-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FIc6pi+PLgBBLhKS6vB58a2LduhiuRVvIR8PuP6UT60+h0r8nrCCS5ZaRIbzu8mJ Y5GF6I95g0D2mtd07GLAuA== 0000930413-01-500955.txt : 20010814 0000930413-01-500955.hdr.sgml : 20010814 ACCESSION NUMBER: 0000930413-01-500955 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONT PORCH DIGITAL INC CENTRAL INDEX KEY: 0001025707 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 860793960 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-32913 FILM NUMBER: 1706523 BUSINESS ADDRESS: STREET 1: 1810 CHAPEL AVE W STREET 2: SUITE 130 CITY: CHERRY HILL STATE: NJ ZIP: 08002 BUSINESS PHONE: 8566333500 MAIL ADDRESS: STREET 1: 1810 CHAPEL AVE W STREET 2: SUITE 130 CITY: CHERRY HILL STATE: NJ ZIP: 08002 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE COMMUNICATIONS CORP DATE OF NAME CHANGE: 19980327 FORMER COMPANY: FORMER CONFORMED NAME: LITIGATION ECONOMICS INC DATE OF NAME CHANGE: 19961022 10-Q 1 c21557_10-q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______. Commission File Number 333-16031 FRONT PORCH DIGITAL INC. ------------------------ (Name of small business issuer as specified in its charter) Nevada 86-0793960 ------ ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 3005 47th Street, Suite F3 Boulder, Colorado 80301 ----------------------- (Address of principal executive offices) (303) 443-3734 -------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of July 31, 2001, 25,342,889 shares of the issuer's common stock, par value $.001, were outstanding. Transitional Small Business Disclosure Format (check one): Yes [_] No [X] FRONT PORCH DIGITAL INC. FORM 10-QSB INDEX PAGE PART I. Financial Information 3 Item 1. Financial Statements (Unaudited): Balance Sheet - June 30, 2001 3 Statements of Operations - Three Months ended June 30, 2001 and 2000, Six Months ended June 30, 2001 and for the period beginning February 1, 2000 (commencement of operations) to June 30, 2000 4 Statements of Cash Flows - Six Months ended June 30, 2001 and for the period beginning February 1, 2000 (commencement of operations) to June 30, 2000 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 9 PART II. Other Information: 14 Item 1. Legal Proceedings 14 Item 2. Changes in Securities and Use of Proceeds 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - Front Porch Digital, Inc. Balance Sheet June 30, 2001 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 150,822 Accounts receivable - affiliate 4,400 Accounts receivable 368,201 Other current assets 100,037 ----------- Total current assets 623,460 Property and equipment, net 1,369,560 Software development costs 121,974 Software and intellectual property, net of accumulated amortization of $166,000 1,484,143 Excess cost over fair value of net assets acquired, net of accumulated amortization of $549,000 5,001,455 Other assets 91,758 ----------- Total assets $ 8,692,350 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of note payable - employee $ 160,000 Notes payable 200,000 Accounts payable 816,308 Accrued expenses 439,036 Accrued expenses - employees 468,000 Accrued vacation 118,955 Deferred revenue 359,336 ----------- Total current liabilities 2,561,635 Note payable - employee, net of current portion 583,963 Stockholders' equity: Preferred stock, nonvoting, $.001 par value, 5,000,000 shares authorized, none issued or outstanding; -- Common stock, $.001 par value; 50,000,000 shares authorized, 24,697,781 shares issued and outstanding 24,698 Additional paid-in capital 18,568,106 Accumulated deficit (13,046,052) ----------- Total stockholders' equity 5,546,752 ----------- Total liabilities and stockholders' equity $ 8,692,350 =========== SEE ACCOMPANYING NOTES. 3 Front Porch Digital, Inc. Statement of Operations (Unaudited)
PERIOD BEGINNING FEBRUARY 1, 2000 THREE MONTHS THREE MONTHS SIX MONTHS (COMMENCEMENT OF ENDED ENDED ENDED OPERATIONS) TO JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000 ---------------------------------------------------------------------- Revenues: Products $10,980 $31,122 $48,960 $38,722 Services 6,090 1,954 57,900 14,735 Services - affiliate -- -- 169,716 -- --------------------------------------------------------------------- Total revenue 17,070 33,076 276,576 53,457 Cost of revenue: Products 5,500 19,110 22,998 23,550 Services 243,326 3,408 470,411 1,458 --------------------------------------------------------------------- 248,826 22,518 493,409 25,008 --------------------------------------------------------------------- Gross margin (231,756) 10,558 (216,833) 28,449 --------------------------------------------------------------------- Selling, general and administrative expenses 1,584,440 473,732 3,026,013 1,142,059 Research and development 157,843 -- 410,064 -- Depreciation 133,271 7,784 283,085 8,662 Amortization 256,756 -- 513,512 -- --------------------------------------------------------------------- 