<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 1998
-- or --
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________
---------------------
FINE.COM INTERNATIONAL CORP.
Name of small business issuer as specified in its charter
0-22805
Commission File Number
STATE OF WASHINGTON 91-1657402
State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization
1525 FOURTH AVENUE, SUITE 800
SEATTLE, WASHINGTON 98101
Address of Principal Executive Offices
206-292-2888
Issuer Telephone Number
--------------------
Check whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Yes [X] No [_]
Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the
registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
The number of shares of the registrant's common stock, no par value per share,
outstanding as of September 14, 1998 was 2,669,590.
<PAGE>
fine.com INTERNATIONAL Corp.
FORM 10-QSB
FOR THE QUARTER ENDED JULY 31, 1998
INDEX
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited) 2
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE 13
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
fine.com INTERNATIONAL Corp.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
1998 1998
----------- ----------------
ASSETS (unaudited) (restated)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 610,977 $1,571,861
Marketable securities 365,195 1,593,032
Accounts receivable, less allowances 1,510,834 1,097,354
Work-in-progress 300,725 191,841
Prepaid expenses and other 310,880 157,780
Notes receivable from officer 25,772 26,686
----------- ----------
TOTAL CURRENT ASSETS 3,124,383 4,638,554
Marketable securities 1,825,236 2,325,236
Other long-term assets 151,598 103,561
Deferred income tax asset 0 220,318
Equipment & furniture, net 1,458,041 698,453
----------- ----------
TOTAL ASSETS $ 6,559,258 $7,986,122
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 703,785 $ 395,267
Accrued expenses 103,742 48,581
Advance payments -- 70,500
Deferred revenue 561,443 422,101
Note payable to shareholder 57,618 --
Deferred income tax liabilities 0 322,337
Capitalized lease obligations 97,983 71,166
----------- ----------
TOTAL CURRENT LIABILITIES 1,524,571 1,329,952
Long-Term Capital Leases 96,321 70,436
SHAREHOLDERS' EQUITY:
Common Stock, no par value:
10,000,000 shares authorized, 2,669,590 shares issued and
outstanding at July 31, 1998; and 9,000,000 shares authorized,
2,633,720 shares issued and outstanding at January 31, 1998 6,881,409 6,737,929
Retained deficit (1,860,734) (122,699)
Unrealized loss on marketable securities (82,309) (29,496)
----------- ----------
Total shareholders' equity 4,938,366 6,585,734
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,559,258 $7,986,122
=========== ==========
</TABLE>
See accompanying notes.
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<PAGE>
fine.com INTERNATIONAL Corp.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
---------------------------- ---------------------------
1998 1997 1998 1997
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Gross revenue $ 1,396,616 $1,406,667 $ 2,728,409 $2,717,621
Direct salaries and costs 1,044,920 947,661 1,997,399 1,816,664
----------- ---------- ----------- ----------
Gross profit 351,696 459,006 731,010 900,957
Selling, general and
administrative expenses 1,659,595 463,770 2,621,939 909,059
----------- ---------- ----------- ----------
Operating income (loss) (1,307,899) (4,764) (1,890,929) (8,102)
Interest income 43,018 0 146,669 0
Interest expense (9,648) (17,792) (18,696) (31,720)
----------- ---------- ----------- ----------
Income (loss) before income taxes (1,274,529) (22,556) (1,762,956) (39,822)
Provision (benefit) for income taxes 0 14,451 (120,000) 36,821
----------- ---------- ----------- ----------
Net income $(1,274,529) $ (37,007) $(1,642,956) $ (76,643)
=========== ========== =========== ==========
Basic and diluted net income
(loss) per share $ (0.48) $ (0.03) $ (0.62) $ (0.06)
Shares used in computation of
net income (loss)
per share:
Basic 2,669,590 1,309,196 2,667,212 1,309,196
Diluted 2,669,590 1,309,196 2,667,212 1,309,196
</TABLE>
See accompanying notes.
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<PAGE>
fine.com INTERNATIONAL Corp.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
------------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,642,956) $ (76,643)
Depreciation and amortization 141,928 78,224
Deferred income tax(benefit) (120,000) 36,821
Net changes in:
Accounts receivable (295,446) (290,269)
Work-in-process (110,269) (224,043)
Prepaid expenses and other (155,545) (47,383)
Accounts payable 294,821 4,715
Accrued expenses 25,485 13,146
Deferred revenue (30,327) 148,464
----------- ---------
Total cash used in operating activities (1,892,309) (376,772)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment purchases (82,869) --
Investment sales 1,727,837 --
Purchase of equipment and furniture (910,743) (209,495)
----------- ---------
Total cash used in investing activities 734,225 (209,495)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in note payable to bank -- 521,000
Change in capital lease obligations 60,124 (25,327)
Net change in notes receivable from officer 914 (24,449)
Capital contribution by shareholder -- 100,000
Cash received from Common Stock 143,480
Increase in note payable to director -- (15,000)
----------- ---------
Total cash provided by financing activities 204,518 471,368
----------- ---------
Net increase (decrease) in cash and cash
equivalents (953,566) (114,899)
Cash and cash equivalents at beginning of period 1,571,861 159,205
Adjustment for Meta4's net cash activity for the
month ended July 31, 1998 (7,318) -0-
----------- ---------
Cash and cash equivalents at end of period $ 610,977 $ 44,306
=========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Acquisition of Pacific Analysis and Computing, in February 1998, in
exchange for 35,870 shares of common stock:
Common stock 143,480
Net current assets 27,850
Non-current assets 115,630
</TABLE>
See accompanying notes.
-4-
<PAGE>
fine.com INTERNATIONAL Corp.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by
fine.com International Corp. (the "Company") in accordance with generally
accepted accounting principles for interim financial statements and with the
instructions to Form 10-QSB and Article 10 of Regulations S-X. Accordingly,
they do not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of the Company's management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes thereto for
the year ended January 31, 1998, included with the company's Form 10-KSB, as
filed with the Securities and Exchange Commission (the "Commission").
On July 31, 1998, Meta4 Digital Design, Inc. ("Meta4") was merged with and
into the Company through the issuance of 253,655 shares of fine.com
International Corp. common stock, which were exchanged for all of the
outstanding shares of Meta4. The merger qualifies as a tax-free reorganization
and was accounted for as a pooling-of-interests. Accordingly, the Company's
financial statements have been restated to include the results of Meta4 for all
periods presented.
New Accounting Pronouncements. In 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income", which requires
disclosure of an additional basis of measuring income. Comprehensive income for
the three months ended July 31, 1998 was $(1,274,529) versus $(37,007) for the
same period in 1997.
2. ACQUISITION OF META4
Components of the consolidated results of operations of fine.com and Meta4
for periods prior to the acquisition are as follows:
<TABLE>
<CAPTION>
fine.com Meta4 Combined
<S> <C> <C> <C>
Three months ended July 31, 1998 (unaudited)
Sales 984,155 412,461 1,396,616
Net loss (1,228,350) (46,179) (1,274,529)
Six months ended July 31, 1998 (unaudited)
Sales 1,925,470 802,939 2,728,409
Net loss (1,460,653) (182,303) (1,642,956)
Three months ended July 31, 1997 (unaudited)
Sales 752,966 653,701 1,406,667
Net income (loss) 27,868 (64,875) (37,007)
Six months ended July 31, 1997 (unaudited)
Sales 1,564,399 1,153,222 2,717,621
Net income (loss) 71,292 (147,935) (76,643)
</TABLE>
Meta4 reported results on a calendar end basis. Accordingly, the restated
financial statements combine the December 31, 1997 balance sheet of Meta4 with
the January 31, 1998 balance sheet of the Company. In addition, the restated
financial statements combine the June 30, 1998 and 1997 statement of operations
and statement of cash flows of Meta4 with the July 31, 1998 and 1997 statement
of operations and statement of cash flows of the Company. Net sales and the net
loss of Meta4 for the one-month period ended July 31, 1998 were $98,632 and
($95,079), respectively, with the net loss reflected as an adjustment to
retained earnings as of July 31, 1998.
-5-
<PAGE>
3. NOTE PAYABLE TO BANK
The Company has renewed its Revolving Line of Credit with its bank and
increased the facility to $1,500,000. The new facility expires on June 30,
2000, and is secured by all accounts receivable of the Company and such other
property and assets of the Company as the bank may require. Amounts outstanding
under the Revolving Line of Credit bear interest at the bank's prime interest
rate plus .25%. At July 31, 1998, no amounts were outstanding under the
Revolving Line of Credit.
