on the Premises, and such
property shall not be removed therefrom without the consent of Landlord until
all arrearages in rent as well as any and all other
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sums of money then due to Landlord hereunder shall first have been paid and
discharged. In the event of a default under this Lease, Landlord shall have, in
addition to any other remedies provided herein or by law, all rights and
remedies under the Uniform Commercial Code, including without limitation the
right to sell the property described in this Section 11.2 at public or private
sale. Tenant hereby agrees to execute such financing statements and other
instruments necessary or desirable in Landlord's discretion to perfect the
security interest hereby created. Any statutory lien for rent is not hereby
waived, the express contractual lien herein granted being in addition and
supplementary thereto.
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12. INSURANCE AND INDEMNIFICATION
12.1 Indemnification. Landlord shall not be liable for injury to
any person, or for the loss of or damage to any property (including property of
Tenant) occurring in or about the Leased Premises from any cause whatsoever,
except, and to the extent of any loss or damage caused by Landlord's gross
negligence or willful misconduct. Notwithstanding anything in this Lease,
Landlord shall in no event be liable to Tenant for any damage to the Premises
for any loss, damage or injury to any Property in or on the Premises occasioned
by bursting, rupture, leakage, or overflow of any plumbing or other pipes
(including but not limited to water, steam and/or refrigerant lines),
sprinklers, tanks, drains, drinking fountains or wash stands or other similar
cause in, above, upon or about the Premises or the Property. Except to the
extent caused by Landlord's negligence or willful misconduct, Tenant shall
defend, indemnify and hold Landlord harmless from and against any and all
claims, charges, liabilities, obligations, penalties, damages, costs and
expenses (including attorneys' fees) arising, claimed, charged or incurred
against, or by Landlord from any matter or thing arising from Tenant's use of
the Premises, the conduct of its business or from any activity, work or other
things done, permitted or suffered by Tenant in or about the Premises, and
Tenant shall further indemnify and hold Landlord harmless from and against any
and all claims arising from any breach or default in the performance of any
obligation on Tenant's part or to be performed under the terms of the lease, or
arising from any act or negligence of Tenant, or any officer, agent, employee,
guests, or invitee of Tenant, and from all costs, attorneys' fees, and
liabilities incurred in or about the defense of any such claim or any action or
proceeding is brought against Landlord by reason of such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by legal counsel
reasonably satisfactory to Landlord.
12.2 Concurrent Negligence. In the event of concurrent negligence
of Tenant, its agents, employees, sublessees, invitees, licensees or contractors
on the one hand, and that of Landlord, its partners, agents, employees or
contractors on the other hand, which concurrent negligence results in injury or
damage to persons or property and relates to the construction, alteration,
repair, addition to, subtraction from, improvement to or maintenance of the
Premises or the Building, Tenant's obligation to indemnify Landlord as set forth
in this Section 12.2 shall be limited to the
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extent of Tenant's negligence, and that of its agents, employees, sublessees,
invitees, licensees, or contractors, including Tenant's proportional share of
costs, and attorneys' fees and expenses incurred in connection with any claim,
action or proceeding brought with respect to such injury or damage. Tenant
hereby agrees to waive its immunity under Industrial Insurance, Title 51 of the
Revised Code of Washington, but only to the extent required so that Tenant shall
be obligated to indemnify Landlord, its partners, agents, employees or
contractors as set forth in this Section 12.2. Tenant and Landlord further agree
that this indemnification provision was specifically negotiated and agreed to by
the parties hereto. None of the events or conditions set forth in this Section
shall be deemed constructive or actual eviction or entitle Tenant to any
abatement or reduction of rent.
12.3 Liability Insurance. Tenant shall, at its own cost and
expense, keep and maintain in full force and effect during the Lease Term, a
policy of comprehensive general liability insurance insuring Tenant's activities
with respect to the Premises against loss, damage or liability for personal
injury or death or loss or damage to property with the limits set forth in
Section 1.1.14. For such policies with a general aggregate limit such general
aggregate limit shall be not less than Two Million Dollars ($2,000,000) with the
occurrence limit not less than One Million Dollars ($1,000,000). In the event
Tenant obtains a policy with the general aggregate limit, Tenant shall
immediately notify Landlord if claims covered by such policy or policies at any
time are made against Tenant which claims exceed fifty percent (50%) or more of
the aggregate limit. Notwithstanding the foregoing, if during the Lease Term, in
Landlord's reasonable judgment, the policy limits required hereunder are no
longer adequate to provide reasonable protection to Landlord, Landlord may
notify Tenant of such inadequacy and an appropriate level of coverage, and
Tenant within thirty (30) days of receiving such a notice, shall obtain such
additional amounts of insurance and provide Landlord with satisfactory evidence
thereof. Reference may be made to policy amounts required by other landlords for
similar space of similar quality in the immediate market area in determining
what is reasonable protection thereunder.
12.4 Property Insurance. During the Lease Term, Tenant shall also
maintain, at its own cost and expense, property insurance covering the
furniture, fixtures and equipment in an amount equal to ninety percent (90%) of
the replacement cost
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thereof.
12.5 Policy Requirements. The insurance required under this Section
12 shall be with companies rated A-VIII or better in Best's Insurance Guide (or
such comparable or better rating as selected by Landlord in the event of a
change in rating designations). Landlord and its managing agent shall be named
as an additional insured. The insurance policy shall bear an endorsement that
the policy shall not be cancelled or the policy limits reduced below the
coverage required by this Lease for any reason other than non-payment of
premiums except upon forty-five (45) days prior written notice to Landlord, and
only after ten (10) days prior written notice to Landlord for non-payment of
premiums.
12.6 Delivery of Policies. Tenant shall deliver to Landlord upon
the Commencement Date, and thereafter, not less than five (5) days before the
expiration of any expiring policies, and from time to time thereafter as
requested by Landlord copies of all policies of such insurance or certificates
thereof showing Landlord as an additional insured and the applicable policy
limits thereof. In no event shall the limits of such policies be considered as
limiting the liability of Tenant under the Lease.
12.7 Failure to Maintain. If Tenant fails or refuses to maintain
any insurance required by this Section 12, Landlord, at its discretion, may
obtain and maintain insurance for such items and interests to protect Landlord
in such amounts as Landlord may determine to be appropriate to protect Landlord,
and any and all premiums paid or payable by Landlord therefor shall be deemed to
be Additional Charges and shall be due on the payment date of the next
installment of Rent due hereunder. The failure to obtain or maintain any
insurance required by this Section shall constitute a default under the Lease.
12.8 Waiver of Subrogation. Landlord and Tenant hereby mutually
release each other from liability, and waive all right of recovery against each
other for any loss or damage to any building, structure or other tangible
property, or any resulting loss of income, or losses under workers' compensation
laws and benefits, whether due to negligence or any other cause, if such loss or
damage is covered by insurance benefiting the party suffering such loss or
damage, or was required to be covered by the Lease; provided that this Section
12 shall be inapplicable if
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it would have the effect, but only to the extent it would have the effect, of
invalidating any insurance coverage of Landlord or Tenant.
12.9 Landlord's Insurance. Landlord agrees to maintain or cause to
be maintained policies of insurance for the full replacement value of the
Building insuring the Building against the perils of fire. Notwithstanding the
foregoing, if during the Lease Term and in Landlord's reasonable judgment the
policy limits set forth hereunder are no longer adequate or no longer necessary
to provide reasonable protection to Landlord or the Building, Landlord may so
notify Tenant and modify its insurance accordingly. Reference may be made to
policy amounts and coverages maintained by other landlords for buildings of a
similar quality in the immediate market area in determining what is reasonable
protection thereunder. The requirements of any lender of Landlord holding a
security interest in the Building shall also be considered in determining what
is reasonable protection thereunder. Subject to the provisions of 12.8 hereof,
such insurance shall be for the sole benefit of Landlord and under its sole
control.
13. CASUALTY DAMAGE OR DESTRUCTION
13.1 Obligation to Repair. Subject to the provisions of Sections
13.2 and 13.3, if the Premises or the Property are damaged by fire or other
casualty, Landlord shall repair or cause the same to be repaired.
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13.2 Option to Repair. Repair shall be at the option of Landlord if
insurance proceeds sufficient to pay the costs of repair are for any reason
unavailable, or if Landlord determines that such repairs cannot be made within
ninety (90) days from the date repair work begins. Landlord shall have the
option ("Landlord's Option") within ninety (90) days after the date of such
damage (except as otherwise provided herein) either to: (a) notify Tenant of
Landlord's intention to repair such damage and diligently undertake such repair,
in which event this Lease shall continue in full force and effect subject to the
Rent adjustment provisions of Section 13.4; or (b) notify Tenant of Landlord's
election to terminate this Lease as of the date specified in such notice, which
date shall be not less than thirty (30) nor more than sixty (60) days after
notice is given. If Landlord estimates that repairs cannot be completed within
one hundred eighty (180) days from the date such repair work begins, Landlord
shall, within ninety (90) days from the date of such damage, notify each tenant
whose premises are so affected, stating the period of time which Landlord
estimates will be required to complete the repair ("Landlord's Notice"). Each
such tenant shall thereafter have the option to terminate its lease by
delivering written notice of the exercise of the option to terminate ("Tenant's
Notice") to Landlord within thirty (30) days from the date such tenant receives
Landlord's Notice. Within thirty (30) days after the expiration of the time
within which any such tenant may give Tenant's Notice, Landlord shall exercise
Landlord's Option to repair or terminate.
13.3 Right to Terminate. If the Building shall be so damaged
(whether or not the Premises shall be affected) that the owner or owners of the
Building (or the condominium units then comprising the Building) shall decide
not to repair or restore, or shall decide to demolish or to completely rebuild
the building in such a way as to alter the Premises materially, Landlord may,
within ninety (90) days after the date of such damage (or such later date as
such decision shall be made in cases where the decision must be made by the
owners of such condominium units), terminate this Lease by written notice to
Tenant as of the date specified in such written notice, which date shall be not
less than thirty (30) nor more than sixty (60) days after notice is given.
13.4 Rent. Until repairs are completed, or until termination of this
Lease is effective, whichever may be the case,
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Minimum Rent shall be abated in the same proportion as the Rentable Area of the
Premises which Landlord reasonably determines is unfit for occupancy bears to
the Rentable Area of the Premises prior to the damage. There shall be no
abatement of Minimum Rent if the damage was caused in whole or in part by the
act or omission of Tenant, its agents, employees, licensees, contractors or
invitees. If this Lease shall be terminated as provided in this Section 13,
Minimum Rent (as so abated and adjusted) shall be prorated to the effective date
of termination, and if not paid prior to termination, Tenant's obligation to pay
the same shall survive any termination of this Lease. Landlord shall refund to
Tenant any unearned Rent previously paid to Landlord.