2,132,310 481,516 4,232,674 1,150,721 --------------------------------------------------------------------- Loss from operations (2,364,066) (470,958) (4,449,507) (1,122,272) Other income (expense): Interest income 4,898 -- 29,004 -- Interest expense (4,500) (16,125) (9,000) (18,375) --------------------------------------------------------------------- 398 (16,125) 20,004 (18,375) --------------------------------------------------------------------- Net loss ($2,363,668) ($487,083) ($4,429,503) ($1,140,647) ===================================================================== Weighted average number of common shares outstanding-basic and diluted 24,572,008 15,892,335 24,569,419 15,874,263 ===================================================================== Loss per common share-basic and diluted ($0.10) ($0.03) ($0.18) ($0.07) =====================================================================
SEE ACCOMPANYING NOTES. 4 Front Porch Digital, Inc. Statement of Cash Flows (Unaudited) PERIOD BEGINNING FEBRUARY 1, 2000 SIX MONTHS (COMMENCEMENT ENDED OF OPERATIONS) TO JUNE 30, 2001 JUNE 30, 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ($4,429,503) ($1,140,647) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 796,597 8,662 Stock option compensation cost 654,056 36,920 Changes in operating assets and liabilities: Decrease in accounts receivable - affiliate 218,010 -- Increase in accounts receivable (368,201) (1,591) Increase in other current assets (23,395) -- Increase in accounts payable 334,900 93,641 Increase in accrued expenses 62,995 543,718 Increase in accrued expenses - employees 200,000 -- Increase in accrued vacation 45,001 -- Increase in deferred revenue 359,336 -- Other (26,775) (6,084) ----------- ----------- Net cash used in operating activities (2,176,979) (465,381) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (215,871) (173,904) Software development costs (121,974) -- Other investing activities (28,881) -- Purchase of investment -- (300,000) ----------- ----------- Net cash used in investing activities (366,726) (473,904) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes payable -- 800,000 Proceeds from issuance of common stock 250,000 377,440 ----------- ----------- Net cash provided by financing activities 250,000 1,177,440 ----------- ----------- Net (decrease) increase in cash and cash equivalents (2,293,705) 238,155 Cash and cash equivalents, beginning of period 2,444,527 14,483 ----------- ----------- Cash and cash equivalents, end of period $150,822 $252,638 =========== =========== SEE ACCOMPANYING NOTES. 5 Front Porch Digital, Inc. Notes to Financial Statements (Unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION Front Porch Digital Inc. (the "Company") is in the emerging market of digital information asset management. The Company utilizes a suite of proprietary products and services that enable customers to migrate data from nearly any media type and data format to any other media type and format. Incorporating software-based methodologies and intellectual property throughout its service offerings allows content to be captured, converted, managed and distributed in digital form efficiently and cost effectively. The Company's customers are primarily located within the United States. On May 2, 2000, the Company, formerly Empire Communications, Inc., and Front Porch Digital Inc., a Delaware corporation which was formed on February 1, 2000 ("Front Porch"), executed an Agreement and Plan of Reorganization pursuant to which 100% of Front Porch's stock was effectively exchanged for a controlling interest in a publicly-held "shell" corporation that concurrently changed its name to Front Porch Digital Inc. This transaction is commonly referred to as a "reverse acquisition". For financial accounting purposes, this transaction has been treated as the issuance of stock for the net monetary assets of the Company, accompanied by a recapitalization of Front Porch, with no goodwill or other intangible assets recorded. For financial reporting purposes, Front Porch is considered the acquirer and therefore the historical operating results of Empire Communications, Inc. are not presented. The accompanying financial information includes the results of operations and cash flows of Front Porch for the period beginning February 1, 2000 (commencement of operations) to May 2, 2000. The financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments that might be necessary should the Company be unable to continue in existence. For the six months ended June 30, 2001, the Company incurred losses and negative cash flows from operating activities of $4.4 million and $2.2 million, respectively. These factors create significant uncertainty about the Company's ability to continue as a going concern. During 2001, the Company has been focused on completing the development of its