The Revolving Line of Credit requires that the Company maintain minimum
working capital amounts (as calculated therein), and a minimum tangible net
worth (as defined therein). Among other things, the Revolving Line of Credit
limits the Company's ability to incur additional debt, to repurchase the
Company's capital stock or amend its capital structure, to pay cash dividends or
to undergo a merger, consolidation or liquidation without the consent of the
bank. In addition, among other things, a change in ownership of twenty-five
percent or more of the common stock constitutes an event of default, as does any
material adverse change in the Company's financial condition. The Company met
all Revolving Line of Credit covenants at July 31, 1998.
-6-
<PAGE>
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
1998 1997 1998 1997
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)................................ $(1,274,529) $ (37,007) $(1,642,956) $ (76,643)
=========== ========== =========== ==========
Denominator for basic and diluted earnings per share -
Weighted average common stock....................... 2,669,590 1,309,196 2,667,212 1,309,196
=========== ========== =========== ==========
Basic and diluted earnings per share.................. $ (0.48) $ (0.03) $ (0.62) $ (0.06)
=========== ========== =========== ==========
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-QSB contains forward-looking statements
which reflect the Company's current plans and views with respect to future
events and financial performance. These forward-looking statements are subject
to certain uncertainties that could cause actual results to differ materially
from historical results or those anticipated. Words used in this Report such as
"anticipate," "expect," "may," "will" and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. The Company does not undertake any
obligation to update or revise these forward-looking statements to reflect any
future events or circumstances. Readers are urged to carefully review and
consider the various disclosures made by the Company in this Report, as well as
the disclosures in the "Risk Factors" section appearing in the Form 10-KSB for
the fiscal year ended January 31, 1998 and the Company's registration statement
on Form SB-2 (collectively, the "Risk Factors Disclosure"), both on file with
the Commission.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with (i) the financial
statements and accompanying notes appearing in this Report, and (ii) the
Company's financial statements and accompanying notes appearing in the Company's
Form 10-KSB for the fiscal year ended January 31, 1998, as filed with the
Commission.
OVERVIEW
Company Business. The Company plans, develops, maintains and hosts Web
sites for major national and international corporate clients and others. In
addition, the Company provides consulting services to its clients as to the
strategic uses of the Internet to further their corporate goals and objectives.
Such services relate to e-commerce, Intranet and Extranet applications, and the
intricacies of utilizing the Internet on an international basis.
The Company generates the majority of its revenues from fees associated
with the planning and development 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's Web site development process utilizes marketing expertise and
state of the art interactive database compilation and dissemination techniques
and technologies. Through the planning, development, 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 facilities both internal and
external corporate communications for clients. The Company has developed and
continues to refine a new service offering: the digitization of corporate
assets, the related Media Asset Management system associated with such assets,
and the Web-enabling of such a system.
-8-
<PAGE>
Company Expansion. Historically, through fiscal year 1998, the Company has
conducted all of its operations from its headquarters in Seattle, Washington.
In fiscal 1999, however, the Company began a process of opening domestic
regional and international service offices, for the purposes of both better
serving existing Company clients as well as to expand the Company's business in
new markets. As of July 31, 1998, the Company's newly opened offices included
locations at: Bethesda, Maryland; Santa Monica, California; and London, England
(collectively, the "New Offices"). The Company continues to operate most of its
business and derive most of its revenues from its headquarters in Seattle,
Washington (the "Core Operations"). The Company's sales and marketing presence
in Tokyo, Japan through the Company's business arrangements with Mitsui & Co.,
Ltd. is regarded and accounted for by management as part of its Core
Operations.
In addition, on July 31, 1998, the Company acquired its wholly owned
subsidiary, Meta4 Digital Design, Inc. ("Meta4"). Unlike the New Offices, which
represent organic extension and expansion of the Company's business, the Meta4
acquisition (utilizing the pooling of interests accounting treatment) has
materially impacted the Company's gross revenues in the immediate term.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JULY 31, 1998 AND 1997
Gross Revenue. Consolidated gross revenue for the six months ended July
31, 1998 and 1997 was $2,728,409 and $2,717,621, respectively. During this
period, revenue from Core Operations increased 15% from $1,564,399 for the 6
months ended July 31, 1997 to $1,796,030 for the 6 months ended July 31, 1998.
The increase was due to the addition of new clients and a general increased
level of sophistication of the projects undertaken. Revenue from Meta4 decreased
30% from $1,153,222 for the 6 months ended July 31, 1997 to $802,939 for the 6
months ended July 31, 1998. The decrease is due primarily to the reduction in
revenue related to one on-going client who contracted with Meta4 for a sizable
project during the first 6 months of the prior year. Revenue from New Offices
increased $129,440 from $0 for the 6 months ended July 31, 1997 to $129,440 for
the 6 months ended July 31, 1998.
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 consolidated direct salaries and costs for
the six months ended July 31, 1998 were $1,997,399 and consisted primarily of
$1,606,926 paid as direct salaries, taxes and benefits and secondarily of
$390,473 as other direct costs of goods sold related to specific projects.
During this period, direct salaries and costs from Core Operations increased 14%
from $1,100,995 for the 6 months ended July 31, 1997 to $1,257,308 for the 6
months ended July 31, 1998. There was an average of 32 production employees
during this period. Direct salaries and costs from Meta4 decreased 32% from
$715,669 for the 6 months ended July 31, 1997 to $485,966 for the 6 months ended
July 31, 1998. There were an average of 8 production employees at Meta4 during
this period. The decrease was due primarily to a reduction in independent
contractor fees. Direct salaries and costs from New Offices increased $254,125
from $0 for the 6 months ended July 31, 1997 to $254,125 for the 6 months ended
July 31, 1998 as these offices hired personnel to service the demand of current
and prospective clients.
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 consolidated direct salaries and costs for the six months
ended July 31, 1997 were $1,816,664 and consisted, primarily, of $979,276 of
direct salaries, taxes and benefits and secondarily, of $837,388 of other direct
costs of goods sold related to specific projects. There was an average of 13
production employees during this period.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses were $2,621,939 and $909,059 for the six
months ended July 31, 1998 and 1997, respectively. In each period, these
expenses consisted primarily of sales and administrative salaries, office rent
and related occupancy costs, marketing and new business development costs,
depreciation of fixed assets, professional fees, telephone and related Internet
connectivity fees, computer network costs, office expenses and supplies. During
this period, selling, general and administrative expenses from Core Operations
increased 442% from $335,899 for the 6 months ended July 31, 1997 to $1,821,939
for the 6 months ended July 31, 1998. The increase was a result of increased
sales and administrative salaries ($418,000), transaction costs related to
mergers and acquisitions ($388,000), marketing and new business development
costs
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<PAGE>
($130,000), depreciation of fixed assets ($125,000), professional fees
($114,000), office rent and related occupancy costs ($79,000), and costs related
to SEC reporting and other regulatory requirements ($60,000). These increases
are a result of implementing the Company's growth strategy and performing the
requirements of being a publicly traded company. Selling, general and
administrative expenses from Meta4 decreased 16% from $573,170 for the 6 months
ended July 31, 1997 to $482,587 for the 6 months ended July 31, 1998 resulting
primarily from a reduction in sales and administrative salaries. Selling,
general and administrative expenses from New Offices increased $317,413 from $0
for the 6 months ended July 31, 1997 to $317,413 for the 6 months ended July 31,
1998 as these locations commenced operations.
Net Income. The Company recognized a consolidated net loss of $(1,642,956)
for the first six months of fiscal 1999 as compared to a net loss of $(76,643)
for the same period in fiscal 1998. During this period, a net loss from Core
Operations increased $1,018,563 from a net gain of $71,292 for the 6 months
ended July 31, 1997 to a net loss of $614,263 for the 6 months ended July 31,
1998. Losses from Meta4 increased $34,368 from $147,935 for the 6 months ended
July 31, 1997 to $182,303 for the 6 months ended July 31, 1998. Losses from New
Offices increased $442,090 from $0 for the 6 months ended July 31, 1997 to
$442,090 for the 6 months ended July 31, 1998. The decrease in profitability is
due to the factors discussed above.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JULY 31, 1998 AND 1997
Gross Revenue. Consolidated gross revenue for the three months ended July
31, 1998 and 1997 was $1,396,616 and $1,406,667, respectively. During this
period, revenue from Core Operations increased 16% from $752,966 for the 3
months ended July 31, 1997 to $870,117 for the 3 months ended July 31, 1998. The
increase was due to the addition of new clients and a general increased level of
sophistication of the projects undertaken. Revenue from Meta4 decreased 37%
from $653,701 for the 3 months ended July 31, 1997 to $412,461 for the 3 months
ended July 31, 1998. The decrease is due primarily to the reduction in revenue
related to one on-going client who contracted with Meta4 for a sizable project
during the second quarter of the prior year. Revenue from New Offices increased
$114,461 from $0 for the 3 months ended July 31, 1997 to $114,461 for the 3
months ended July 31, 1998.