13.5 Scope of Repairs. If Landlord is obligated or elects to repair
the Premises or the Property, modifications to conform to then applicable
governmental rules and regulations or then available means of construction may
be made. Landlord will not carry insurance of any kind on Tenant's trade
fixtures, equipment, furniture, furnishings or other personal property and has
no obligation to repair or replace any of them.
14. CONDEMNATION
14.1 Definitions.
14.1.1 "Condemnation" means (a) the exercise of any
governmental power to acquire property, whether by legal proceedings or
otherwise, by a condemnor and (b) a voluntary sale or transfer of property to
any condemnor either under threat of the exercise of such governmental power or
while legal proceedings for the exercise of such governmental power are pending.
14.1.2 "Condemnor" means any public or quasi-public authority
or private corporation or individual having the power of Condemnation.
14.1.3 "Date of Taking" means the date the Condemnor has the
right to possession of the property being condemned.
14.2 Total Taking. If all of the Premises or such portions of the
Building as are required for the reasonable use of the Premises are taken by
Condemnation, this lease shall automatically terminate as of the Date of Taking
and Rent shall be
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paid to that date by Tenant.
14.3 Partial Taking. If a portion of the Property is taken by
Condemnation (whether or not the Premises are affected) and (i) Landlord (or the
owners of the condominium units then comprising the Property) determine that the
remaining portions cannot be economically and effectively used by it (or them)
or (ii) if the Property or any part thereof has been submitted to the Horizontal
Property Regimes Act and such Condemnation results in a termination of the
condominium pursuant to the condominium declaration or (iii) in the opinion of
Landlord (or the owners of the condominium units then comprising the Property)
the Building should be restored in such a way as to alter the Premises
materially, then Landlord shall have the option to terminate this Lease. If a
portion of the Premises is taken by Condemnation, this Lease shall automatically
terminate as to the portion so taken as of the Date of Taking. If the portion of
the Premises taken renders the remaining portion untenable and unusable by
Tenant, Tenant shall have the option to terminate this Lease.
14.4 Restoration and Repair. If a portion of the Premises shall be
so taken and neither party shall elect to terminate this Lease, then Landlord
shall, to the extent of severance damages received by Landlord and equitably
allocated by Landlord among the Premises and other portions of the Property,
repair the damage to the Premises at Landlord's cost and expense; provided,
however, that Landlord shall have no obligation to repair or replace any Tenant
Improvements, Alterations or Tenant's Personal Property, and any sums received
by Tenant as a result of the taking shall be applied by it to restoration and
repair of same.
14.5 Exercise of Options. If either party elects to exercise any
option to terminate the Lease under this Section 14, it shall do so by giving
written notice of the election to the other party not later than ninety (90)
days after the date the nature and the extent of the taking by Condemnation have
been finally determined (whether by issuance of a certificate of public use and
necessity or its equivalent by a court or other tribunal having jurisdiction
over the Property or otherwise), and if such notice is so given, this Lease
shall terminate on the earlier of the date stated in the Notice or the Date of
Taking; provided, however, that the time for Landlord to give such notice shall
be extended until such time as the owners of the condominium units,
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if any, then comprising the Building have reached a decision regarding
disposition of those portions of the Building not taken by Condemnation.
14.6 Unearned Rent and Rent Adjustment. If this Lease shall be
terminated as provided in this Section 14, Rent shall be prorated to the
effective date of termination, and Tenant's obligation to pay such prorated Rent
shall survive any termination of this Lease. Landlord shall refund to Tenant any
unearned Rent previously paid to Landlord. If this Lease shall not be so
terminated, Minimum Rent shall be reduced effective on the Date of Taking in the
same proportion that the Rentable Area of the portion of the Premises taken or
rendered untenable by such Condemnation bears to the Rentable Area of the
portion of the Premises immediately prior to the taking (provided that if
circumstances make abatement based on square footage unreasonable, Minimum Rent
shall be abated by a reasonable amount to be determined by Landlord), and
Tenant's Share of Direct Expenses shall be recalculated effective on the Date of
Taking.
14.7 Award. All damages, compensation and any other proceeds from or
for the taking or damaging of all or any part of the Property or the Premises,
including, without limitation, any award made for the value of the leasehold
estate created by the Lease (the "Award") shall belong to and be the property of
Landlord, and Tenant hereby assigns to Landlord any and all claims to the Award
except that Tenant shall be entitled to receive from the Award a sum equal to
the lesser of (a) the unamortized cost of any Tenant Improvements and
Alterations to the Premises paid for by Tenant which are taken by Condemnation
or (b) the amount by which such Tenant Improvements and Alterations paid for by
Tenant have enhanced the value of the property taken by Condemnation, subject
however to the rights and claims of the holders or any mortgages or deeds of
trust on the property taken by Condemnation. Nothing contained herein shall be
construed as precluding Tenant from asserting any claim for damages which Tenant
may have against the Condemnor for the disruption or relocation of Tenant's
business on the Premises or for damages to any trade fixtures, equipment,
furniture or furnishings owned by Tenant.
14.8 Temporary Taking. The taking of all or any part of the Premises
or the Property by military or other public authority shall not constitute a
taking by Condemnation unless the use and occupancy by the taking authority
continues for longer
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than one hundred eighty (180) consecutive days. During the 180-day period, all
the provisions of this Lease shall remain in full force and effect except that
Minimum Rent shall be abated or reduced during such period of taking based on
the extent to which the taking interferes with Tenant's use of the Premises.
Landlord shall be entitled to whatever award may be paid for the use and
occupation of the Premises for the period involved.
15. ASSIGNMENT AND SUBLETTING
15.1 General. Tenant shall not voluntarily assign, encumber,
mortgage, pledge, hypothecate, or otherwise transfer or dispose of this Lease or
all or any part of its interest in this Lease or the Premises, or sublease all
or any part of the Premises, or allow any other person (except Tenant's
authorized representatives) to occupy or use all or any part of the Premises,
without first obtaining Landlord's written consent, which consent shall not be
unreasonably withheld. Provided, however, Tenant may sublet a portion of the
Premises to an affiliated entity, defined as an entity over which Tenant or Dan
Fine has majority ownership and control, provided that Tenant gives Landlord
written notice of such sublease and provided such affiliate complies with the
covenants and restrictions of this Lease, including Section 1.1.10 concerning
use of the Premises. Any other voluntary assignment, encumbrance, mortgage,
pledge, hypothecation, sublease, occupation or use by another person, or other
transfer or disposition without Landlord's written consent shall be voidable
and, at Landlord's election, and shall constitute a default by Tenant.
15.2 Notice of Proposed Assignment or Sublease. If Tenant wishes to
assign this Lease or sublet the Premises or any part thereof, Tenant shall first
given written notice to Landlord of its intention to do so ("Tenant's Notice")
which notice shall contain the name of the proposed assignee or subtenant
(collectively "Transferee"), the nature of the proposed Transferee's business to
be carried on in the Premises, the terms and provisions of the proposed
assignment or sublease, and such financial and other information with respect to
the proposed Transferee and transfer as Landlord may reasonably require.
15.3 Landlord's Options. At any time within sixty (60) days after
Landlord's receipt of Tenant's Notice, Landlord may by written notice
("Landlord's Notice") to Tenant elect to:
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15.3.1 Recapture the affected space by terminating this Lease
as to the portion of the Premises covered by the proposed sublease or assignment
effective upon a date specified in Landlord's Notice which date shall not be
earlier than thirty (30) days nor later than sixty (60) days after Landlord's
Notice, with a proportionate reduction of all rights and obligations hereunder
that are based on the square footage of the Premises;
15.3.2 Consent to the proposed sublease or assignment; or
15.3.3 Disapprove the proposed sublease or assignment.
In the event Landlord's Notice states that Landlord elects to exercise the
recapture option described in Section 15.3.1, above, Tenant shall have the
option to withdraw Tenant's Notice of proposed transfer and not to proceed with
the proposed sublease or assignment.
15.4 Limitations on Landlord's Options. Notwithstanding the
foregoing, in the event of a proposed assignment or sublease by Tenant, Landlord
shall not unreasonably withhold its consent to the proposed sublease or
assignment if all of the following conditions are satisfied:
15.4.1 The use of the Premises by the proposed Transferee
would be substantially the same as Tenant's use of the Premises;
15.4.2 The proposed Transferee is reputable and of sound
financial condition;
15.4.3 The operations of the proposed assignee or sublessee
would be managed in a manner and by persons whose qualifications and experience
are acceptable to Landlord in its reasonable discretion;
15.4.4 The merchandise and/or services to be sold from the
Premises by the proposed assignee or sublessee and the manner and methods of
merchandising (including but not limited to advertising) are of a first-class
quality, all as reasonably determined by Landlord; and
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15.4.5 If the monthly Minimum Rent payable under the
assignment or sublease agreement is more than the Minimum Rent being paid by
Tenant to Landlord, Tenant shall pay to Landlord eighty percent (80%) of the
difference between the Minimum Rent payable under said assignment or sublease
and the Minimum Rent then being paid under this Lease. Brokerage fees and any
direct expenses incurred by Tenant in preparing the space for the proposed
assignee or sublessee, may be deducted from the Landlord's eighty percent (80%)
share of the "profits."
15.5 Approved Assignment or Sublease. If Landlord should fail to
notify Tenant in writing of such election within the sixty (60) day period set
forth in Section 15.3, Landlord shall be deemed to have elected the option
described in Section 15.3.2, but subsequent written approval by Landlord of the
proposed assignment or sublease shall be required as provided in that Section.
Landlord's consent to any proposed sublease or assignment shall be subject to
the following provisions.
15.5.1 Tenant may enter into such assignment or sublease, but
only to the Transferee and upon the specific terms and conditions set forth in
the Tenant's Notice.
15.5.2 Any sublease or assignment shall be subject to, and in
full compliance with, all of the terms and provisions of this Lease.
15.5.3 No consent by Landlord to any assignment or sublease
shall relieve Tenant of any obligation under this Lease.
15.5.4 Each Transferee shall assume all obligations of Tenant
under this Lease and shall be and remain jointly and severally liable with
Tenant for the payment of Rent and the performance of all of the terms,
covenants, conditions and agreements herein contained on Tenant's part to be
performed; provided, however, that without limiting the obligations of Tenant
under this Lease, the Transferee shall be liable to Landlord for rent only in
the amount set forth in the assignment or sublease, unless otherwise agreed by
the parties thereto.
15.5.5 No assignment shall be binding on Landlord unless
Tenant and the Transferee shall deliver to Landlord a counterpart of the
assignment and an instrument in recordable form that contains a covenant of
assumption by the Transferee
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satisfactory in form and substance to Landlord and consistent with the
requirements of this Section 15. The failure or refusal of the Transferee to
execute an instrument of assumption shall not release or discharge the
Transferee from its obligations set forth above.