products and service offerings that facilitate the distribution of digital video content. The Company has also been marketing its suite of data and video solutions to the marketplace and has begun discussions with several potential customers to begin testing the beta versions of the digital video archive. During the second quarter, the Company was awarded a $2.5 million contract to be completed in 2002, to convert in excess of one billion check images and associated data to a single standard digital format. Management of the Company recognizes that additional resources will be required to continue as a going concern and has been seeking additional sources of capital. Management believes that these actions will enable the Company to obtain sufficient cash to continue as a going concern. There can be no assurance that additional capital will be available on terms that are acceptable to the Company. 6 The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Management of the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal and recurring nature. For further information, refer to the financial statements and footnotes included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. Operating results for the three and six month periods ended June 30, 2001 are not necessarily indicative of the operating results expected for the year ending December 31, 2001. 2. RELATED PARTY TRANSACTIONS The Company leases office space on a month-to-month basis from Formal Systems America Inc. ("FSAI"). Certain shareholders of FSAI are also shareholders of the Company. Rent expense on this lease for the three and six months ended June 30, 2001 was approximately $35,000 and $70,000 respectively. 3. PER SHARE DATA The Company reports its earnings (loss) per share in accordance with the Statement of Financial Accounting Standards No.128, "Accounting for Earnings Per Share" ("FAS 128"). Basic loss per share is calculated using the net loss divided by the weighted average common shares outstanding. Shares from the assumed conversion of outstanding warrants and options are omitted from the computations of diluted loss per share because the effect would be antidilutive. 4. PENDING ACCOUNTING CHANGES In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets". This statement addresses financial accounting and reporting for acquired goodwill and other intangible assets. The provisions of this statement become effective for the Company beginning January 1, 2002 and are required to be applied to all goodwill and other intangible assets recognized in the Company's financial statements at the date of adoption. At that time, goodwill will no longer be amortized, but will be tested for impairment annually. Impairment losses for goodwill and indefinite-lived intangible assets that arise due to the initial application of this statement would be reported as resulting from a change in accounting principle. The Company is currently assessing the impact this statement will have on the Company's financial statements when it is adopted at the beginning of 2002. 5. NOTES PAYABLE At June 30, 2001, the Company had a $200,000 unsecured note payable that bears interest at 9% per annum and is payable on demand. In addition, the Company had a non-interest bearing note payable to an employee of approximately $744,000. This note is payable based on a percentage of revenue from the media services operations, ranging between 2% and 3% per year. In the event the Company exits the media conversion business prior to December 31, 2004, the remaining balance of this note is payable on demand. 7 6. SIGNIFICANT CUSTOMERS For the six months ended June 30, 2001, revenue from two customers, each exceeding 10% of total revenue, aggregated 65% and 11%, respectively. There were no accounts receivable from these customers as of June 30, 2001. The Company is a subcontractor for its largest customer, which owned approximately 25% of the Company's outstanding common stock as of June 30, 2001. 7. STOCKHOLDERS' EQUITY In June 2001, the Company sold 5 units in a private placement, each unit consisting of 25,000 shares of unregistered common stock and warrants to purchase 25,000 shares of unregistered common stock at an exercise price of $3.00 per share. These warrants expire on June 30, 2004. The Company received aggregate proceeds of $250,000 from this offering. In July 2001, the Company sold 25.5 additional units in the private placement under the same terms. The Company received aggregate proceeds of $1.3 million from this offering. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION GENERAL When used in this discussion, the words "believes", "anticipates", "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The Company's business and results of operations are affected by a wide variety of factors that could materially and adversely affect the Company and its actual results, including, but not limited to: (1) the availability of additional funds to enable the Company to successfully pursue its business plan; (2) the uncertainties related to the effectiveness of the Company's technologies and the development of its products and services; (3) the Company's ability to maintain, attract and integrate management personnel; (4) the ability of the Company to complete the development of its proposed products in a timely manner; (5) the Company's ability to effectively market and sell its products and services to current and new customers; (6) the Company's ability to negotiate and maintain suitable strategic partnerships and corporate relationships; (7) the intensity of competition; and (8) general economic conditions. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results and stock price. These forward-looking statements speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. OVERVIEW The Company is establishing itself as a leading provider in the emerging market for the conversion and formatting of data, images, audio, graphics and video from any format to any other format, for access via any digital platform, including broadband, Internet, DVD and HDTV. The Company is also seeking to capitalize on its enterprise media services operations status as one of the only providers of onsite, offline information migration services to businesses and governmental agencies that seek to migrate tape and optical assets from old to new formats. The Company intends to use these and other proprietary technologies to accelerate revenue growth and generate positive cash flows. Management has recently focused on (i) completing the development of its products and service offerings that are designed to facilitate the distribution of digital video content (ii) developing sales and marketing programs to build awareness of the Company's product and service offerings and (iii) building an infrastructure that is capable of effectively meeting anticipated demand for the Company's products and services. The Company is in the early stages of executing its business strategy and anticipates beginning numerous new engagements during the next 12 months. This expansion is contingent upon several factors, including the availability of adequate cash resources, the price of its products and services relative to its competitors, and general economic and business conditions, among other factors. 9 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000. For the three months ended June 30, 2001, the Company reported a net loss of $2.4 million, or ($.10) per share, compared to a net loss of $487,000, or ($.03) per share, for the three months ended June 30, 2000. Total revenue for the three months ended June 30, 2001 of $17,000, has not changed significantly from total revenue of $33,000 for the three months ended June 30, 2000. For the three months ended June 30, 2001, $11,000, or 65% of total revenue, was attributable to sales of software and related products. The remaining $6,000, or 35%, was attributable to data and video conversion services. For the three months ended June 30, 2000, substantially all revenue was attributable to sales of software and related products. Substantially all of the Company's revenue has been derived from customers in the United States. Total gross margin was negative $(232,000) or (1,358)% of total revenue for the three months ended June 30, 2001 compared to $11,000 or 32% of total revenue for the three months ended June 30, 2000. The decrease in total gross margin was principally due to excess capacity within the Company's service delivery function. In June 2001, the Company reduced its headcount within the service delivery group by 45% and took other actions to reduce costs. For the three months ended June 30, 2001, sales of software and related products resulted in gross margins of 50% and the provision of data and video conversion services resulted in negative gross margins of (3,896%). For the three months ended June 30, 2000, substantially all of the Company's gross margins were attributable to video conversion services. The Company plans to significantly increase its revenue, and therefore expects expenses in this category to also increase substantially. Selling, general and administrative expenses for the three months ended June 30, 2001 were $1.6 million compared to $474,000 for the three months ended June 30, 2000. The increase in these expenses was primarily related to the acquisition of the media services operations of StorageTek in October 2000, the addition of several key senior managers, the creation of a sales and marketing department, and the establishment of the corporate headquarters. Selling, general and administrative expenses for the three months ended June 30, 2001 consisted primarily of $1,155,000 for salaries and related benefits for employees not directly related to the