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 consolidated direct salaries and costs for
the three months ended July 31, 1998 were $1,044,920 and consisted primarily of
$855,670 paid as direct salaries, taxes and benefits and secondarily of $189,250
as other direct costs of goods sold related to specific projects. During this
period, direct salaries and costs from Core Operations increased 12% from
$547,053 for the 3 months ended July 31, 1997 to $610,240 for the 3 months ended
July 31, 1998. There was an average of 33 production employees during this
period. Direct salaries and costs from Meta4 decreased 38% from $400,608 for the
3 months ended July 31, 1997 to $247,713 for the 3 months ended July 31, 1998.
There was an average of 7 production employees during this period. Direct
salaries and costs from New Offices increased $186,967 from $0 for the 3 months
ended July 31, 1997 to $186,967 for the 3 months ended July 31, 1998 as these
offices hired personnel to service the demand of current and prospective
clients.
The Company's consolidated direct salaries and costs for the three months
ended July 31, 1997 were $947,661 and consisted, primarily, of $526,718 paid as
direct salaries, taxes and benefits and secondarily, of $420,943 as other direct
costs of goods sold related to specific projects. There was an average of 13
production employees during the period.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses were $1,659,595 and $463,770 for the three
months ended July 31, 1998 and 1997, respectively. In each period, these
expenses consisted primarily of sales and administrative salaries, office rent
and related occupancy costs, marketing and new business development costs,
depreciation of fixed assets, professional fees, telephone and related Internet
connectivity fees, computer network costs, office expenses and supplies. During
this period, selling, general and administrative expenses from Core Operations
increased 663% from $151,730 for the 3 months ended July 31, 1997 to $1,263,300
for the 3 months ended July 31, 1998. The increase was a result of increased
sales and administrative salaries ($266,000), transaction costs related to
mergers and acquisitions ($388,000), marketing and new business development
costs ($83,000), depreciation of fixed assets ($65,000), professional fees
($90,000), office rent and related occupancy costs ($35,000), and costs related
to SEC reporting and other regulatory requirements ($45,000). Theses increases
are a result of implementing the Company's growth strategy and performing the
requirements of being a publicly traded company. Selling, general and
administrative expenses from Meta4 decreased 35% from $312,040 for the 3 months
ended July 31, 1997 to $202,560 for the 3 months ended July 31, 1998 resulting
primarily from a reduction in sales and administrative salaries. Selling,
general and administrative expenses from New Offices increased $193,735 from $0
for the 3 months ended July 31, 1997 to $193,735 for the 3 months ended July 31,
1998 as these locations continued to develop their operations.
Taxes. The Company has not recorded the deferred tax benefit resulting
from the operating loss incurred during the three months ended July 31, 1998.
This net operating loss carryforward will be available to offset future
quarters' income if, and to the extent, the Company's cumulative earnings exceed
these losses.
-10-
<PAGE>
Net Income. The Company recognized a consolidated net loss of $(1,274,529)
for the first three months of fiscal 1999 as compared to a net loss of $(37,007)
for the same period in fiscal 1998. During this period, a net loss from Core
Operations increased $989,600 from a net gain of $27,868 for the 3 months ended
July 31, 1997 to a net loss of $961,732 for the 3 months ended July 31, 1998.
Losses from Meta4 decreased $18,696 from $(64,875) for the 3 months ended July
31, 1997 to $(46,179) for the 3 months ended July 31, 1998. Losses from New
Offices increased $(266,618) from $0 for the 3 months ended July 31, 1997 to
$266,618 for the 3 months ended July 31, 1998. The decrease in profitability 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 equity financing
and private placements of its capital stock. The Company had cash, cash
equivalents and marketable securities in the aggregate amount of $2,801,408 and
$5,490,129 at July 31, 1998 and January 31, 1998, respectively.
The Company's working capital decreased $1,708,790, from $3,308,602 at
January 31, 1998 to $1,599,812 at July 31, 1998. Operating activities for the
six months ended July 31, 1998 required net cash in the amount of $1,892,309,
primarily due to the net loss incurred, increases in accounts receivable, work-
in-process, and prepaid expenses. Accounts receivable increased $295,446, from
$1,097,354 at January 31, 1998 to $1,392,800 at July 31, 1998, work-in-process
increased $110,269 from $191,841 at January 31, 1998, and prepaid expenses
increased $155,545 due to deposits made for equipment, furniture and fixtures,
and leasehold improvements.
The purchase of equipment and furniture required cash in the amount of
$910,743 during the six months ended July 31, 1998. These expenditures were
made primarily for computer hardware and software, furniture, fixtures and
leasehold improvements necessary to accommodate an increase in Company
personnel. Net cash provided from financing activities was $204,518.
The Company has renewed its Revolving Line of Credit with its bank and
increased the facility to $1,500,000. The new facility expires on June 30,
2000, and is secured by all accounts receivable of the Company and such other
property and assets of the Company as the bank may require. Amounts outstanding
under the Revolving Line of Credit bear interest at the bank's prime interest
rate plus .25%. At July 31, 1998, no amounts were outstanding under the
Revolving Line of Credit.
The Revolving Line of Credit requires that the Company maintain minimum
working capital amounts (as calculated therein), and a minimum tangible net
worth (as defined therein). Among other things, the Revolving Line of Credit
limits the Company's ability to incur additional debt, to repurchase the
Company's capital stock or amend its capital structure, to pay cash dividends or
to undergo a merger, consolidation or liquidation without the consent of the
bank. In addition, among other things, a change in ownership of twenty-five
percent or more of the common stock constitutes an event of default, as does any
material adverse change in the Company's financial condition. The Company met
all Revolving Line of Credit covenants at July 31, 1998.
The Company believes that existing cash and cash equivalent balances, cash
generated from operations and the funds available to it under credit facilities,
together with the remaining proceeds from the initial public offering, will be
sufficient to fund its operations through the next fiscal year. One of the
risks of the Company's business, however, in addition to those identified in the
Risk Factors Disclosure, is that the New Offices and Meta4 may not generate
profitability or revenues in accordance with management's timetable or
expectations. (This was the case with respect to the Company's new office in
Santa Monica, California, leading to management's decision to close the office
as of September 15, 1998.) If the New Offices do not have a positive influence
on Company operations in upcoming reporting periods or if Meta4 fails to
contribute to Company profitability, then the Company's capital resources and
liquidity may be diminished in a shorter term.
-11-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From the effective date of the Company's Registration Statement on Form
SB-2, as amended (file number 333-26855), relating to the Company's initial
public offering of the Company's common stock, through the end of the Company's
fiscal quarter ended July 31, 1998, the Company has applied its net proceeds as
follows:
<TABLE>
<S> <C>
Net proceeds from IPO......................................... $6,228,042
Accounts receivable, work-in-process and other working capital
requirements................................................ (1,375,803)
Capital expenditures for fixed assets......................... (1,706,128)
Repayment of indebtedness..................................... (467,615)
Unapplied proceeds held in money market funds and marketable
securities at July 31, 1998................................. $2,678,496
==========
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on June 11,
1998. Two matters were submitted to the shareholders for a vote. As of April 21,
1998, the record date, there were 2,415,935 shares eligible to vote at the
meeting, of which 92.3% or 2,229,793 were present at the meeting, constituting a
quorum. The first matter was the election of directors. The six nominees for
election as directors were elected to serve until the 1999 annual meeting of the
shareholders, and until the election and qualification of their respective
successors. The vote for each director follows:
DIRECTOR FOR WITHHELD
Daniel M. Fine 2,225,293 4,500
James P. Chamberlin 2,225,293 4,500
Herbert C. Fine 2,224,793 5,000
Frank Hadam 2,224,793 5,000
Norman Wicauchner 2,225,293 4,500
Anthony C. Naughtin 2,225,293 4,500
The second matter was the ratification of the Company's selection of Ernst
& Young LLP as the Company's independent auditors for the fiscal year ending
January 31, 1999. This matter was approved by a vote of 2,226,293 shares voting
for, 1,900 shares voting against and 1,600 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 Specimen Common Stock Certificate
10.3A First Amendment to Employment Agreement with Daniel M.
Fine
10.4A First Amendment to Employment Agreement with James P.
Chamberlin
10.10 Employment Agreement dated July 31, 1998 with Alberto
Blanco
10.11 Employment Agreement dated July 31, 1998 with Kathy L.
Berni
10.12 Employment Agreement dated February 1, 1998 and effective
September 4, 1998 with Trevor F.A. Brannan
21.1 List of Subsidiaries
27.1 Financial data schedule
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed on August 13, 1998, reporting the
closing of the Company's acquisition of Meta4 Digital Design, Inc., effective
July 31, 1998.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated September 14, 1998.
fine.com International Corp.