15.6 Costs Paid by Tenant. Whether or not Landlord consents to a
proposed assignment or sublease, Tenant shall reimburse Landlord on demand for
any and all costs that may be incurred by Landlord in connection with any
proposed assignment or sublease including, without limitation, the cost of
investigating the acceptability of the proposed Transferee, legal costs incurred
in connection with each proposed assignment or sublease, and all other
reasonable costs, including Landlord's overhead expenses.
15.7 Transfer of Stock or Other Assets. If Tenant is a corporation,
any merger, consolidation, liquidation, dissolution, or any change in the
ownership of or power to vote a majority of its outstanding voting stock,
whether voluntary, involuntary or by operation of law, shall be deemed a
voluntary assignment of this Lease for purposes of this Section 15 unless
Tenant's stock is listed on a recognized securities exchange. If Tenant is a
partnership, any merger, consolidation, liquidation, dissolution, or any change
in the ownership of a majority of the partnership interests, whether voluntary,
involuntary or by operation of law, shall be deemed a voluntary assignment of
this Lease for purposes of this Section 15. If Tenant consists of more than one
person, any transfer, whether voluntary, involuntary, or by operation of law,
from one person to the other, shall be deemed a voluntary assignment. Any direct
or indirect sale or other transfer of all or a substantial part of the assets or
control of Tenant to another person or entity, whether voluntary, involuntary or
by operation of law, shall also be deemed a voluntary assignment for purposes of
this Section 15.
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16. INVOLUNTARY TRANSFER
No interest of Tenant in this Lease or the Premises shall be assignable or
transferable by operation of law (including, without limitation, any transfers
to testacy or intestacy). An involuntary assignment or transfer shall be deemed
a default by Tenant, and Landlord may, at its option and without notice, to the
extent allowed by law, terminate this Lease in which case this Lease shall not
be treated as an asset of Tenant. Without limiting the generality of the
foregoing, each of the following shall be deemed an involuntary assignment:
16.1 Bankruptcy; Insolvency. If Tenant or any guarantor of Tenant's
obligations is or becomes bankrupt or insolvent, makes an assignment for benefit
of creditors, or a proceeding is instituted by or against Tenant under any
insolvency, bankruptcy, reorganization or other debtor relief proceedings
(unless, in the case of an involuntary proceeding against Tenant, the same is
dismissed within sixty (60) days); or if Tenant is a partnership or consists of
more than one person or entity, any partner, person or entity is or becomes
bankrupt or insolvent, makes an assignment for benefit of creditors, or a
proceeding is instituted by or against such partner, person or entity under any
insolvency, bankruptcy, reorganization or other debtor relief proceedings
(unless, in the case of an involuntary proceeding, the same is dismissed within
sixty (60) days).
16.2 Receivership. A receiver or trustee is appointed with authority
to take possession of all or substantially all of the Premises, Tenant's
interest in this Lease or Tenant's assets located at the Premises and such
receiver or trustee is not removed within sixty (60) days.
16.3 Attachment; Judicial Seizure. The attachment, execution or
other judicial seizure of all or substantially all of Tenant's assets located at
the Premises, or of any right or interest of Tenant under this Lease which is
not removed or discharged within thirty (30) days.
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17. QUIET ENJOYMENT
Landlord covenants that it has full right and authority to make this Lease
and that Tenant, upon fully complying with and promptly performing all of the
terms, covenants and conditions of this Lease to be observed and performed by
it, and upon payment of Rent due hereunder as and when due, shall have quiet and
peaceful possession of the Premises for the Lease Term as against any adverse
claim of Landlord or any party claiming under Landlord, subject to the
provisions of this Lease.
18. ACCESS TO PREMISES
18.1 Access to Building. Except for the space within the inside
surfaces of all walls, hung ceilings, floors, windows and doors bounding the
Premises, all of the Building, including, without limitation, exterior Building
walls, core corridor walls and doors and any core corridor entrance, any
terraces or roofs adjacent to the Premises, and any space in or adjacent to the
Premises used for shafts, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof, as well as
access thereto through the Premises for the purposes of operation, maintenance,
decoration and repair, are reserved to Landlord.
18.2 Pipes, Ducts and Conduits. Landlord reserves the right and
Tenant shall permit Landlord, to install, erect, use and maintain pipes, ducts
and conduits in and through the Premises.
18.3 Access to Premises. Landlord and its authorized representatives
shall have the right to enter the Premises at reasonable times to inspect,
clean, make repairs, alterations or additions to the Premises or the Building,
or to render any services to be provided by Landlord hereunder, to show the
Premises to prospective tenants, purchasers or others, and for other reasonable
purposes deemed necessary or desirable by Landlord. Any such actions by Landlord
shall not be deemed to be an eviction of Tenant nor relieve Tenant of any of its
obligations hereunder, it being agreed such will be accomplished with as little
inconvenience to Tenant as reasonably possible. Except in cases of an emergency,
Landlord shall provide Tenant with reasonable prior notice of its entry onto the
Premises for all purposes other than for the purpose of providing janitorial and
other regularly scheduled services. Nothing in this Section 18
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shall be deemed to impose any obligation upon Landlord not expressly stated
elsewhere in this Lease.
18.4 Obstruction of Windows. If at any time windows of the Premises
are temporarily darkened or obstructed by reason of repairs, improvements,
maintenance or cleaning in or about the Building, or if any part of the
Building, other than the Premises, is temporarily or permanently closed or
inoperable, the same shall be without liability to Landlord and without any
reduction or diminution of Tenant's obligation under this Lease.
18.5 Access to Premises One Month Prior to Expiration. If, during
the last month of the Lease term, Tenant has removed all or substantially all of
Tenant's Property from the Premises, Landlord may, with three (3) days' prior
notice to Tenant, immediately enter the Premises and alter, renovate and
decorate the same, without liability to Tenant and without reducing or otherwise
affecting Tenant's covenants and obligations hereunder.
18.6 Building Changes. Landlord reserves the right, at any time,
without incurring any liability to Tenant therefor, and without affecting or
reducing any of Tenant's covenants and obligations hereunder, to make such
changes, alterations and improvements in or to the Building as Landlord shall
deem necessary or desirable. Notwithstanding the foregoing, Landlord shall
obtain Tenant's prior consent to any changes, alterations or improvements which
materially impair the appearance, configuration, or accessibility of the
Premises.
19. SURRENDER OF PREMISES AND HOLDING OVER
19.1 Condition of Premises. Subject to Section 13, upon expiration
or earlier termination of this Lease, Tenant shall surrender the Premises and
Tenant Improvements and any Alterations to the Premises (except those
Alterations which Tenant is required to remove pursuant to Section 10.5) in good
condition, ordinary wear and tear excepted.
19.2 Removal of Tenant's Property. Tenant's movable equipment,
furniture, furnishings, merchandise and other unattached movable property,
including trade fixtures (collectively called "Tenant's Personal Property")
installed or located at the Premises, shall be and remain the property of
Tenant. In addition to Tenant's obligations under Section 10.5
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hereof, upon the expiration or termination of the Lease, Tenant shall at its
expense remove all of Tenant's Personal Property and the property of all persons
claiming under Tenant, and shall repair or reimburse Landlord for the costs of
repairing any damage to the Premises or the Property resulting from the
installation or removal of such property. Any such property not so removed by
Tenant shall be deemed abandoned and shall become the property of Landlord to
dispose of as Landlord deems expedient without accounting to Tenant therefor.
Except as otherwise required by law, Landlord may store such property in any
place selected by Landlord, including but not limited to a public warehouse, at
the expense and risk of Tenant, with the right to sell any or all of such stored
property at public or private sale in such manner and at such times and places
as Landlord in its sole discretion may deem proper, with notice to Tenant as
required by law; and the proceeds of such sale shall be applied first to the
cost of such sale, second to the payment of the costs of removal and storage,
and third to payment of any other sums which may then be due from Tenant to
Landlord under any of the terms of this Lease with the balance, if any, to be
paid over to Tenant. Tenant waives all claims against Landlord for any damages
resulting from Landlord's retention or disposition of any such property as
provided herein.
19.3 Holding Over with Landlord's Written Consent. If Tenant, with
Landlord's written consent, remains in possession of the Premises after the
expiration or termination of this Lease, such possession by Tenant shall be
deemed to be a month-to-month tenancy terminable as provided by law. During such
month-to-month tenancy, Tenant shall pay all Rent provided in this Lease and all
provisions of this Lease shall apply to the month-to-month tenancy, except those
pertaining to term and option to extend (if any).
19.4 Holding Over without Landlord's Written Consent. If Tenant,
without Landlord's written consent, remains in possession of the Premises after
the expiration or termination of this Lease, Tenant shall pay the greater of:
19.4.1 One hundred fifty percent (150%) of the Rent which
Tenant was obligated to pay for the month immediately preceding the month in
which this Lease expires or terminates for each complete or partial month of any
such holdover; or
19.4.2 The total rent which other tenants have
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agreed to pay for the Premises during the period of such holdover, if Landlord
has leased all or part of the Premises to other tenants effective upon the
expiration or termination of this Lease.
In the event of any unauthorized holding over, Tenant shall indemnify and hold
Landlord harmless from and against all liability, losses, claims, causes of
action, damages, costs and expenses (including without limitation attorneys'
fees) resulting from Tenant's failure to surrender the Premises, including
without limitation claims made by succeeding tenants resulting from Tenant's
failure to surrender the Premises.
19.5 Survival of Tenant's Obligations. Tenant's obligations under
this Section 19 shall survive the expiration or termination of this Lease.
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20. ESTOPPEL CERTIFICATES
Tenant shall, upon written request of Landlord, execute, acknowledge and
deliver to Landlord, or its designee, a written certificate of Tenant stating:
(a) that Tenant has accepted the Premises (or if Tenant has not done so, that
Tenant has not accepted the Premises and specifying the reasons therefor); (b)
the Commencement and Expiration Dates of this Lease; (c) the date to which Rent
under this Lease has been paid; (d) that this Lease is in full force and effect
and has not been modified (or if there have been modifications, that this Lease
is in full force and effect as modified and stating the modifications); (e)
whether or not there are, to Tenant's knowledge, then existing any defaults by
the Landlord in the performance of its obligations under this Lease (and if so,
specifying the same); (f) whether or not there are then existing any defenses
against the enforcement of any obligations of Tenant under this Lease (and if
so, specifying the same); (g) the amount of the security and prepaid Rent (if
any) that has been deposited with Landlord; and (h) any other information
requested. It is agreed that any such certificate delivered pursuant to this
Section 20 may be relied upon by a prospective purchaser or a mortgagee of any
part of Landlord's interest in the Property, or an assignee of any mortgagee
upon any part of the Landlord's interest in the Property. If Tenant shall fail
to respond within five (5) days after receipt by Tenant of a written request by
Landlord as herein provided, Tenant shall be deemed to have admitted the
accuracy of any information supplied by Landlord to such prospective purchaser,
mortgagee or assignee.