production of revenue, $146,000 in professional fees, $114,000 for travel, $88,000 of facilities costs, and $82,000 for general office expenses. Should the Company secure additional funding, it plans to increase its sales and marketing efforts and, to a lesser extent, continue to build its infrastructure and, therefore, expects expenses in this category to increase significantly. Research and development expenses for the three months ended June 30, 2001 were $158,000 compared to a nominal amount for the three months ended June 30, 2000. The increase was due to the development of software tools and products that facilitate the conversion and migration of data from legacy media to current technology, convert analog content to multiple digital formats, and manage and reformat digital content on demand. 10 Depreciation and amortization expense was $390,000 for the three months ended June 30, 2001 compared to $8,000 for the three months ended June 30, 2000. Amortization expense consisted of amortization of the excess cost of the media services operations over the fair value of the net assets acquired and other intangible assets. Depreciation expense consists of depreciation of furniture, equipment, software and improvements. The increase in these expenses was primarily attributable to the assets acquired in conjunction with the acquisition of the media services operations of StorageTek in October 2000. Interest expense was $4,500 for the three months ended June 30, 2001 compared to $16,000 for the three months ended June 30, 2000. Interest expense represented interest on the notes payable. The outstanding balance on these notes was $200,000 and $800,000 as of June 30, 2001 and 2000, respectively. FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND FOR THE PERIOD BEGINNING FEBRUARY 1, 2000 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 2000 For the six months ended June 30, 2001, the Company reported a net loss of $4.4 million, or ($.18) per share, compared to a net loss of $1.1 million, or ($.07) per share, for the period ended June 30, 2000. Total revenue for the six months ended June 30, 2001 was $277,000, an increase of 417% from total revenue of $53,000 for the period ended June 30, 2000. The increase in total revenue was primarily due to the completion of ongoing projects acquired in conjunction with the acquisition of the media services operations of Storage Technology Corporation ("StorageTek") in October 2000. For the six months ended June 30, 2001, $49,000, or 18% of total revenue, was attributable to sales of software and related products. The remaining $227,000, or 82%, was attributable to data and video conversion services. For the period ended June 30, 2000, $39,000, or 72% of total revenue, was attributable to sales of software and related products. The remaining $15,000, or 28%, was attributable to video conversion services. Substantially all of the Company's revenue has been derived from customers in the United States. Total gross margin was negative $(217,000), or (78)% of total revenue, for the six months ended June 30, 2001 compared to $28,000, or 53% of total revenue, for the period ended June 30, 2000. The decrease in total gross margin was principally due to the excess capacity within the Company's service delivery function. In June 2001, the Company reduced its headcount within the service delivery group by 45% and took other actions to reduce costs. For the six months ended June 30, 2001, sales of software and related products resulted in gross margins of 53% and the provision of data and video conversion services resulted in negative gross margins of (107%). For the period ended June 30, 2000, sales of software and related products resulted in gross margins of 39% and the provision of video conversion services resulted in gross margins of 90%. The Company plans to significantly increase its revenue, and therefore expects expenses in this category to also increase substantially. Selling, general and administrative expenses for the six months ended June 30, 2001 were $3.0 million compared to $1.1 million for the period ended June 30, 2000. The increase in these expenses was primarily due to the acquisition of the media services operations of StorageTek in October 2000, the addition of several key senior managers, the creation of a sales and marketing department, and the establishment of the corporate headquarters. Selling, general and administrative expenses for the six months ended June 30, 2001 consisted primarily of $2,062,000 for salaries and related benefits for employees not directly related to the production of revenue, $272,000 in professional fees, $265,000 for travel, $168,000 of facilities costs, $227,000 for general office expenses, and $24,000 for leased equipment. Should the Company secure additional funding, it plans to increase its sales and marketing efforts and, to a lesser extent, continue to build its infrastructure and, therefore, expects expenses in this category to increase significantly. 