-----------------------------------------
(Registrant)
By /s/ Daniel M. Fine
-----------------------------------------
Daniel M. Fine
President and Chief Executive Officer
(principal executive officer)
By /s/ James P. Chamberlin
-----------------------------------------
James P. Chamberlin
Secretary and Chief Financial Officer
(principal financial and principal
accounting officer)
-13-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Specimen Common Stock Certificate
10.3A First Amendment to Employment Agreement with Daniel M. Fine
10.4A First Amendment to Employment Agreement with James P. Chamberlin
10.10 Employment Agreement dated July 31, 1998 with Alberto Blanco
10.11 Employment Agreement dated July 31, 1998 with Kathy L. Berni
10.12 Employment Agreement dated February 1, 1998 and effective September 4,
1998 with Trevor F.A. Brannan
21.1 List of Subsidiaries
27.1 Financial data schedule
<PAGE>
EXHIBIT 4.1
[FINE.COM INTERNATIONAL CORP. LOGO]
NUMBER SHARES
FDOT------------- FINE.COM INTERNATIONAL CORP. ------------
COMMON STOCK NO PAR VALUE
CUSIP 317823 10 2
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
--------------------------------------
IS THE RECORD OWNER OF
--------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
FINE.COM INTERNATIONAL CORP.
(the "Corporation") transferable on the books of the Corporation in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile signatures of its duly authorized officers.
Dated:
------------------------------------
/s/ ------------------------------------ /s/ ----------------------
SECRETARY AND CHIEF PRESIDENT AND CHIEF
FINANCIAL OFFICER EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
By:
------------------------------------
AUTHORIZED SIGNATURE
<PAGE>
FINE.COM INTERNATIONAL CORP.
The Corporation will furnish without charge to any shareholder upon written
request a statement of the designations, relative rights, preferences, and
limitations applicable to each class of stock which the Corporation is
authorized to issue, the variations in the rights, preferences, and limitations
of the shares of each series of each such class of stock insofar as the same may
have been fixed and determined, and the authority of the Board of Directors to
determine variations for future series.
The following abbreviations, when used in the inscription on the fact of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ....................Custodian.....................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act...............................................
in common (State)
UNIF TRF MIN ACT -- ....................Custodian (until age.........)
(Cust)
...........................under Uniform Transfers
(Minor)
to Minor Act......................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------
- ---------------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________ Shares
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________
X______________________________________________________
X______________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERNATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By________________________________
THE SIGNATURE(S) MUST BE GUARANTEE
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-16.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF LOST, MUTILATED OR DESTROYED, THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
<PAGE>
EXHIBIT 10.3A
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (the "Amendment") is entered into and made effective as of
the 1st day of August, 1998 and amends that certain Employment Agreement (the
"Agreement") dated as of May 9, 1997 between fine.com International Corp., a
Washington corporation f/k/a fine.com Corporation (the "Company"), and Daniel M.
Fine (the "Employee").
The parties hereby agree as follows:
1. The first sentence of Section 4.1 of the Agreement is amended to read
as follows:
"For all services rendered by Employee under this Agreement, including
directors' fees, if any, Employer will pay Employee a base salary of One
Hundred Forty Thousand Dollars ($140,000) per year (the "Base Salary")."
2. Except as amended above, the Agreement shall continue in full force and
effect as though set forth in this Amendment.
DATED as of the date first above written.
EMPLOYEE: fine.com International Corp.
/s/ Daniel M. Fine By: /s/ James P. Chamberlin
- ------------------ ------------------------
Daniel M. Fine James P. Chamberlin
Chief Financial Officer
<PAGE>
EXHIBIT 10.4A
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment (the "Amendment") is entered into and made effective as of
the 1st day of August, 1998 and amends that certain Employment Agreement (the
"Agreement") dated as of May 9, 1997 between fine.com International Corp., a
Washington corporation f/k/a fine.com Corporation (the "Company"), and James P.
Chamberlin (the "Employee").
The parties hereby agree as follows:
1. The first sentence of Section 4.1 of the Agreement is amended to read
as follows:
"For all services rendered by Employee under this Agreement, including
directors' fees, if any, Employer will pay Employee a base salary of One
Hundred Thirty-Three Thousand Dollars ($133,000) per year (the "Base
Salary")."
2. Except as amended above, the Agreement shall continue in full force and
effect as though set forth in this Amendment.
DATED as of the date first above written.
EMPLOYEE: fine.com International Corp.
/s/ James P. Chamberlin By: /s/ Daniel M. Fine
- ----------------------- -------------------------
James P. Chamberlin Daniel M. Fine, President
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the 31st
day of July, 1998, by and between Meta4 Digital Design, Inc., a Washington
corporation f/k/a TFAB Acquisition Corp. (the "Company"), and Alberto Blanco
("Employee") and sets forth the terms of the employment relationship between the
Company and Employee.
1. AGREEMENT CONDITIONED ON ACQUISITION. This Agreement is executed in
connection with the pending acquisition (the "Merger") pursuant to which Meta4
Digital Design, Inc., a Delaware corporation ("Meta4"), will be merged with and
into TFAB Acquisition Corp., a Washington corporation and a wholly-owned
subsidiary of fine.com International Corp. ("fine.com"). Upon the effective
date of the Merger, TFAB Acquisition Corp., which shall be the surviving
corporation in the Merger, shall change its name to Meta4 Digital Design, Inc.
This Agreement shall become effective only upon consummation of the Merger.
2. TERM OF AGREEMENT. The Company hereby employs Employee to perform the
duties described herein, and Employee accepts employment with the Company, for a
term beginning on the date hereof and continuing for a period of three (3) years
(the "Term"). The Term of this Agreement shall terminate upon the expiration of
the Term unless extended or renewed by written agreement of the parties. In
addition to any termination in the event of a decision of non-renewal, this
Agreement may be terminated prior to the end of the Term in the manner provided
for in Section 10 below.
3. POSITION AND DUTIES. The Company and Employee agree that Employee will
be employed as Vice President of Business Development and shall be directly
accountable to the President and the Board of Directors of the Company for the
performance of all responsibilities related to sales to new prospects and
existing customers. In this capacity, Employee's responsibilities will include,
but are not limited to setting up and maintaining reports and processes in
cooperation with the Vice President P of Business Development on sales and
activities and shall have overall responsibility for executing and coordinating
sales strategies in accordance with corporate strategies, plans, programs and
functions within the region. Employee shall works with the various business
development personnel to establish leads within the Company's targeted customer
base, to continuously improve the sales process, champion the client within the
Company and help lead the client with online strategies.
It is understood that from time to time Employee may be assigned other
duties or titles in addition to or in lieu of those described above and that
Employee's responsibilities may be modified at any time in the reasonable
discretion of the Company in order to accommodate the needs of the Company.
3.1 Employee acknowledges and agrees that an initial essential aspect
of his employment with the Company shall be to use his best efforts in assisting
in and managing the transition of clients and services from Meta4 to the Company
due to the Merger, including, without limitation, being responsible for the
continued good relationships with the existing customers of Meta4 and
maintaining substantially the same revenue base, and that this Agreement is
being entered into, in part, in reliance upon such understanding.
3.2 Employee agrees to devote his full-time efforts to his duties
with the Company and further agrees that Employee will not directly or
indirectly engage or participate in any activities while employed with the
Company that would conflict with the best interests of the Company or fine.com.
4. COMPENSATION.
4.1 SALARY AND BONUS. For services rendered by Employee under this
Agreement, the Company shall pay Employee an annual salary of $125,000 for each
year of the Term, unless terminated prior to the expiration of the Term. The
gross salary of $125,000 shall include any and all amounts incurred by the
Company for automobile lease expenses for Employee and any such amounts paid by
the Company for Employee's automobile lease payments shall be deducted from
Employee's monthly paychecks. Employee shall be paid this salary in equal
periodic installments consistent with the Company's normal payroll procedures,
minus all lawful and agreed upon payroll deductions. Employee shall also be
eligible for annual performance bonuses, as determined in the sole and absolute
discretion of Company's Board of Directors.
-1-
<PAGE>
4.2 ELIGIBILITY FOR STOCK OPTION GRANTS. Employee shall also be eligible,
from time to time as determined by Company's Board of Directors, to receive
grants of stock options to purchase shares of fine.com Common Stock, pursuant to
the Company's stock option plan. The exercise price, vesting schedule and other
terms and provisions of any such stock option grant shall be as determined by
the Board of Directors and consistent with the terms and provisions of the
Company's stock option plan for employees. The terms of the vesting schedule on
any option granted to Employee by Company shall in no way imply or be construed
as an extension or modification of the term of employment under this Agreement.