21. SUBORDINATION
21.1 Priority. Without the necessity of any additional document
being executed by Tenant for the purpose of effecting a subordination, this
Lease shall be subject and subordinate at all times to the lien of any mortgage
or deed of trust which may now exist or hereafter be executed in any amount for
which all or a portion of the Property or all of a part of Landlord's interest
in the Property is specified as security and to all future advances thereon, and
to all renewals, modifications, extensions, substitutions, replacements and/or
consolidations thereof. Notwithstanding the foregoing, Landlord shall have the
right to subordinate or cause to be subordinated any such liens to this Lease if
the mortgagee under such mortgage or beneficiary under
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such deed of trust (collectively called "Landlord's Mortgagee") so requires. In
the event that any such mortgage or deed of trust is foreclosed or a conveyance
in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the tenant of the purchaser at such
foreclosure sale or grant of such deed at the request of the then owner,
provided that such purchaser or grantee agrees, if Tenant is not in default
hereunder at the time of foreclosure or grant of deed, to recognize this Lease
and be bound by the covenants and conditions of Landlord hereunder in effect or
accruing after the effective date of such foreclosure or deed in lieu. Tenant
covenants and agrees to execute and deliver, upon demand by Landlord and in the
form requested by Landlord, any additional documents evidencing the priority or
subordination of this Lease with respect to the lien of any such mortgage or
deed of trust. If Tenant shall fail to execute and deliver any of the
instruments or documents described above within the ten (10) days after the
receipt of written demand therefor, Tenant shall be deemed to have appointed
Landlord as Tenant's attorney-in-fact in Tenant's name and place to do so.
21.2 Mortgagee Protection. Tenant agrees to give to Landlord's
mortgagees a copy of any notice of default served upon Landlord, provided that
Tenant has been notified in writing of the names and addresses of such
mortgagees. Tenant further agrees that Landlord's Mortgagees shall have the
right to cure such default on behalf of Landlord within thirty (30) days after
the receipt of such notice. Tenant further agrees not to invoke any of the
remedies which it may have against Landlord under the Lease until said thirty
(30) days have elapsed, or during any period that Landlord's Mortgagee is
proceeding to cure such default with due diligence, or is diligently taking
steps to obtain the right to enter the Premises and cure the default, whichever
is later.
22. DEFAULT BY TENANT
22.1 Events of Default. The occurrence of any of the following
shall constitute a default by Tenant under this Lease:
22.1.1 Abandonment. Abandonment of the Premises;
22.1.2 Vacation. Absence of Tenant and its employees from the
Premises for thirty (30) consecutive days or thirty (30) days in any twelve (12)
month period;
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22.1.3 Nonpayment of Rent. Failure by Tenant to make any
payment of Rent as and when due where such failure shall continue for five (5)
days after the due date or failure to pay rent as and when due more than two (2)
times in any twelve (12) month period;
22.1.4 Insurance Default. Failure by Tenant to perform or
observe any of Tenant's obligations under Section 12.3 to 12.7 hereof;
22.1.5 Prohibited Transfer. Any assignment, encumbrance,
mortgage, pledge, hypothecation, sublease or other transfer or disposition made
in violation of Section 15; or
22.1.6 Breach of Other Lease Provisions. Failure by Tenant to
perform or observe any other provision of this Lease if the failure is not cured
within fifteen (15) days after written notice has been given by Landlord to
Tenant. If the default is curable but cannot reasonably be cured within fifteen
(15) days, Tenant shall not be in default if Tenant commences to cure the
default with the 15-day period and thereafter diligently and continuously
completes the same. Notices under this Section 22 shall specify the alleged
default and the applicable Lease provisions, and shall demand that Tenant
perform the provisions of the Lease within the applicable period of time.
22.1.7 Guaranty. A default by Guarantor under the Guaranty.
23. LANDLORD'S REMEDIES
In the event of a default by Tenant, Landlord may exercise any one or more
of the following remedies, in addition to all other rights and remedies now or
hereafter available at law or in equity, which rights and remedies are in
addition to Landlord's rights to assess and collect interest and late charges,
as provided in Section 4.6, and in addition to Landlord's rights under the
Guaranty.
23.1 Right to Reenter and Relet. To the extent allowed by Washington
law, Landlord may continue this Lease in full force and effect, and Landlord
shall have the right and power as
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attorney-in-fact for Tenant to enter the Premises and remove therefrom all
persons and property, to store such property in a public warehouse or elsewhere
at the cost of and for the account of Tenant, and to sell such property and
apply the proceeds therefrom pursuant to applicable State of Washington law.
Landlord, as attorney-in-fact for Tenant, may from time to time sublet the
Premises or any part thereof for the account of Tenant for such term or terms
(which may extend beyond the Lease Term) and at such rent and on such other
conditions as Landlord in its sole discretion may deem advisable, with the right
to make alterations and repairs to the Premises. Tenant shall be liable to
Landlord for all costs incurred by Landlord in reletting all or any part of the
Premises, including but not limited to: all costs and expenses of re-entering
and recovering possession of the Premises; all costs and expenses of
decorations, repairs, changes, alterations and additions to the Premises
required by the reletting; brokers' commissions; all costs and expenses incurred
by Landlord in collecting the rent accruing from such reletting. If a sufficient
sum shall not be realized from reletting to pay (a) all costs and expenses of
reletting, (b) Rent due at the time of reletting together with interest thereon
at the rate provided in Section 4.8, and (c) Rent coming due hereunder, then
Tenant shall satisfy and pay any such deficiency upon demand therefor from time
to time. If the Premises are not relet, then Tenant shall pay to Landlord the
Rent reserved in this Lease upon demand therefor from time to time. In no event
shall Tenant be entitled to any excess rent received by Landlord. To the extent
allowed by Washington law, Landlord may recover sums coming due under the terms
of this Section 23 from time to time, on one or more occasions, and Landlord
shall not be obligated to wait until the expiration or termination of the Lease
term. Any such reletting shall not be construed as an election on the part of
Landlord to terminate this Lease unless a written notice of such intention is
given to Tenant by Landlord. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for Tenant's previous default.
23.2 Right to Receiver. Landlord may have a receiver appointed for
Tenant, upon application by Landlord, to take possession of the Premises and to
apply any rent collected from the Premises and to exercise all other rights and
remedies granted to Landlord as attorney-in-fact for Tenant pursuant to Section
23.1 above.
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23.3 Right to Terminate Lease. Landlord may terminate this Lease at
any time after such default, and may, in addition to any other remedy it may
have, forthwith repossess the Premises and remove all persons and property
therefrom, and shall be entitled to recover forthwith as damages the sums of
money equal to the total of (a) the cost of recovering the Premises, (b) the
unpaid Rent owed at the time of termination, plus interest on the unpaid Rent
from due date at the rate provided in Section 4.6, (c) the amount by which the
balance of the Rent for the remainder of the term exceeds the amount of the loss
of rent that Tenant proves could have been reasonably avoided, and (d) any other
sum of money and damages owed by Tenant to Landlord. No act by Landlord other
than giving notice to Tenant shall terminate this Lease. Acts of maintenance,
efforts to relet the Premises, or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not constitute
a termination of this Lease.
23.4 Right to Cure. At any time after Tenant commits a default,
Landlord may, but shall not be obligated to, cure the default at Tenant's cost.
If Landlord at any time, by reason of Tenant's default, pays any sum or does any
act that requires the payment of any sum, the sum paid by Landlord shall be due
immediately from Tenant to Landlord at the time the sum is paid, and if paid at
a later date shall bear late charges and interest as provided in Section 4.6
from the date the sum is paid by Landlord until Landlord is reimbursed by
Tenant. Notwithstanding any provision hereof, if this Lease is terminated by
Landlord or by operation of law, Tenant's liability to Landlord for damages
shall survive such termination.
24. DEFAULT BY LANDLORD
Subject to the provisions of Section 21.2, failure by Landlord to perform
any of its obligations under this Lease shall constitute a default by Landlord
if the failure is not cured within fifteen (15) days after written notice
thereof has been given by Tenant to Landlord; provided, however, that if the
nature of Landlord's obligation is such that more than fifteen (15) days are
required to cure, then Landlord shall not be in default if Landlord commences
performance within such fifteen (15) day period and thereafter diligently
prosecutes the same to completion. Notices given under this Section 24 shall
specify the alleged default and the applicable Lease provisions, and shall
demand that Landlord perform the provisions of this Lease within the
49
<PAGE> 57
applicable period of time. If Landlord shall fail to cure a default of any
covenant of this Lease to be performed by it and, as a consequence of such
uncured default, Tenant shall recover a money judgment against Landlord, such
judgment shall be satisfied solely out of the proceeds of sale received upon
execution of such judgment against the right, title and interest of Landlord in
the building and its underlying realty and out of the rents, or other income
from said property receivable by Landlord, or out of the consideration received
by Landlord's right, title and interest in said property, but neither Landlord
nor any partner or joint venture of Landlord shall be personally liable for any
deficiency.
25. TENANT'S REMEDIES
In the event of a default by Landlord, Tenant's remedies shall be limited
to an action for damages and/or an injunction and/or, in the event of a material
uncured default, the right to terminate this Lease upon no less than thirty (30)
days' written notice to Landlord. If Tenant shall recover a judgment against
Landlord, the judgment shall be satisfied only out of Landlord's interest in the
Property whether by the execution by Tenant on the judgment against the Property
or the garnishment of rents payable to Landlord. It is agreed that if Landlord
is a partnership, its partners (whether general or limited), shall not be
personally liable for any deficiency. Wherever Landlord is given discretion
hereunder and Tenant claims that Landlord has unreasonably acted or refused to
act, Tenant's sole remedy shall be an action for injunctive relief without
recovery of damages, and shall only be available when this Lease expressly
provides Landlord must act reasonably.
26. WAIVER
26.1 Nonwaiver of Defaults. No delay or omission in the exercise of
any right or remedy of either party on any default by the other party shall
impair such right or remedy or be construed as a waiver of any default. The
receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default, but only a waiver of timely payment for the
particular Rent payment involved.
26.2 Surrender of Premises. No act or conduct of Landlord, including
acceptance of the keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by
50
<PAGE> 58
Tenant before the Expiration Date. Only notice from Landlord to Tenant shall
constitute acceptance of the surrender of the Premises and accomplish a
termination of the Lease.
26.3 Consents and Approvals. Landlord's consent to or approval of
any act by Tenant requiring Landlord's consent or approval shall not be deemed
to waive or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant.
26.4 Written Waivers. Any waiver by Landlord of any default
must be in writing and shall not be a waiver of any other default concerning
the same or any other provisions of this Lease.