11 Research and development expenses for the six months ended June 30, 2001 were $410,000 compared to a nominal amount for the period ended June 30, 2000. The increase was due to the development of software tools and products that facilitate the conversion and migration of data from legacy media to current technology, convert analog content to multiple digital formats, and manage and reformat digital content on demand. Depreciation and amortization expense was $797,000 for the six months ended June 30, 2001 compared to $9,000 for the period ended June 30, 2000. Amortization expense consisted of amortization of the excess cost of the media services operations over the fair value of the net assets acquired and other intangible assets. Depreciation expense consists of depreciation of furniture, equipment, software and improvements. The increase in these expenses was primarily attributable to the assets acquired in conjunction with the acquisition of the media services operations of StorageTek in October 2000. Interest expense was $9,000 for the six months ended June 30, 2001 compared to $18,000 for the period ended June 30, 2000. Interest expense represented interest on the notes payable. The outstanding balance on these notes was $200,000 and $800,000 as of June 30, 2001 and 2000 respectively. FINANCIAL CONDITION The Company's principal sources of liquidity have been its cash reserves received from a private placement completed by the Company in October 2000. At June 30, 2001, the Company had $151,000 of cash and cash equivalents. The Company used net cash of $2.2 million in operating activities during the six months ended June 30, 2001 compared to $465,000 for the period beginning February 1, 2000 (commencement of operations) to June 30, 2000. This increase was primarily due to the acquisition of the media services operations of StorageTek in October 2000, the addition of several key senior managers, the creation of a sales and marketing department, and the establishment of the Company's corporate headquarters. The Company used net cash of $367,000 in investing activities during the six months ended June 30, 2001, which consisted of $216,000 for capital expenditures and $122,000 for software development costs. For the period ended June 30, 2000, the Company used net cash of $474,000 in investing activities, which consisted of $174,000 for capital expenditures and a $300,000 investment in an unrelated company. The Company expects capital expenditures to be approximately $1.0 million during the next twelve months. Financing activities provided net cash of $250,000 during the six months ended June 30, 2001 due to the sale of 125,000 shares of common stock and warrants to purchase 125,000 shares of common stock. Financing activities for the period ended June 30, 2000 provided net cash of $1.2 million, of which $800,000 was proceeds received from notes payable and $377,000 was received from the sale of 187,500 shares of common stock. 12 It is expected that the Company's principal uses of cash will be to provide working capital, to finance capital expenditures and product development, and for other general corporate purposes. The amount of spending in each respective area will be dependent upon the total capital available to the Company. The current level of cash flows from operating activities are not sufficient to enable the Company to continue to operate and to execute its business strategy. As a result, the Company is seeking additional capital. In the interim, the Company is managing its investments (and its growth) in infrastructure based on its cash position and the near term cash flow generated from its media services operations. Additionally, in July 2001, the Company sold 637,500 shares of common stock and warrants to purchase 637,500 shares of common stock in a private placement which the Company received aggregate proceeds of $1.3 million. The Company anticipates having sufficient cash to continue operations through the fourth quarter of 2001. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company's actual financial results may differ materially from the stated plan of operations. Factors which may cause a change from the Company's plan of operations vary, but include, without limitation, decisions of the Company's management and board of directors not to pursue the stated plan of operations based on its reassessment of the plan, and general economic conditions. If the Company is successful in raising additional capital, the Company anticipates that its operating expenses will increase over the next 12 months as it accelerates execution of its business strategy. There can be no assurance that additional capital will be available on terms that are acceptable to the