5. EXPENSE REIMBURSEMENTS. The Company agrees to reimburse Employee for
all reasonable business expenses incurred by Employee while on the Company's
business, in accordance with the Company's polices as may be in effect from time
to time. Employee shall maintain such records as will be necessary to enable the
Company to properly deduct such items as business expenses when computing the
Company's federal income tax.
6. OTHER AGREEMENTS.
6.1 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Concurrent
with the execution of this Agreement, Employee also executes and hereby delivers
a Proprietary Information and Inventions Agreement, substantially in the form
attached hereto as Exhibit A.
6.2 COVENANT NOT TO COMPETE. Employee agrees that Company and
fine.com has many substantial, legitimate business interests that can be
protected only by Employee agreeing not to compete with the Company or fine.com
under certain circumstances. These interests include, without limitation, the
Company's and fine.com's contacts and relationship's with its customers, the
Company's and fine.com's reputation and goodwill in the industry, rights in
confidential information and the investment by fine.com in the Merger involving
Meta4. In light of the foregoing as well as due to the unique value to the
Company of Employee's services, Employee agrees that during his employment with
the Company, and for a period of three (3) years months after termination of his
employment (regardless of the reason such employment ends), Employee will not,
directly or indirectly: (a) serve or act as principal, owner, employee, or
agent, or otherwise engage in any business that either (i) involves Internet,
Intranet or Extranet based products and services using relational database
techniques and database compilation techniques or (ii) competes with the
business of fine.com, the Company or any of their subsidiaries, as such business
may have existed or may have been planned at any time during Employee's
employment with the Company; (b) solicit for employment or employ any employee
of fine.com, the Company or any of their subsidiaries; and (c) solicit business
from clients of fine.com, the Company or any of their subsidiaries.
Employee acknowledges and agrees that this non-competition agreement is
being entered into in connection with and as an express condition to the Merger
between the Company and Meta4. Any dispute regarding the enforceability of this
non-competition agreement shall be evaluated under the legal standards
applicable to a non-competition agreement given in connection with the sale of a
business (it being understood that in no event shall the non-competition period
extend beyond three years after Employee's employment ends). Employee
acknowledges and agrees that in addition to the foregoing agreement, he shall
continue to be subject to his obligations to the Company, including, without
limitation, obligations arising under the Proprietary Information and Inventions
Agreement referred to in Section 6.1 above.
7. FRINGE BENEFITS. The Company and Employee agree that during the term
of this Agreement, Employee shall be entitled to participate in all fringe
benefits and incentive compensation plans as may be authorized and adopted from
time to time by the Company for the benefit of employees generally and for which
Employee is eligible.
8. VACATION. Employee shall be entitled to 10 days paid vacation per
calendar year. Such time shall be accounted for pursuant and subject to the
Company's vacation policies of general applicability.
9. CONFIDENTIAL INFORMATION. It is understood and agreed that as a
result of Employee's employment hereunder, Employee will be acquiring and making
use of confidential information about fine.com and the Company and their
businesses, including, without limitation, financial information and information
about their customers. Employee agrees that he will respect the confidences of
fine.com and the Company and will not at any time during or within one (1) year
following the termination of his employment hereunder, directly or indirectly,
divulge or disclose for any purpose whatsoever or use for his own benefit, any
confidential information that has been obtained
-2-
<PAGE>
by or disclosed to Employee as a result of his employment hereunder.
"Confidential information" as used herein does not include information that is
in the public domain and information received by Employee from third parties who
have the right to disseminate the information. The covenant of this Section 9 is
in addition to and in no way qualifies or limits the terms of Proprietary
Information and Inventions Agreement referred to in Section 6.1 above.
10. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the following ways, prior to the expiration of the
Term; provided, however, that as described in Section 11 below, certain
provisions of this Agreement shall survive termination and shall continue in
full force and effect according to their terms:
(a) Death. The death of Employee shall immediately terminate the
Term, and no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of three (3)
consecutive months, or for a total of three (3) months in any six (6) month
period, then thirty (30) days after written notice to the Employee (which notice
may be given before or after the end of the aforementioned periods, but which
shall not be effective earlier than the last day of the applicable period), the
Company may terminate Employee's employment hereunder if Employee is unable to
resume his full-time duties at the conclusion of such notice period. If
Employee's employment is terminated as a result of Employee's disability, the
Company shall continue to pay Employee his base salary at the then-current rate
for the lesser of (i) three (3) months from the effective date of termination,
or (ii) whatever time period is remaining under the then-current period of the
Term. Such payments shall be made in accordance with the Company's regular
payroll cycle.
(c) Termination by the Company "For Cause." The Company may
terminate the Term promptly after written notice to Employee "for cause," which
shall be: (i) Employee's material breach of this Agreement, which breach is not
cured within ten (10) days of receipt by Employee of written notice from the
Company specifying the breach; (ii) Employee's gross negligence in the
performance of his duties hereunder, intentional nonperformance or
misperformance of such duties, or refusal to abide by or comply with the
directives of the Board of Directors, his superior officers, or fine.com's or
the Company's policies and procedures, which actions continue for a period of at
least ten (10) days after receipt by Employee of written notice of the need to
cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct with
respect to the business or affairs of the Company or fine.com, and that in the
judgment of the Company or fine.com materially and adversely affects the
operations or reputation of the Company or fine.com; (iv) Employee's conviction
of a felony or other crime involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the Company's judgment, materially
impairs the Employee's ability to perform his duties hereunder. In the event of
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
11. Effect of Termination. Upon termination of Employee's employment, the
Company agrees to pay Employee all salary or other remuneration which is due and
owing to Employee as of the date of termination, less legal deductions or
offsets Employee may owe to the Company for such items as salary advances or
loans. Employee agrees that his signature on this Agreement constitutes his
authorization for all such deductions. Employee agrees to promptly return all
of the Company's property of any kind which may be in Employee's possession. In
the event of termination Employee's employment under this Agreement, the terms
and provisions of this Agreement shall also terminate, with the exception of the
confidentiality provision contained in Section 9 and the provisions of the non-
competition agreement of Section 6.2 and the Proprietary Information and
Inventions Agreement referred to in Section 6.1 above. Such provisions shall
continue in full force and effect according to their terms.
12. CONSTRUCTION OF AGREEMENT.
12.1 ESSENTIAL TERMS AND MODIFICATION OF AGREEMENT. It is understood
and agreed that the terms and conditions described in this Agreement and the
agreements expressly referenced herein constitute the essential terms and
conditions of the employment arrangement between the Company and Employee, all
of which have been voluntarily agreed upon. The Company and Employee agree that
there are no other essential terms or conditions of the employment relationship
that are not described or referenced within this Agreement, and that any change
in the essential terms and conditions of this Agreement or any such referenced
agreement will be written down in a supplemental agreement which shall be signed
by both the Company and Employee before it is effective.
-3-
<PAGE>
12.2 SEVERABILITY. If any term, covenant, condition or provision of
this Agreement or the application thereof to any person or circumstance shall,
at any time, or to any extent, be determined invalid or unenforceable, the
remaining provisions hereof shall not be affected thereby and shall be deemed
valid and fully enforceable to the extent permitted by law.
12.3 NOTICES. Any notice hereunder shall be sufficient if in writing
and delivered to the party or sent by certified mail, return receipt requested
and addressed as follows:
(a) If to Company: Meta4 Digital Design, Inc.
c/o fine.com International Corp.
1525 Fourth Avenue, Suite 800
Seattle, WA 98101
Attn: Trevor F.A. Brannan, Esq.
(b) If to Employee: Alberto Blanco
109-23 Shearwater Court
Jersey City, NJ 07306
Either party may change the address herein specified by giving written notice of
such change.
12.4 GOVERNING LAW. This Agreement is made and shall be construed
and performed under the laws of the State of Washington.
12.5 WAIVER OF AGREEMENT. The waiver by the Company of a breach of
any provision of this Agreement by Employee shall not operate or be construed as
a waiver by the Company of any subsequent breach by Employee.
12.6 CAPTIONS. Captions and headings of the Sections herein are for
convenience and reference only and are not to be used to interpret or define
provisions hereof.
12.7 ASSIGNMENT AND SUCCESSORS. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. The rights and obligations of
Employee hereunder are nonassignable. The Company may assign its rights and
obligations to fine.com or to any entity in which the Company or any company
affiliated with the Company, has a majority ownership interest.
-4-
<PAGE>
DATED as of the date first above written.