27. NOTICES
27.1 Method. Any notice, demand, request, consent, or approval under
this Lease shall be in writing and shall be personally delivered or sent by U.S.
registered or certified mail, postage prepaid, return receipt acknowledged: (a)
to Tenant, prior to the Commencement Date, at Tenant's Notice Address set forth
in Section 1.1.15(b) hereof, or, subsequent to the Commencement Date, at
Tenant's Notice Address set forth in Section 1.1.15(c) hereof, or at any place
where Tenant may be found if sent subsequent to Tenant's vacating, deserting,
abandoning or surrendering the Premises; and (b) to Landlord, at Landlord's
Notice Address set forth in Section 1.1.15(a) hereof; or (c) to such other
persons or at such other addresses as from time to time may be reasonably
requested by either party or any other person in writing.
27.2 Effective Date. All such notices and communications shall be
effective on the day of receipt at the applicable address as evidenced by the
return receipt if sent by registered or certified mail, or if personally
delivered, upon the date of personal delivery as evidenced by an affidavit of
service.
27.3 Notice of Occurrences. Tenant shall give prompt notice to
Landlord of:
27.3.1 Any occurrence in or about the Premises for which
Landlord might be liable;
27.3.2 Any fire or other casualty in the Premises;
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<PAGE> 59
27.3.3 Any damage to or defect in the Premises including the
fixtures, equipment and appurtenances thereof, for the repair of which Landlord
might be responsible; and
27.3.4 Damage to or defect in any part or appurtenance of the
Building's sanitary, electrical, heating, ventilating, air-conditioning,
elevator or other systems located in or passing through the Premises or any part
thereof.
28. MISCELLANEOUS PROVISIONS
28.1 Time of Essence. Time is of the essence of each provision
of this Lease.
28.2 Authority. Each party represents and warrants to the other that
it has authority to enter into this Lease and that its execution and delivery of
this Lease has been duly authorized. Each individual executing this Lease on
behalf of a party represents and warrants that he/she is duly authorized to
execute and deliver this Lease on behalf of said party, and if Tenant is a
corporation, that such authorization is in accordance with a duly adopted
resolution of Tenant's board of directors, and that this Lease is valid and
enforceable against Tenant in accordance with its terms. Upon Landlord's
request, Tenant shall provide Landlord with a certified copy of a resolution
adopted by Tenant's board of directors authorizing the execution of this Lease
by such individual.
28.3 Commissions. Each party represents to the other that there are
no individuals or entities entitled to brokerage commissions or finder's fees in
connection with this Lease except the broker (if any) named in Section 1.1.16
hereof. The party named in Section 1.1.16 shall pay all commissions and fees
that are payable to the broker named in such section. If any other claims for
brokerage commissions or finder's fees, or like payments, arise out of or in
connection with this Lease, such claims shall be defended by, and if sustained,
paid by, the party whose alleged actions or commitment form the basis of such
claims.
28.4 Attorneys' Fees. If either party commences an action against
the other party arising out of or in connection with this Lease, the prevailing
party in any such action, at trial or on appeal, shall be entitled to have and
recover from the other party in addition to costs, such sums as the court may
adjudge
52
<PAGE> 60
reasonable as attorneys' fees.
28.5 Exhibits and Addenda. All exhibits and addenda identified in
Section 1.2 are attached to this Lease and incorporated herein. The Premises
described in Exhibit 2 shall be determinative of the location of the Leased
Premises and shall be deemed to contain the number of square feet referred to in
Section 1.1.4.1 and there shall be no adjustment in Rent due to the fact that
the premises contain less or more than the number of square feet set forth in
Section 1.1.4.1.
28.6 Interpretation and Construction. This Lease shall be governed
by, and construed and interpreted in accordance with, the laws of the State of
Washington.
28.7 Integrated Agreement and Modifications. This Lease contains all
covenants and agreements between Landlord and Tenant relating in any manner to
the rent, use and occupancy of the Premises and all other matters set forth in
this Lease. No prior agreements or understanding pertaining to the same shall be
valid or of any force or effect; and the terms, covenants, conditions and
agreements of this Lease shall not be altered, modified or added to except in
writing signed by Landlord and Tenant, and approved in writing by Landlord's
Mortgagees.
28.8 Appointment of Landlord as Agent. It is understood and agreed
between the parties that Tenant's failure to pay when due all obligations owing
to the State of Washington, including but not limited to, employment security
taxes, sales taxes, business and occupation taxes, and any and all obligations
owing to the Department of Labor and Industries, may, in certain instances,
result in liability for the same to the Landlord not contemplated under the
terms of this Lease. In consideration thereof, Tenant consents to and does
hereby appoint Landlord to act as Tenant's agent and attorney in fact to obtain
from the State of Washington or any agency thereof any and all relevant
information regarding Tenant's taxpayer status, specifically including the
amounts of any delinquencies. This power of attorney shall take effect
immediately and shall remain in full force and effect throughout the term of
this Lease, including any extension periods, and shall terminate no earlier than
one (1) year from the lease termination date.
28.9 Captions. The captions of this Lease shall have
53
<PAGE> 61
no effect on its interpretation.
28.10 Singular and Plural. When required by the context of this
Lease, the singular shall include the plural.
28.11 Joint and Several Obligations. "Party" shall mean Landlord or
Tenant and if more than one person or entity is Landlord or Tenant, the
obligations imposed on that party shall be joint and several.
28.12 Severability. The unenforceability, invalidity or illegality
of any provision of this Lease shall not render any other provisions
unenforceable, invalid or illegal.
28.13 Recordation. This Lease shall not be recorded, except that, at
the request of either party, the parties shall execute a memorandum of this
Lease in recordable form and in a form acceptable to the parties, and shall
record the same.
28.14 Transfer and Assignment of Premises by Landlord. Landlord
shall have the right to transfer and assign, in whole or in part, all of its
rights and obligations hereunder in the Premises and/or the Property. In the
event of any such transfer or transfers, the transferor shall be automatically
relieved of any and all obligations and liabilities on the part of Landlord
accruing from and after the effective date of the transfer, provided that the
transferee agrees to assume the obligations and liabilities of Landlord
hereunder accruing after the effective date of the transfer.
28.15 Light and Air. Tenant covenants and agrees that no diminution
of light, air or view by any structure which may hereafter be erected shall
entitle Tenant to any reduction of Rent under this Lease, result in any
liability or obligation of Landlord to Tenant, or in any way affect this Lease
or Tenant's obligations hereunder.
28.16 Name. Tenant shall not use the name of the Building, the
Condominium (if any), or the Property for any purpose other than as an address
of the business to be conducted by the Tenant on the Premises. Landlord shall
have the right at any time to change the name, number or designation by which
the Building, Property or Condominium (if any) is known without liability to
Tenant.
54
<PAGE> 62
28.17 Cumulative Remedies. All rights and remedies of Landlord under
this Lease shall be cumulative and shall not exclude any rights or remedies
otherwise available.
28.18 Successors and Assigns. Except as provided in Section 15, all
of the terms, conditions, covenants and agreements of this Lease apply to, inure
to the benefit of, and are binding upon Landlord, Tenant and their respective
heirs, administrators, executors, successors and assigns.
28.19 "Landlord" - Release. The term "Landlord" as used in this
Lease, so far as covenants or obligations on the part of Landlord are concerned,
shall be limited to mean and include only the owner or owners at the time in
question of the Premises; and in the event of any transfer or transfers of title
thereto, Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be automatically freed and relieved from
and after the date of such transfer or conveyance of all liability as respects
the performance of any covenants or obligations hereunder of the part of
Landlord to be performed thereafter. Nothing herein shall be deemed to relieve
Landlord of its obligations required to be performed prior to and as of the date
of such transfer or conveyance.
55
<PAGE> 63
28.20 Corporate Representatives. If Tenant hereunder is a
corporation, the parties executing this Lease on behalf of Tenant represent and
warrant to Landlord that: They have the authority to bind Tenant; Tenant is a
valid and existing corporation; all things necessary to qualify Tenant to do
business in Washington have been accomplished prior to the date of this Lease;
all franchise and other corporate taxes have been paid to the date of this
Lease; all forms, reports, fees, and taxes required to be filed or paid by said
corporation in compliance with applicable laws will be filed and paid when due.
LANDLORD:
GRAND PACIFIC LIMITED PARTNERSHIP, a
Washington limited partnership
By WHITEHALL CAPITAL CORPORATION,
a Washington corporation
/s/
By ___________________________
Its President
TENANT:
fine.com CORPORATION
a Washington corporation
/s/ Daniel M. Fine
By _______________________________
Its President
56
<PAGE> 64
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
____________________________ is the person who appeared before me, and said
person acknowledged that he/she signed this instrument, on oath stated that
he/she was authorized to execute the instrument and acknowledged it as the
President of Whitehall Capital Corporation, general partner of GRAND PACIFIC
LIMITED PARTNERSHIP, to be the free and voluntary act of such party for the uses
and purposes mentioned in the instrument.
Dated:
(Seal or stamp) __________________________________
(Signature)
__________________________________
(Printed Name)
Title ____________________________
My appointment expires ___________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
_______________________________ is the person who appeared before me, and said
person acknowledged that he/she signed this instrument, on oath stated that
he/she was authorized to execute the instrument and acknowledged it as the of
fine.com CORPORATION to be the free and voluntary act of such party for the uses
and purposes mentioned in the instrument.
Dated: __________
(Seal or stamp) __________________________________
57
<PAGE> 65
(Signature)
__________________________________
(Printed Name)
Title ____________________________
My appointment expires ___________
58
<PAGE> 66
OFFICE LEASE AGREEMENT
Dated February 28, 1996
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
EXHIBIT 1
LEGAL DESCRIPTION OF THE PROPERTY
That certain real property located in King County, Washington and described as
the Colonial/Grand Pacific, a condominium according to Condominium Declaration
recorded under King County Recording No. 9202101191.
<PAGE> 67
OFFICE LEASE AGREEMENT
Dated February 28, 1996
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
EXHIBIT 2
FLOOR PLAN OF PREMISES
AND EXPANSION SPACE
[See Attached]
<PAGE> 68
OFFICE LEASE AGREEMENT
Dated February 28, 1996
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
EXHIBIT 3
TENANT IMPROVEMENTS
1. BASE CONDITION PROVIDED BY LANDLORD
Tenant has inspected the Premises and accepts the Premises in their presently
built-out condition. Landlord agrees to provide the Premises to Tenant free from
all debris on or before March 1, 1996. All improvements to the Premises after
the date hereof are called "Tenant Improvements."
2. TENANT IMPROVEMENTS
Design and construction of all Tenant Improvements shall be provided at Tenant's
expense. Landlord shall pay Tenant's costs of approved Tenant Improvements up to
Fifty-Two Thousand Two Hundred Fifty-Five and No/100 Dollars ($52,255.00) (the
"Allowance") on the following terms and conditions.