Company. Additionally, there can be no assurance that the Company's business will generate cash flows at or above current levels. Accordingly, the Company may seek other means to gain cash flow flexibility. As of June 30, 2001, the Company had liquid assets (cash and cash equivalents and accounts receivable) of $523,000 and current assets of $623,000. These assets were primarily derived from operating activities. Long-term assets of $8.1 million at June 30, 2001, consisted primarily of the excess of cost over fair value of the media services assets acquired from StorageTek of $5.0 million, software and intellectual property of $1.5 million and property and equipment of $1.4 million. Current liabilities of $2.6 million at June 30, 2001 consisted of $816,000 of accounts payable; $439,000 of accrued expenses; $468,000 of accrued expenses to employees, of which $168,000 is payable to an employee upon the closing of an offering which raises gross proceeds of at least $5.0 million, and $300,000 of bonuses payable to select employees; $359,000 of deferred revenue on projects currently in process; $200,000 of a note payable due on demand; $160,000 for the current portion of a note payable to an employee that was assumed upon the acquisition of the media services operations and $119,000 of accrued vacation. The Company's working capital deficit was $1.9 million as of June 30, 2001 for the reasons described above. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - The Company is not subject to any material legal proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS In June and July 2001, the Company sold to six accredited investors, an aggregate of 30.5 units in a private placement, each unit consisting of 25,000 shares of unregistered common stock and warrants to purchase 25,000 shares of unregistered common stock at an exercise price of $3.00 per share. The Company received aggregate proceeds of $1,525,000 from this offering. The Company intends to use the net proceeds from this private placement primarily for sales and marketing expenses; research and development; the purchase of equipment; and working capital and general corporate purposes. Such transaction was effected pursuant to Rule 506 under the Securities Act of 1933, as amended. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: The following exhibits are filed herewith: (a) Exhibits Exhibit Number Title of Document - ------ ------------------------------------------------------- 10.1 Employment Agreement dated as of May 1, 2001 between the Company and Jean Reiczyk. 10.2 Consulting Agreement dated as of May 1, 2001 between the Company and Timothy M. Petry. - ------------------------------ (b) Current Reports on Form 8-K or 8-K/A None. 14 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 13, 2001 FRONT PORCH DIGITAL INC. By: /s/ Jean Reiczyk ------------------------------- Jean Reiczyk Chief Executive Officer By: /s/ Timothy M. Petry ------------------------------- Timothy M. Petry Chief Financial Officer 15 EX-10.1 3 c21557_ex10-1.txt EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of May 1, 2001, by and between FRONT PORCH DIGITAL INC., a Nevada corporation (the "Company"), and JEAN REICZYK, an individual residing at 2559 Ginny Way, Lafayette, Colorado 80026 (the "Employee"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee as its Chief Executive Officer and wishes to acquire and be assured of Employee's services on the terms and conditions hereinafter set forth; and WHEREAS, the Employee desires to be employed by the Company as its Chief Executive Officer, and to perform and to serve the Company on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual terms, covenants, agreements and conditions hereinafter set forth, the Company and the Employee hereby agree as follows: 1. EMPLOYMENT. (a) The Company hereby employs the Employee to serve as a full time employee of the Company, and the Employee hereby accepts such employment with the Company, for the period set forth in Section 2 hereof. During the Employment Term (as defined below), the Employee's office and base from which he performs his duties hereunder shall be located in Boulder, Colorado. (b) To the best of the Employee's knowledge: (i) the Employee is under no obligation to any former employer or other party that is in any way inconsistent with, or that imposes any restriction upon, the Employee's acceptance of employment hereunder with the Company, the employment of the Employee by the Company, or the Employee's undertakings under this Agreement and (ii) his performance of all the terms of this Agreement and his employment by the Company does not and will not breach any agreement to keep in confidence proprietary information acquired by him in confidence or in trust prior to his employment by the Company. 