EMPLOYEE:
/s/ Alberto Blanco
------------------
Alberto Blanco
COMPANY:
META4 DIGITAL DESIGN, INC.,
a Washington corporation
By: /s/ James P. Chamberlin
------------------------------
Its: James P. Chamberlin, President
------------------------------
Signature Page to Employment Agreement
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the 31st
day of July, 1998, by and between Meta4 Digital Design, Inc., a Washington
corporation f/k/a TFAB Acquisition Corp. (the "Company"), and Kathy L. Berni
("Employee") and sets forth the terms of the employment relationship between the
Company and Employee.
1. AGREEMENT CONDITIONED ON ACQUISITION. This Agreement is executed in
connection with the pending acquisition (the "Merger") pursuant to which Meta4
Digital Design, Inc., a Delaware corporation ("Meta4"), will be merged with and
into TFAB Acquisition Corp., a Washington corporation and a wholly-owned
subsidiary of fine.com International Corp. ("fine.com"). Upon the effective date
of the Merger, TFAB Acquisition Corp., which shall be the surviving corporation
in the Merger, shall change its name to Meta4 Digital Design, Inc. This
Agreement shall become effective only upon consummation of the Merger.
2. TERM OF AGREEMENT. The Company hereby employs Employee to perform the
duties described herein, and Employee accepts employment with the Company, for a
term beginning on the date hereof and continuing for a period of three (3) years
(the "Term"). The Term of this Agreement shall terminate upon the expiration of
the Term unless extended or renewed by written agreement of the parties. In
addition to any termination in the event of a decision of non-renewal, this
Agreement may be terminated prior to the end of the Term in the manner provided
for in Section 10 below.
3. POSITION AND DUTIES. The Company and Employee agree that Employee
will be employed as Vice President of Operations and in this capacity,
Employee's responsibilities will include, but are not limited to planning,
directing, supervising and coordinating all financial, administrative, legal,
human resource, accounting, sales, marketing, operational and regulatory
activities of the Company, as well as such other duties as outlined and directed
by the President or the Board of Directors of the Company and such other
person(s) as the Board may direct. The Vice President of Operations will be
directly accountable to the President and the Board of Directors for the
performance of all of her responsibilities and will provide such written or
verbal reports or written or verbal briefings as the President or the Board of
Directors in their sole discretion shall request.
It is understood that from time to time Employee may be assigned other
duties or titles in addition to or in lieu of those described above and that
Employee's responsibilities may be modified at any time in the reasonable
discretion of the Company in order to accommodate the needs of the Company.
3.1 Employee acknowledges and agrees that an initial essential aspect
of her employment with the Company shall be to use her best efforts in assisting
in and managing the transition of clients and services from Meta4 to the Company
due to the Merger, including, without limitation, being responsible for the
continued good relationships with the existing customers of Meta4 and
maintaining substantially the same revenue base, and that this Agreement is
being entered into, in part, in reliance upon such understanding.
3.2 Employee agrees to devote her full-time efforts to her duties
with the Company and further agrees that Employee will not directly or
indirectly engage or participate in any activities while employed with the
Company that would conflict with the best interests of the Company or fine.com.
4. COMPENSATION.
4.1 SALARY AND BONUS. For services rendered by Employee under this
Agreement, the Company shall pay Employee an annual salary of $125,000 for each
year of the Term, unless terminated prior to the expiration of the Term. The
gross salary of $125,000 shall include any and all amounts incurred by the
Company for automobile lease expenses for Employee and any such amounts paid by
the Company for Employee's automobile lease payments shall be deducted from
Employee's monthly paychecks. Employee shall be paid this salary in equal
periodic installments consistent with the Company's normal payroll procedures,
minus all lawful and agreed upon payroll deductions. Employee shall also be
eligible for annual performance bonuses, as determined in the sole and absolute
discretion of Company's Board of Directors.
4.2 ELIGIBILITY FOR STOCK OPTION GRANTS. Employee shall also be
eligible, from time to time as determined by Company's Board of Directors, to
receive grants of stock options to purchase shares of fine.com
-1-
<PAGE>
Common Stock, pursuant to the Company's stock option plan. The exercise price,
vesting schedule and other terms and provisions of any such stock option grant
shall be as determined by the Board of Directors and consistent with the terms
and provisions of the Company's stock option plan for employees. The terms of
the vesting schedule on any option granted to Employee by Company shall in no
way imply or be construed as an extension or modification of the term of
employment under this Agreement.
5. EXPENSE REIMBURSEMENTS. The Company agrees to reimburse Employee for
all reasonable business expenses incurred by Employee while on the Company's
business, in accordance with the Company's polices as may be in effect from time
to time. Employee shall maintain such records as will be necessary to enable the
Company to properly deduct such items as business expenses when computing the
Company's federal income tax.
6. OTHER AGREEMENTS.
6.1 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Concurrent
with the execution of this Agreement, Employee also executes and hereby delivers
a Proprietary Information and Inventions Agreement, substantially in the form
attached hereto as Exhibit A.
6.2 COVENANT NOT TO COMPETE. Employee agrees that Company and
fine.com has many substantial, legitimate business interests that can be
protected only by Employee agreeing not to compete with the Company or fine.com
under certain circumstances. These interests include, without limitation, the
Company's and fine.com's contacts and relationship's with its customers, the
Company's and fine.com's reputation and goodwill in the industry, rights in
confidential information and the investment by fine.com in the Merger involving
Meta4. In light of the foregoing as well as due to the unique value to the
Company of Employee's services, Employee agrees that during her employment with
the Company, and for a period of three (3) years months after termination of her
employment (regardless of the reason such employment ends), Employee will not,
directly or indirectly: (a) serve or act as principal, owner, employee, or
agent, or otherwise engage in any business that either (i) involves Internet,
Intranet or Extranet based products and services using relational database
techniques and database compilation techniques or (ii) competes with the
business of fine.com, the Company or any of their subsidiaries, as such business
may have existed or may have been planned at any time during Employee's
employment with the Company; (b) solicit for employment or employ any employee
of fine.com, the Company or any of their subsidiaries; and (c) solicit business
from clients of fine.com, the Company or any of their subsidiaries.
Employee acknowledges and agrees that this non-competition agreement is
being entered into in connection with and as an express condition to the Merger
between the Company and Meta4. Any dispute regarding the enforceability of this
non-competition agreement shall be evaluated under the legal standards
applicable to a non-competition agreement given in connection with the sale of a
business (it being understood that in no event shall the non-competition period
extend beyond three years after Employee's employment ends). Employee
acknowledges and agrees that in addition to the foregoing agreement, she shall
continue to be subject to her obligations to the Company, including, without
limitation, obligations arising under the Proprietary Information and Inventions
Agreement referred to in Section 6.1 above.
7. FRINGE BENEFITS. The Company and Employee agree that during the term
of this Agreement, Employee shall be entitled to participate in all fringe
benefits and incentive compensation plans as may be authorized and adopted from
time to time by the Company for the benefit of employees generally and for which
Employee is eligible.
8. VACATION. Employee shall be entitled to 10 days paid vacation per
calendar year. Such time shall be accounted for pursuant and subject to the
Company's vacation policies of general applicability.
9. CONFIDENTIAL INFORMATION. It is understood and agreed that as a
result of Employee's employment hereunder, Employee will be acquiring and making
use of confidential information about fine.com and the Company and their
businesses, including, without limitation, financial information and information
about their customers. Employee agrees that she will respect the confidences of
fine.com and the Company and will not at any time during or within one (1) year
following the termination of her employment hereunder, directly or indirectly,
divulge or disclose for any purpose whatsoever or use for her own benefit, any
confidential information that has been obtained by or disclosed to Employee as a
result of her employment hereunder. "Confidential information" as used herein
does not include information that is in the public domain and information
received by Employee from third parties
-2-
<PAGE>
who have the right to disseminate the information. The covenant of this Section
9 is in addition to and in no way qualifies or limits the terms of Proprietary
Information and Inventions Agreement referred to in Section 6.1 above.
10. TERMINATION; RIGHTS ON TERMINATION. Employee's employment may be
terminated in any one of the following ways, prior to the expiration of the
Term; provided, however, that as described in Section 11 below, certain
provisions of this Agreement shall survive termination and shall continue in
full force and effect according to their terms:
(a) Death. The death of Employee shall immediately terminate the
Term, and no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been unable to perform the
material duties of her position on a full-time basis for a period of three (3)
consecutive months, or for a total of three (3) months in any six (6) month
period, then thirty (30) days after written notice to the Employee (which notice
may be given before or after the end of the aforementioned periods, but which
shall not be effective earlier than the last day of the applicable period), the
Company may terminate Employee's employment hereunder if Employee is unable to
resume her full-time duties at the conclusion of such notice period. If
Employee's employment is terminated as a result of Employee's disability, the
Company shall continue to pay Employee her base salary at the then-current rate
for the lesser of (i) three (3) months from the effective date of termination,
or (ii) whatever time period is remaining under the then-current period of the
Term. Such payments shall be made in accordance with the Company's regular
payroll cycle.