2.1 General Terms of Disbursement Requests. Tenant may request
disbursements to pay for costs of Tenant Improvements actually incurred by
delivering a disbursement request to Landlord, together with all supporting
documents required in this Exhibit 3, no more frequently than once every seven
(7) days. Each disbursement request shall be executed by R. Barger Construction
(or such other contractors performing approved Tenant Improvements on the
Premises) and Tenant. Landlord shall use its best efforts to make approved
disbursements within three (3) business days of receipt of each disbursement
request made in compliance with the terms hereof. The Allowance will be
disbursed by Landlord only for work performed or in place at the date of each
disbursement request. Landlord shall have the right, but not the obligation, to
inspect the Premises for the purpose of determining Tenant's compliance with the
terms of this Section 2. Tenant hereby acknowledges that R. Barger Construction
and such other contractors who execute a disbursement request are acting as
<PAGE> 69
Tenant's agent for the purposes of making disbursement requests and receiving
funds for the payment of the costs of Tenant Improvements. Tenant further agrees
that any payments made by Landlord to such contractors pursuant to any
disbursement request shall be deemed to be payment of the Allowance to Tenant.
To the extent that Landlord makes disbursements of the Allowance without
requiring Tenant to strictly comply with the terms of this Exhibit 3, such
action by Landlord shall not be deemed to constitute a waiver or grounds for
estoppel, and Landlord may, at any time thereafter, insist on strict compliance
by Tenant with the terms and conditions hereof.
2.2 Conditions to Progress Payments. The following are conditions
precedent to Landlord's obligation to make each disbursement of the Allowance
or any portion thereof:
(a) Landlord shall have received a list of all contractors and
subcontractors performing work on the Premises, including their names, addresses
and phone numbers;
(b) Landlord shall have received a copy of the duly executed
construction contract with R. Barger Construction, which is reasonably
acceptable to Landlord, and same shall include a cost breakdown of Tenant
Improvements;
(c) Landlord shall have received one reproducible set of the Final
Plans for the Tenant Improvement in the form approved by Landlord;
(d) For each disbursement after the initial disbursement, Landlord
shall have received satisfactory evidence that the disbursement covered by the
preceding disbursement request has been properly applied to pay the
subcontractors and materialmen for which the disbursement was requested;
(e) No liens have been filed against the Premises in connection
with the work performed thereon;
(f) Tenant remains solvent and is not in breach or default,
anticipatorily or otherwise, under the terms of the Lease;
(g) Tenant's contractor has certified to Landlord that the
improvements completed to the date of request for payment are,
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<PAGE> 70
to the best of the contractor's knowledge and information, completed in
accordance with the Final Plans approved by Landlord, in a good and workmanlike
manner and in compliance with all governmental requirements; and
(h) Landlord has received invoices, receipts or other evidence
reasonably satisfactory to Landlord showing that the costs of labor and
materials incurred by Tenant to date are at least the amount requested by
Tenant.
2.3 Holdback/Final Disbursement. Landlord shall be entitled to withhold
a portion of the Allowance equal to no more than $5,225.00 of Tenant's costs
incurred for Tenant Improvements until Tenant has provided Landlord with
evidence reasonably satisfactory to Landlord that the following conditions have
been satisfied. Such conditions to the final disbursement by Landlord shall be
in addition to the conditions set forth in Section 2.2 above:
(a) Tenant's contractor has certified to Landlord that all Tenant
Improvements have been completed in accordance with the Final Plans approved by
Landlord, in a good and workmanlike manner, and in compliance with all
governmental requirements; and
(b) Landlord has received a waiver or release of lien claim, in
recordable form reasonably satisfactory to Landlord, from the contractor and
each subcontractor or vendor supplying the work or goods for the Tenant
Improvements. Landlord shall have no obligation to pay any portion of the
holdback sum to Tenant or Tenant's contractor if any work or materials are not
covered by a waiver or release of lien claim in satisfactory form.
3. DESIGN OF TENANT IMPROVEMENTS
At Tenant's expense, Tenant has retained the services of a qualified planner, R.
Barger Construction, to prepare the necessary drawings for Preliminary Plans and
supply the information necessary to complete the Final Plans for construction of
the Tenant Improvements. Tenant's Final Plans for Tenant Improvements for the
Premises prepared by R. Barger Construction dated February 22, 1996 have been
delivered to and approved by Landlord.
3
<PAGE> 71
OFFICE LEASE AGREEMENT
Dated February 28, 1996
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
EXHIBIT 4
RULES AND REGULATIONS
1. Tenant will deposit all garbage in the receptacles the Landlord provides
for garbage and will not leave or accumulate any boxes, packing
material, or other trash of any kind on the premises or common areas.
2. Tenant shall not display any merchandise outside the premises at any
time without the prior written consent of the Landlord.
3. Tenant shall not erect or install any signs or advertising material
or devices in or about the premises without the previous approval of
the Landlord.
4. Tenant shall ensure that no animals are kept in or about the premises
and that the premises are not used for sleeping quarters.
5. Tenant shall not bring upon the premises any machinery, equipment, or
article or thing that by reason of its weight, size, or use might damage
the premises and that it will not at any time overload the floors of the
premises.
6. Any directory provided by the Landlord for the Building will be for
display of the name and location of tenants and Landlord reserves the
right to exclude any other names.
7. Tenant shall not place any new or additional locks on any doors of
the premises or rekey any existing locks without the consent of the
Landlord.
8. Landlord reserves the right to exclude or expel from the common areas
any person who, in the judgment of the
<PAGE> 72
Landlord, is intoxicated, under the influence of drugs, or who shall in
any manner violate any of the rules and regulations.
9. Tenant shall not do or permit to be done within the premises anything
which would unreasonably annoy or interfere with the rights of other
tenants of the Building.
10. Tenant shall not permit its employees or invitees to loiter in or about
the common areas, or to obstruct any of the parking, truck maneuvering,
or other common areas, or to place, empty, or throw any rubbish, litter,
trash or material of any nature upon any common areas.
11. No storage of materials, equipment, or property of any kind is permitted
outside the premises (except in designated locations with Landlord's
consent) and any such property may be removed by Landlord at Tenant's
risk and expense.
12. Tenant shall not make or permit any use of the premises which may be
dangerous to life, limb or property, or any noise, odor or vibrations to
emit from the premises which are objectionable to Landlord or other
occupants of the Building; or to create, maintain, or permit a nuisance
or any violation of any regulation of any governmental agency thereon.
13. Tenant shall not commit or permit to be committed any waste, damage or
injury to the premises or other premises within the Building or parking,
loading and other common areas adjoining the Building and shall promptly
repair the same at its expense.
14. Tenant shall not at any time display a "For Rent" sign upon the
premises.
15. Tenant shall be responsible for keeping a copy of the Lease and
Landlord's current rules and regulations upon the premises.
16. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective and economical use of
utilities services as may be provided to the Building by Landlord.
2
<PAGE> 73
17. Tenant shall keep Landlord advised of the current telephone numbers
of Tenant's employees who may be contacted in any emergency; i.e.,
fire, break-in, vandalism, etc. If Landlord shall deem it necessary
to respond to such emergency in Tenant's behalf, Tenant shall pay all
costs incurred for services ordered by Landlord to secure or
otherwise protect the premises and the contents thereof, including a
premium charge for any time spent by Landlord's employees in
responding to such an emergency.
18. In addition to all of the foregoing, the Tenant shall comply with the
use restrictions set forth in the Declaration of Condominium for the
Building, a copy of which Tenant has received.
3
<PAGE> 74
OFFICE LEASE AGREEMENT
Dated February 28, 1996
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
EXHIBIT 5
DECLARATION OF CONDOMINIUM
[Attached]
<PAGE> 75
Addendum A
To
OFFICE LEASE AGREEMENT
Dated February 28, 1996
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
Right of First Refusal to Lease Adjacent Space
This Addendum to the Office Lease Agreement is entered into between the
Landlord and Tenant executing this Addendum for the purpose of amending such
Lease as provided herein.
1. Grant of Right. On the terms and conditions set forth herein,
Landlord hereby grants Tenant a first right of refusal to lease approximately
one thousand seventy-two (1,072) square feet of space adjacent to the Premises
as outlined in blue on the Floor Plan attached to the Lease as Exhibit 2 (the
"Expansion Space").
2. Exercise of Right. If Landlord desires to lease all or any portion of
the Expansion Space to any third party and obtains from such third party a bona
fide offer to lease the Expansion Space on terms and conditions acceptable to
Landlord, then Landlord shall deliver notice of such offer to Tenant. Tenant
shall have ten (10) days from receipt of Landlord's notice to deliver written
notice to Landlord exercising its first right of refusal to lease no less than
all of the Expansion Space on the terms set forth herein below (the "Acceptance
Notice"). The failure of Tenant to deliver the Acceptance Notice exercising its
first right of refusal within said ten (10) day period shall result in the
termination of its first refusal right. Tenant shall have a single opportunity
to exercise its first right of refusal and, if Tenant fails to timely exercise
such right, Landlord shall have no obligation to notify Tenant of any subsequent
offers from third parties to lease the Expansion Space and all rights of Tenant
hereunder in respect to the Expansion Space shall terminate. Notwithstanding
anything contained herein to the contrary, Tenant shall have no right to
exercise its right of first refusal for occupancy of the Expansion Space after
the expiration of the initial Lease Term.
<PAGE> 76
3. Terms of Lease. If Tenant properly exercises its first right of
refusal, it shall thereby bind itself to the lease of the Expansion Space for
the remainder of the Lease Term, as same may be extended. Each and every
provision of the Lease shall remain unchanged and shall apply to the Expansion
Space in full force and effect, including Tenant's obligation to pay periodic
Additional Charges, except as expressly provided herein below.
3.1. Occupancy Commencement Date. Tenant shall be entitled to
occupy the Expansion Space for the purpose of performing tenant improvements on
a date three (3) days after the Acceptance Notice is properly and timely
delivered to Landlord and Tenant has paid to Landlord the Security Deposit
described in Section 3.5 below.
3.2 Minimum Rent Commencement Date. Tenant's obligation to begin
paying monthly Minimum Rent for the Expansion Space shall begin on the earlier
of (i) ten (10) weeks from the date of delivery of the Acceptance Notice; and
(ii) the date that Tenant occupies the Expansion Space for purpose of conducting
its business therein.
3.3 Minimum Rent. The Minimum Monthly Rent payable by Tenant for
the Expansion Space beginning on the Effective Date, and until the next
succeeding Effective Date set forth below, shall be as follows:
<TABLE>
<CAPTION>
Rent Per
Square Foot New Monthly
Effective Date Per Annum Minimum Rent
-------------- --------- ------------
<S> <C> <C>
April 15, 1996 $ 9.20* $ 821.87
April 15, 1997 $11.95** $1,067.53
April 15, 1998 $14.00 $1,250.67
April 15, 1999 $14.50 $1,295.33
April 15, 2000 $15.00 $1,340.00
</TABLE>
(*Includes a Construction Credit of Three Dollars and 30/100
2
<PAGE> 77
($3.30) per square foot per annum.)