(c) Termination by the Company "For Cause." The Company may
terminate the Term promptly after written notice to Employee "for cause," which
shall be: (i) Employee's material breach of this Agreement, which breach is not
cured within ten (10) days of receipt by Employee of written notice from the
Company specifying the breach; (ii) Employee's gross negligence in the
performance of her duties hereunder, intentional nonperformance or
misperformance of such duties, or refusal to abide by or comply with the
directives of the Board of Directors, her superior officers, or fine.com's or
the Company's policies and procedures, which actions continue for a period of at
least ten (10) days after receipt by Employee of written notice of the need to
cure or cease; (iii) Employee's willful dishonesty, fraud, or misconduct with
respect to the business or affairs of the Company or fine.com, and that in the
judgment of the Company or fine.com materially and adversely affects the
operations or reputation of the Company or fine.com; (iv) Employee's conviction
of a felony or other crime involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the Company's judgment, materially
impairs the Employee's ability to perform her duties hereunder. In the event of
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
11. EFFECT OF TERMINATION. Upon termination of Employee's employment, the
Company agrees to pay Employee all salary or other remuneration which is due and
owing to Employee as of the date of termination, less legal deductions or
offsets Employee may owe to the Company for such items as salary advances or
loans. Employee agrees that her signature on this Agreement constitutes her
authorization for all such deductions. Employee agrees to promptly return all of
the Company's property of any kind which may be in Employee's possession. In the
event of termination Employee's employment under this Agreement, the terms and
provisions of this Agreement shall also terminate, with the exception of the
confidentiality provision contained in Section 9 and the provisions of the non-
competition agreement of Section 6.2 and the Proprietary Information and
Inventions Agreement referred to in Section 6.1 above. Such provisions shall
continue in full force and effect according to their terms.
12. CONSTRUCTION OF AGREEMENT.
12.1 ESSENTIAL TERMS AND MODIFICATION OF AGREEMENT. It is understood
and agreed that the terms and conditions described in this Agreement and the
agreements expressly referenced herein constitute the essential terms and
conditions of the employment arrangement between the Company and Employee, all
of which have been voluntarily agreed upon. The Company and Employee agree that
there are no other essential terms or conditions of the employment relationship
that are not described or referenced within this Agreement, and that any change
in the essential terms and conditions of this Agreement or any such referenced
agreement will be written down in a supplemental agreement which shall be signed
by both the Company and Employee before it is effective.
-3-
<PAGE>
12.2 SEVERABILITY. If any term, covenant, condition or provision of
this Agreement or the application thereof to any person or circumstance shall,
at any time, or to any extent, be determined invalid or unenforceable, the
remaining provisions hereof shall not be affected thereby and shall be deemed
valid and fully enforceable to the extent permitted by law.
12.3 NOTICES. Any notice hereunder shall be sufficient if in writing
and delivered to the party or sent by certified mail, return receipt requested
and addressed as follows:
(a) If to Company: Meta4 Digital Design, Inc.
c/o fine.com International Corp.
1525 Fourth Avenue, Suite 800
Seattle, WA 98101
Attn: Trevor F.A. Brannan, Esq.
(b) If to Employee: Kathy L. Berni
7 Howland Circle
West Caldwell, NJ 07006
Either party may change the address herein specified by giving written notice of
such change.
12.4 GOVERNING LAW. This Agreement is made and shall be construed
and performed under the laws of the State of Washington.
12.5 WAIVER OF AGREEMENT. The waiver by the Company of a breach of
any provision of this Agreement by Employee shall not operate or be construed as
a waiver by the Company of any subsequent breach by Employee.
12.6 CAPTIONS. Captions and headings of the Sections herein are for
convenience and reference only and are not to be used to interpret or define
provisions hereof.
12.7 ASSIGNMENT AND SUCCESSORS. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. The rights and obligations of
Employee hereunder are nonassignable. The Company may assign its rights and
obligations to fine.com or to any entity in which the Company or any company
affiliated with the Company, has a majority ownership interest.
-4-
<PAGE>
DATED as of the date first above written.
EMPLOYEE:
/s/ Kathy L. Berni
------------------------------------
Kathy L. Berni
COMPANY:
META4 DIGITAL DESIGN, INC.,
a Washington corporation
By: /s/ James P. Chamberlin
------------------------------
Its: James P. Chamberlin, President
------------------------------
Signature Page to Employment Agreement
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
BETWEEN
FINE.COM CORPORATION AND TREVOR F. A. BRANNAN.
The purpose of this Agreement is to confirm the terms of the employment
relationship between FINE.COM CORPORATION ("Employer"), and TREVOR F. A. BRANNAN
("Employee").
1. TERM OF AGREEMENT. Employer and Employee agree that the Employee will be
employed by Employer beginning February 23, 1998, until February 22, 2001,
unless employment is sooner terminated as provided herein.
2. POSITION AND DUTIES. Employer and Employee agree that Employee will be
employed as Senior Vice President/General Counsel, and that, in this capacity,
Employee's responsibilities will include, but are not limited to:
Responsible for effectively planning, directing and coordinating all activities
of investor relations, mergers and acquisitions and legal counsel. Directly
accountable to the Chief Executive Officer for the performance of
responsibilities related to investor relations programs, mergers and
acquisitions activities, and legal representation matters of the corporation.
Provides reports or verbal briefings as requested by the CEO, CFO, COO or the
board of directors. Primarily responsibility falls into three main areas: 1)
managing the investor relations activity of the company; 2) supervision and
closing off all acquisitions and mergers; 3) acting as corporate counsel,
overseeing all legal affairs.
It is understood that from time to time Employee may be assigned other duties or
titles in addition to or in lieu of those described above and that Employee's
responsibilities may be modified at any time by Employer in order to accommodate
the needs of Employer.
2.1 Employee agrees to devote his full-time efforts to his duties with
Employer and further agrees that Employee will not directly or indirectly engage
or participate in any activities while employed with Employer that would
conflict with the best interests of Employer.
2.2 Employee's obligation to devote his full time, attention and energy to
the business of Employer shall not be construed as preventing Employee from
investing his assets so long as any such investment will not require any
services on the part of Employee in the operation of the affairs of the
company(ies) or business(es) in which such investment(s) is (are) made.
3. EMPLOYER'S REIMBURSEMENTS. Employer agrees to reimburse Employee for all
reasonable business expenses incurred by Employee while on Employer's business,
in accordance with Employer's polices as may be in effect from time to time.
Employee shall maintain such records as will be necessary to enable Employer to
properly deduct such items as business expenses when computing Employer's
federal income tax.
-1-
<PAGE>
4. COMPENSATION.
4.1 SALARY. For all services rendered by Employee under this Agreement,
Employer shall pay Employee an annual salary of $85,000 for the first year
hereunder, $90,000 for the second year, and $95,000 for the third and final year
of the term hereof. Employee shall be paid this salary in equal periodic
installments consistent with Company's normal payroll procedures, minus all
lawful and agreed upon payroll deductions. Employee shall also be eligible for
annual performance bonuses, as determined in the sole and absolute discretion of
Employer's Board of Directors.
4.2 OPTION GRANT. Employee shall also be granted, upon the commencement
of his employment and subject to approval or ratification of Employer's Board of
Directors, a stock option to purchase 30,000 shares of Common Stock of Employer,
and upon completion of the first year of employment and subject to approval or
ratification of Employer's Board of Directors, an additional stock option to
purchase 10,000 shares of Common Stock of Employer (the "Option Grant"). The
exercise price, vesting schedule and other terms and provisions of the Option
Grant shall be as reflected in Employer's standard form Stock Option Agreement
and the terms and provisions of Employer's then current Stock Option Plan for
employees.
4.3 MOVING EXPENSES. In connection with Employee's relocation to the
Seattle, Washington area, Employer shall reimburse Employee for the direct out
of pocket costs of moving the usual and customary household goods of Employee
and Employee's immediate household family, up to an amount not to exceed fifteen
hundred dollars and 00/100 cents ($1,500.00). Employer shall also provide
Employee with an additional allowance, of up to fifteen hundred dollars and
00/100 cents ($1,500.00), in connection with the transfer of Employee's work
visa.
4.4 OTHER COMPENSATION. Employee shall also receive a parking space, a
cellular phone subsidy, and a car allowance in the amount of $200 per month.
5. OTHER AGREEMENTS.
5.1 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Concurrent with the
execution of this Agreement, Employee also executes and hereby delivers a
Proprietary Information and Inventions Agreement.