(**Includes a Construction Credit of One and 5/100 Dollars ($1.05) per
square foot per annum.)
The Effective Date shall be adjusted to the anniversary of the Minimum
Rent Commencement Date as defined in Section 3.2 above if such Minimum Rent
Commencement Date occurs before or after April 15, 1996. Monthly Minimum Rent
payable by Tenant during any properly exercised extension of the Lease Term
shall be at the Market Minimum Rental for the Expansion Space, as determined in
accordance with Section 3.3.2.1 of the Lease. The parties agree that the
Expansion Space shall be deemed to contain one thousand seventy-two (1,072)
square feet and there shall be no adjustment in Minimum Rent set forth
hereinabove due to the fact that the Expansion Space contains less or more than
1,072 square feet.
3.4 Tenant's Share of Direct Costs. 2.76% shall be Tenant's
Percentage of Excess Expenses of the Commercial Complex attributable to the
Expansion Space.
3.5 Security Deposit. Upon exercising its first right of
refusal, Tenant shall deliver to Landlord a Security Deposit for the Expansion
Space equal to the monthly Minimum Rent payable by Tenant for the Expansion
Space for the last month of the then current term of the Lease. The Security
Deposit shall be held by Landlord in accordance with Section 4.7 of the Lease.
4. Tenant Improvements
4.1 Tenant Improvement Allowance. By exercising its first right
of refusal, Tenant agrees to accept the Expansion Space in its then current
condition, including any alterations that Landlord has performed after the date
hereof. Provided, however, that Landlord shall reimburse Tenant for an amount up
to the Improvement Allowance (defined hereinbelow) for tenant improvements
undertaken by Tenant in the Expansion Space. Landlord shall pay Tenant's costs
of such improvements on the terms and conditions set forth in Exhibit 3 of the
Lease. The Improvement Allowance shall be equal to Nine Thousand Six Hundred and
Forty-Eight and No/100 Dollars ($9,648.00) multiplied by a fraction, the
numerator of which is the total number of months remaining in the initial term
of the Lease, and the denominator of which is sixty (60). Any calculations for
time periods which are
3
<PAGE> 78
less than a full month shall be prorated based on a thirty (30) day month. All
improvements shall comply with the terms of Sections 10.2 and 10.3 of the Lease.
4.2 Plans and Specifications. All Tenant's plans for tenant
improvements shall be subject to approval by Landlord. Tenant's planner shall
ensure that the work shown on Tenant's plans is compatible with the basic
Building plans and that necessary Building modifications are included in
Tenant's plans. Such modifications shall be subject to the Landlord's approval
and the cost thereof shall be paid by Tenant. Such approval shall not be
unreasonably withheld. It is understood that the rejection of any such proposed
modification by any Historical Conservation Board or Agency shall not constitute
unreasonable disapproval by Landlord.
On or before the indicated dates, Tenant shall supply Landlord with the
following Tenant plans:
(a) Preliminary Plans: No later than twenty (20) days
after delivery of the Acceptance Notice, at the Tenant's expense, Tenant's
office planner shall deliver to Landlord for its approval one (1) signed black
line print of preliminary plans for improvements to the Expansion Space (the
"Preliminary Plans"). These shall be fully dimensioned floor plans showing
partition layout and identifying each room by use and by a number, and each door
by a number. The preliminary plans must clearly identify and locate equipment
requiring plumbing or special mechanical systems, area(s) subject to above
normal floor loads, special openings in the floor, and other major or special
features.
(b) Final Plans: No later than thirty (30) days after
delivery of the Acceptance Notice, at Tenant's expense, Tenant's office planner
shall deliver to Landlord for its approval one (1) reproducible and one (1)
black line print of the final plans for improvements to the Expansion Space (the
"Final Plans"), which shall be signed by Tenant and shall incorporate such
information as Landlord may reasonably request.
5. Confirmation of Terms. Except as expressly provided herein, all other
provisions of the Lease and the Exhibits and Addenda thereto shall remain as set
forth therein. In the event of a conflict between this Addendum and the Lease
proper, the provisions of the Lease proper shall prevail.
4
<PAGE> 79
LANDLORD: TENANT:
GRAND PACIFIC LIMITED PARTNERSHIP, fine.com CORPORATION, a
a Washington limited partnership Washington corporation
By WHITEHALL CAPITAL CORPORATION,
a Washington corporation
By ______________________
Its __________________
By _____________________________
Its _________________________
GUARANTOR'S CONSENT AND ACKNOWLEDGEMENT
The undersigned, Dan Fine ("Guarantor"), hereby acknowledges and
confirms that he has read this Amendment, and that he consents and agrees to its
terms. Guarantor further acknowledges and confirms that this Amendment neither
amends nor diminishes in anyway the obligations that Guarantor owes to Landlord
pursuant to the terms and conditions of that certain guarantee dated February
28, 1996 (the "Guarantee") executed by Guarantor in Landlord's favor, and that
the Guarantee continues in full force and effect.
DATED this _____ day of March, 1997.
5
<PAGE> 80
______________________________
Dan Fine
I, _______________________ , spouse of Dan Fine, have read the
foregoing Consent and Acknowledgment and understand its terms and conditions. I
hereby acknowledge and consent to the execution of said Consent and
Acknowledgment by Dan Fine on behalf of himself separately and on behalf of our
joint marital community, and I acknowledge that said Consent and Acknowledgment
is binding on our joint marital community.
DATED this ______ day of March, 1997.
______________________________
Print Name: __________________
<PAGE> 1
EXHIBIT 10.6B
PERSONAL GUARANTY
OF
DAN FINE
WHEREAS, that certain Lease Agreement ("Lease") dated February 28,
1996, has been, or will be, executed by and between Grand Pacific Limited
Partnership, a Washington limited partnership, ("Landlord"), and fine.com
CORPORATION, a Washington corporation, ("Tenant"), and
WHEREAS, this Guaranty is required by Landlord as a condition to
entering into the Lease, and
WHEREAS, Dan Fine ("Guarantor") desires that Landlord enter into the
Lease because of the financial benefit Guarantor will derive from Tenant's
ability to operate its business pursuant to the terms of the Lease and in the
Leased Premises.
NOW, THEREFORE, in consideration of Landlord's execution of the Lease,
Guarantor hereby unconditionally and absolutely guarantees the full performance
by Tenant of the following (hereinafter, the "Guaranteed Obligations"):
(a) the full and timely payment by Tenant of all rent described in
Section 4 of the Lease payable to Landlord during the first thirty-six (36)
months of the term of the Lease;
(b) the full and timely payment by Tenant of all rent attributable to
the Expansion Space (as defined in the Lease) leased by Tenant payable to
Landlord during the first thirty-six (36) months of the term of the Lease; and
(c) the payment of damages, expenses and other charges owing to
Landlord under the Lease as a result of a breach or default of Tenant in an
amount not to exceed the following sum:
(i) the total of all portions of the tenant improvement allowance
(provided for in Section 1.1.12 of the Lease) paid by Landlord to
Tenant, multiplied by (ii) a fraction, the numerator of which is the
total number of months remaining in the initial term of the Lease at
the time of such default or breach, and the denominator of which is
sixty (60)
<PAGE> 2
months.
For the purposes of this calculation, the tenant improvement allowance
paid to Tenant shall be deemed to accrue interest at a rate of ten percent (10%)
per annum for the account of Landlord and shall be amortized over a sixty (60)
month period. Any calculations for time periods which are less than a full month
or year shall be prorated based on a thirty (30) day month and three-hundred
sixty (360) day year, respectively.
This Guaranty shall not expire until the Guaranteed Obligations have
been paid in full, and Guarantor's liability hereunder shall not be affected by
an assignment of the Lease to any other person or a subletting of the same. In
so far as the payment by Tenant of any sums to the Landlord is involved, this is
a guaranty of payment and not of collection. If Tenant holds over beyond the
term of the Lease, the obligations hereunder of Guarantor shall extend and apply
with respect to the full and faithful performance and observance of all of the
covenants, terms, and conditions of the Lease.
The liability of the Guarantor hereunder is independent of the
obligations of the Tenant, and an action or actions may be brought and
prosecuted against the Guarantor whether or not the Tenant is joined in any such
action or actions or whether or not a separate action is brought or prosecuted
against the Tenant. The liability of the Guarantor hereunder is independent of
and not in consideration of or contingent upon the liability of any other person
under any similar instrument and the release of, or cancellation by, any signer
of a similar instrument shall not act to release or otherwise affect the
liability of the Guarantor hereunder.
The Guarantor authorizes the Landlord, without notice or demand and
without affecting his liability hereunder, from time to time to:
(i) renew, compromise, extend, or otherwise change or modify the terms
of the Lease in any respect by agreement between Landlord and Tenant, or any
part thereof, including increasing or decreasing the rate of interest on any
amounts due thereunder and accelerating or otherwise changing the time for
payment of rent or other charges due under the Lease;
(ii) take and hold security for the obligations of
<PAGE> 3
this Guaranty or the Lease and exchange, enforce, waive or release any such
security and apply any such security and direct the order or manner of sale
thereof as the Landlord in its discretion may determine; and
(iii) release or substitute any one or more guarantors and other
obligors of this Guaranty or the Lease.
The Landlord may, at its election, exercise any right or remedy it may
have against the Tenant or any security held by the Landlord in connection with
the Lease or Guaranty, including, without limitation, the right to foreclose
upon any such security by judicial or nonjudicial sale, without affecting or
impairing in any way the liability of the Guarantor hereunder except to the
extent the amounts due under the Lease or under this Guaranty have been paid.
Guarantor waives any right to require that resort be had to any security or to
any other credit in favor of Tenant. The Guarantor further waives any defenses
arising out of the absence, impairment, or loss of any right of reimbursement,
contribution or subrogation or any other right or remedy of the Guarantor
against the Tenant, or any such security, whether resulting from such election
by the Landlord or otherwise. The Guarantor waives any defense arising by reason
of any disability or other defense of the Tenant, including insolvency or
bankruptcy.
Until all amounts due under the Lease or under this Guaranty have been
paid in full, the Guarantor shall have no right of subrogation to, and waives
any right to enforce, any remedy which the Landlord now has or may hereafter
have against the Tenant in connection with any amounts owing by Tenant to
Landlord. The Guarantor waives all demands for performance, notices of
nonperformance, and notices of acceptance of this Guaranty and of the existence,
creation or incurring of new or additional charges or obligations by the Tenant
to the Landlord.
Guarantor hereby warrants and represents to Landlord that all financial
statements, title reports, and other documents given to Landlord in connection
with this Guaranty are true, complete, and not in any way misleading with
respect to the financial condition of the Guarantor. Any breach of this warranty
shall be considered a default under the Lease and under this Guaranty.
Use of the singular herein shall include the plural.
<PAGE> 4
The obligation of two or more parties hereunder shall be joint and several.
The terms and provisions of this Guaranty shall be binding upon the
heirs, personal representatives, successors and assigns of the Guarantor and
shall inure to the benefit of the heirs, personal representatives, successors
and assigns of the Landlord.
All provisions of this Guaranty shall be construed and enforced in
accordance with the laws of the State of Washington. The Guarantor hereby
submits to the personal jurisdiction of the courts of the State of Washington
and agrees that the venue of any action brought against Guarantor may lie, at
the option of the Landlord, in King County, Washington. If any action or
proceeding is brought to enforce the terms of this Guaranty, the prevailing
party shall recover is costs and expenses, including reasonable attorneys' fees,
and such fees actually incurred shall be presumed reasonable, which presumption
shall be rebuttable. Guarantor irrevocably appoints Tenant as his agent for
service of process related to this Guaranty.
IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be
executed this 29th day of February, 1996.
/s/ DAN FINE
-----------------------------------
Dan Fine
I, Kim Fine, spouse of Dan Fine, have read the foregoing Personal
Guaranty and understand its terms and conditions. I hereby acknowledge and
consent to the execution of said Personal Guaranty by Dan Fine on behalf of
himself separately and on behalf of our joint marital community, and I
acknowledge that said Personal Guaranty is binding on our joint marital
community.
DATED this 29th day of February, 1996.
-------------------------------------
Print Name:__________________________
<PAGE> 1
EXHIBIT 10.6C
FIRST AMENDMENT
TO
OFFICE LEASE AGREEMENT
THIS FIRST AMENDMENT (the "Amendment") is entered into as of March __,
1997, by and between GRAND PACIFIC LIMITED PARTNERSHIP, a Washington limited
partnership ("Landlord"), and fine.com CORPORATION, a Washington corporation
("Tenant").
Recitals
A. Landlord owns the building commonly known as the Grand Pacific
Building (the "Building"), which is situated on real property located in
Seattle, Washington and described more particularly in Exhibit 1 hereto and in
that certain Office Lease Agreement dated February 28, 1996 (the "Lease")
between Tenant and Landlord.
B. Pursuant to the Lease, Tenant leased from Landlord certain office
space consisting of approximately four thousand six hundred ninety-five (4,695)
square feet of rentable area (the "Original Space") situated on the second floor
of the Building.
C. Thereafter, Tenant exercised its right in the Lease to lease from
Landlord certain additional office space consisting of approximately one
thousand seventy-two (1,072) square feet of rentable area (the "Expansion
Space") situated adjacent to the Original Space on the second floor of the
Building.
D. Now, on the following terms and conditions, Landlord and Tenant
desire to amend the Lease to include additional office space and a certain
non-exclusive common area, consisting of approximately seven hundred
seventy-three (773) square feet (the "First Additional Space") situated on the
second floor of the Building. The First Additional Space is outlined in red on
the Floor Plan attached to this Amendment as Exhibit 2.
NOW, THEREFORE, in consideration of the mutual covenants set forth
below, Landlord and Tenant agree as follows:
1. Continuation of Lease. Except as provided in Section 2 of this
Amendment, each and every provision of the
14
<PAGE> 2
Lease shall remain unchanged and shall apply with full force and effect to the
First Additional Space, including Tenant's obligation to pay periodic Additional
Charges. All capitalized terms in this Amendment, unless defined herein, shall
have the meanings set forth in the Lease. Unless the context requires otherwise,
"Premises" as used in the Lease shall mean the Original Space, the Expansion
Space, and the First Additional Space.
2. Additional Terms. The Lease is hereby amended to include the
following additional terms:
2.1 First Additional Space. Tenant hereby acknowledges that
the First Additional Space consists of both rentable office floor space and
bathroom and hallway space shared with other tenants of the Building. Tenant
agrees to pay rent for the entirety of the First Additional Space without regard
to whether the actual square feet of office floor space is more or less than
seven hundred seventy-three (773) square feet. Tenant further agrees that the
door located in the southeast corner of the First Additional Space (marked on
the attached Floor Plan with an "X") will remain unlocked and unobstructed at
all times. Tenant agrees to use the door as an emergency exit only and shall
permit access to the door by other tenants at all times for emergency purposes.
2.2 Occupancy Commitment Date. Tenant shall be entitled to
occupy the First Additional Space on the date of this Amendment for the purpose
of completing tenant improvements permitted under the Lease and this Amendment.
2.3 Minimum Rent Commencement Date. Tenant's obligation to pay
monthly Minimum Rent for the First Additional Space shall begin on May 1, 1997.
2.4 Minimum Rent. The Minimum Rent payable by Tenant for the
First Additional Space beginning on the Effective Date (as shown below), and
until the next succeeding Effective Date, shall be as follows:
15
<PAGE> 3
<TABLE>
<CAPTION>
Rent Per
Square Foot New Monthly
Effective Date Per Annum Minimum Rent
-------------- ---------- ------------
<S> <C> <C>
May 1, 1997 $11.95 $769.78
April 15, 1998 $14.00 $901.83
April 15, 1999 $14.50 $934.04
April 15, 2000 $15.00 $966.25
</TABLE>
The parties agree that the First Additional Space shall be deemed to
contain seven hundred seventy-three (773) square feet and there shall be no
adjustment in Minimum Rent set forth hereinabove due to the fact that the First
Additional Space contains less or more than seven hundred seventy-three (773)
square feet.
2.5 No Option to Extend. Tenant's option to extend set forth
in Section 3.3.2 of the Lease shall not apply to the First Additional Space.
2.6 Tenant's Share of Direct Costs. 1.99% shall be Tenant's
Percentage of Excess Expenses of the Commercial Complex attributable to the
First Additional Space.
2.7 Alterations of the Premises. Tenant hereby accepts the
First Additional Space in its current condition. Tenant may make, at its
expense, Alterations to the First Additional Space only in compliance with
Section 10.2 of the Lease. Tenant's Alterations may include opening the demising
wall between Units C and D of the Premises to install an internal staircase
connecting portions of Tenant's Premises. The final location and plans and
specifications for such staircase must be approved by Landlord.
2.8 Termination. Tenant shall have the right, upon ninety (90)
days' advanced written notice to Landlord, to terminate this Amendment and, as a
result, terminate its lease of the First Additional Space. If, however, Tenant
terminates its lease of the First Additional Space prior to the Expiration Date
(as defined in Section 3.2 of the Lease) Tenant shall, at its expense, close the
demising walls between Units C and D to restore them to their condition prior to
Tenant's Alterations and otherwise close the First Additional Space from access
to the installed internal staircase (which installed staircase can remain). All
other provisions of the Lease that apply with respect to the Premises upon
termination of the Lease shall apply with equal force with respect to the First
Additional Space upon termination of this Amendment.
16
<PAGE> 4
LANDLORD:
GRAND PACIFIC LIMITED PARTNERSHIP, a
Washington limited partnership
By WHITEHALL CAPITAL CORPORATION,
a Washington corporation
/s/
By ___________________________
Its President
TENANT:
fine.com CORPORATION
a Washington corporation
/s/ Daniel M. Fine
By _______________________________
Its President
17
<PAGE> 5
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
_________________________ is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the
____________________ of GRAND PACIFIC LIMITED PARTNERSHIP to be the free and
voluntary act of such party for the uses and purposes mentioned in the
instrument.
Dated:_________________________
(Seal or stamp) _______________________________
(Signature)
_______________________________
(Print Name)
Residing at ___________________
My appointment expires_________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
_________________________ is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the
____________________ of fine.com CORPORATION to be the free and voluntary act of
such party for the uses and purposes mentioned in the instrument.
Dated:_________________________
(Seal or stamp) _______________________________
(Signature)
18
<PAGE> 6
_______________________________
(Print Name)
Residing at ___________________
My appointment expires_________
19
<PAGE> 7
FIRST AMENDMENT TO OFFICE LEASE AGREEMENT
Dated March ___, 1997
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
EXHIBIT 1
LEGAL DESCRIPTION OF THE PROPERTY
That certain real property located in King County, Washington and described as
the Colonial/Grand Pacific, a condominium according to Condominium Declaration
recorded under King County Recording No. 9202101191.
<PAGE> 8
FIRST AMENDMENT TO OFFICE LEASE AGREEMENT
Dated March ___, 1997
between
Grand Pacific Limited Partnership,
a Washington Limited Partnership, Landlord,
and
fine.com CORPORATION, a Washington corporation, Tenant
EXHIBIT 2
FLOOR PLAN OF FIRST ADDITIONAL SPACE
[See Attached]
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Weighted average common shares outstanding. . . . . . . . 1,055,541 1,055,541
Net effect of stock options exercised and granted,
and preferred stock issued during the 12-month
period prior to the Company's filing of its initial
public offering at less than the offering price,
calculated using the treasury stock method at the
offering price of $7.00 per share, and treated
as outstanding for all periods presented. . . . . . . . 99,585 99,585
---------- ----------
Shares used in computation of net income per share. . . . 1,155,126 1,155,126
========== ==========
Net income. . . . . . . . . . . . . . . . . . . . . . . . $30,082 $124,274
Net income per share . . . . . . . . . . . . . . . . . . $0.03 $0.11
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated April 1, 1997
(except for Note 8, as to which the date is May 9, 1997), in the Registration
Statement (Form SB-2) and related Prospectus of fine.com Corporation for the
registration of 1,250,000 shares of its common stock.
Ernst & Young LLP
Seattle, Washington
May 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION AS OF JANUARY 31,
1997 AND HAS BEEN EXTRACTED FROM THE FINANCIAL STATEMENTS OF FINE.COM
CORPORATION, WHICH HAS BEEN AUDITED BY ERNST & YOUNG LLP, INDEPENDENT AUDITORS,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 198,317
<SECURITIES> 0
<RECEIVABLES> 476,766
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 715,711
<PP&E> 142,812
<DEPRECIATION> 61,985
<TOTAL-ASSETS> 868,537
<CURRENT-LIABILITIES> 413,983
<BONDS> 0
0
239,918
<COMMON> 75,000
<OTHER-SE> 139,636
<TOTAL-LIABILITY-AND-EQUITY> 868,537
<SALES> 1,485,869
<TOTAL-REVENUES> 1,485,869
<CGS> 774,242
<TOTAL-COSTS> 774,242
<OTHER-EXPENSES> 514,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,840
<INCOME-PRETAX> 188,728
<INCOME-TAX> 64,454
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,274
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