5.2 COVENANT NOT TO COMPETE. In view of the unique value to Employer of
Employee's services, during his employment with Employer, and for a period of
six (6) months after termination of his employment, Employee will not directly
or indirectly: (a) as principal, owner, employee, or agent, engage in any
business that either (i) involves Internet, Intranet or Extranet based products
and services using relational database techniques and database compilation
techniques or (ii) competes with the business of Employer, as such business may
have existed or planned at any time during Employee's employment with Employer;
(b) solicit for employment or employ any employee of Employer; and (c) solicit
business from clients of Employer.
-2-
<PAGE>
6. FRINGE BENEFITS. Employer and Employee agree that during the term of this
Agreement, Employee shall be entitled to participate in all fringe benefits and
incentive compensation plans as may be authorized and adopted from time to time
by the Employer for the benefit of employees generally and for which Employee is
eligible.
7. VACATION. Employee shall be entitled to 10 days paid vacation per calendar
year. Such time shall be accounted for pursuant and subject to Employer's
vacation policies of general applicability.
8. CONFIDENTIAL INFORMATION. It is understood and agreed that as a result of
Employee's employment hereunder, Employee will be acquiring and making use of
confidential information about Employer's business as well as financial
information. Employee agrees that he will respect the confidences of Employer
and will not at any time during or within one (1) year following the period of
his employment hereunder, directly or indirectly divulge or disclose for any
purpose whatsoever or use for his own benefit, any confidential information that
has been obtained by or disclosed to Employee as a result of his employment
hereunder. "Confidential information" as used herein does not include
information that is in the public domain and information received by Employee
from third parties who have the right to disseminate the information. The
covenant of this Section 8 is in addition to and in no way qualifies or limits
the terms of Proprietary Information and Inventions Agreement referred to in
Section 5.1 above.
9. TERMINATION. This Agreement shall be terminated upon the occurrence of any
one of the following events:
9.1 Death of Employee or legal inability to perform his duties hereunder.
9.2 If Employee shall have been incapacitated from illness, accident or
other disability and unable to perform his normal duties hereunder for a
cumulative period of three (3) months in any period of six (6) consecutive
months, upon Employer or Employee giving the other party not less than thirty
(30) days' written notice. In the event of such termination, Employee shall be
entitled to all benefits due Employee under any accident, sickness, disability,
health or hospitalization plan or insurance policy of Employer, if any, then in
effect.
9.3 Expiration of this Agreement or any renewal or extension thereof.
9.4 By Employee, upon Employer receiving ninety (90) days' notice as
provided in Section 11.3 of this Agreement.
9.5 By Employer for cause. For purposes of this subsection, "cause"
includes the following:
(a) Breach by Employee of any material provision of this Agreement, which
breach is not cured within thirty (30) days notice as provided in Section
11.3 of this Agreement;
(b) Material violation by Employee of any statutory or common law duty of
loyalty to Employer; or
-3-
<PAGE>
(c) Personal or professional conduct of Employee, which, in the reasonable
and good faith judgment of Employer, after a thorough investigation,
injures or tends to injure the reputation of Employer or otherwise
adversely affects the interests of Employer. Such conduct may include, but
is not limited to, dishonesty, chronic absenteeism, alcoholism, drug
addiction, and conviction of a felony or misdemeanor involving moral
turpitude.
9.6 Upon the cessation of business by Employer; provided, however, that
the confidentiality provisions contained in Section 8 of this Agreement and the
provisions of the Proprietary Information and Inventions Agreement referred to
in Section 5 above shall continue in full force and effect according to its
terms.
9.7 Upon the voluntary retirement of Employee.
10. EFFECT OF TERMINATION. Upon termination of Employee's employment, Employer
agrees to pay Employee all salary or other remuneration which is due and owing
to Employee as of the date of termination, less legal deductions or offsets
Employee may owe to Employer for such items as salary advances or loans.
Employee agrees that his signature on this Agreement constitutes his
authorization for all such deductions. Employee agrees to return all of
Employer's property of any kind which may be in Employee's possession. In the
event of termination of this Agreement, the terms and provisions of this
Agreement shall also terminate, with the exception of the confidentiality
provision contained in Section 8 and the provisions of the Noncompetition
Agreement of Section 5.2 and the Proprietary Information and Inventions
Agreement referred to in Section 5.1 above. Such provisions shall continue in
full force and effect according to their terms.
11. CONSTRUCTION OF AGREEMENT.
11.1 ESSENTIAL TERMS AND MODIFICATION OF AGREEMENT. It is understood
and agreed that the terms and conditions described in this Agreement and the
agreements expressly referenced herein constitute the essential terms and
conditions of the employment arrangement between Employer and Employee, all of
which have been voluntarily agreed upon. Employer and Employee agree that there
are no other essential terms or conditions of the employment relationship that
are not described or referenced within this Agreement, and that any change in
the essential terms and conditions of this Agreement or any such referenced
agreement will be written down in a supplemental agreement which shall be signed
by both Employer and Employee before it is effective.
11.2 SEVERABILITY. If any term, covenant, condition or provision of
this Agreement or the application thereof to any person or circumstance shall,
at any time, or to any extent, be determined invalid or unenforceable, the
remaining provisions hereof shall not be affected thereby and shall be deemed
valid and fully enforceable to the extent permitted by law.
11.3 NOTICES. Any notice hereunder shall be sufficient if in writing
and delivered to the party or sent by certified mail, return receipt requested
and addressed as follows:
-4-
<PAGE>
(a) If to Employer: fine.com Corporation
1118 Post Avenue
Seattle, WA 98101-2915
Attn: Jim Chamberlin, CFO
(b) If to Employee: Trevor Brannan
163 N. Narengo Avenue, #101
Pasadena, CA 99101
Either party may change the address herein specified by giving to the other,
written notice of such change.
11.4 GOVERNING LAW. This Agreement is made and shall be construed and
performed under the laws of the State of Washington.
11.5 WAIVER OF AGREEMENT. The waiver by Employer of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver by Employer of any subsequent breach by Employee.
11.6 CAPTIONS. The captions and headings of the Sections of this
Agreement are for convenience and reference only and are not to be used to
interpret or define the provisions hereof.
11.7 ASSIGNMENT AND SUCCESSORS. The rights and obligations of
Employer under this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of Employer. The rights and obligations of Employee
hereunder are nonassignable. Employer may assign its rights and obligations to
any entity in which Employer or a company affiliated to Employer, has a majority
ownership interest.
11.8 CONTINGENCY. This Agreement is predicated on the understanding
that Employee is at all times hereunder legally permitted to work at the
position described herein, and reside, in the United States of America.
Notwithstanding anything in this Agreement to the contrary, this Agreement shall
be of no force or effect, and Employer shall not be obligated in any way
hereunder, if and to the extent that Employee does not demonstrate, to
Employer's reasonable satisfaction or in furtherance of Employer's requirements
under laws, that Employee is so permitted.
DATED this ________ day of February, 1998.
EMPLOYEE: EMPLOYER:
Trevor F. A. Brannan fine.com Corporation
/s/ Trevor F. A. Brannan /s/ James P. Chamberlin
- ---------------------------------- ----------------------------------
Trevor F. A. Brannan By James P. Chamberlin
-------------------------------
Its: CFO
--------------------------
-5-
<PAGE>
Exhibit 21.1
fine.com INTERNATIONAL Corp
List of Subsidiaries
fine.com International Ltd.
Meta4 Digital Design, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-31-1998 JUL-31-1998
<PERIOD-START> FEB-01-1997 FEB-01-1998
<PERIOD-END> JAN-31-1998 JUL-31-1998
<CASH> 1,571,861 610,977
<SECURITIES> 1,593,032 365,195
<RECEIVABLES> 1,097,354 1,510,834
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,638,554 3,124,383
<PP&E> 1,014,017 1,965,150
<DEPRECIATION> 315,564 507,109
<TOTAL-ASSETS> 7,986,122 6,559,258
<CURRENT-LIABILITIES> 1,329,952 1,524,571
<BONDS> 0 0
0 0
0 0
<COMMON> 6,737,929 6,881,409
<OTHER-SE> (152,195) (1,943,043)
<TOTAL-LIABILITY-AND-EQUITY> 7,986,122 6,559,258
<SALES> 6,023,402 2,728,409
<TOTAL-REVENUES> 6,023,402 2,728,409
<CGS> 3,901,570 1,997,399
<TOTAL-COSTS> 3,901,570 1,997,399
<OTHER-EXPENSES> 2,222,587 2,621,939
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 63,725 18,696
<INCOME-PRETAX> 12,055 (1,762,956)
<INCOME-TAX> 46,567 (120,000)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (34,512) (1,642,956)
<EPS-PRIMARY> (0.02) (.62)
<EPS-DILUTED> (0.02) (.62)
</TABLE>