2. TERM. (a) Unless earlier terminated as provided in this Agreement, the term of the Employee's employment under this Agreement shall be for a period of three (3) years beginning May 1, 2001 (the "Effective Date") and ending on April 30, 2004, unless extended pursuant to paragraph (b) below (such period or, if the Employee's employment hereunder is earlier terminated, such shorter period, or if the Employee's employment is extended pursuant to paragraph (b) below, such longer period, being hereinafter called the "Employment Term"). (b) The term of this Agreement shall automatically be extended for an additional one-year period on May 1, 2004 and on each May 1 thereafter unless, not later than the December 31 immediately preceding such May 1, the Company shall have given notice that it does not wish to extend this Agreement or the Employee shall have notified the Company that he wishes to leave the employ of the Company on the expiration date of the then current term of this Agreement. 3. DUTIES. (a) The Employee shall be employed as the Chief Executive Officer of the Company. The Employee shall faithfully and competently perform such duties at such times and places and in such manner as the Company may from time to time reasonably direct or such other duties appropriate to a senior executive managerial position as the Board of Directors of the Company shall from time to time determine. (b) Subject to Section 3(c) hereof and except as may otherwise be approved in writing by the Board of Directors of the Company, and except during vacation periods and reasonable periods of absence due to sickness, personal injury or other disability, the Employee shall devote his full time throughout the Employment Term to the services required of Employee hereunder. Subject to Section 3(c) hereof, the Employee shall render his services exclusively to the Company during the Employment Term and shall use his best efforts, judgment and energy to improve and advance the business and interests of the Company in a manner consistent with the duties of Employee's position. (c) The Company acknowledges that the Employee has various investments and business interests that he may pursue if such pursuits do not materially interfere with his duties hereunder. Further, provided such activities are not in conflict or in competition with the Company's interests, and the Company's trade secrets are not jeopardized in any manner, and the time and energy the Employee devotes to such activities do not significantly impair his ability to act satisfactorily as the Company's Chief Executive Officer, the Employee shall be permitted to act in such other capacities outside his employment with the Company. It is expressly agreed the Employee may retain his ownership interest in, and may continue to pursue, consistent with past practices, his management responsibilities with respect to, the entities listed on Schedule A. (d) Employee shall be entitled to serve on the Company's Board of Directors during the Employment Term; PROVIDED, HOWEVER, that his Base Salary shall constitute consideration for any such service and the Employee shall not be entitled to any additional compensation in respect of such service on the Board. 4. SALARY AND BONUS. (a) BASE SALARY. In consideration for the services of the Employee rendered to the Company hereunder, the Company shall pay the Employee a base salary at an annual rate of Two Hundred Fifty Thousand Dollars ($250,000.00) during the Employment Term, payable in regular intervals in accordance with the Company's payroll practices (the "Base Salary"). The Base Salary will be reviewed at least annually with Employee's input. Adjustments to Base Salary shall be based on Employee's performance under the terms of a written personal performance plan ("PPP"), which shall be updated annually with Employee's knowledge and approval. (b) STOCK OPTIONS. On the Effective Date, the Company shall grant stock options to Employee pursuant to and subject to the terms and conditions of the 2000 Equity Incentive Plan of the Company to purchase 625,000 shares of Common Stock, par value $.001 per share (the "Common Stock"), of the Company. Of such options, options to purchase 125,000 shares shall be at an exercise price of $2.00 per share and options to purchase 500,000 shares shall be at an exercise price of $4.00 per share. Such options shall vest in three equal annual 2 installments, with the first installment vesting on October 1, 2001, the second installment vesting on October 1, 2002 and the remaining options vesting on October 1, 2003, and shall expire on September 30, 2010. All such stock options, whether or not vested, will be subject to forfeiture or termination in the event of a breach by the Employee of the provisions of Sections 6 or 8 hereof. (c) BONUSES. The PPP shall include goals (the "Bonusable Goals") which are reviewed annually with Employee's input and which, if achieved, would result in a specified bonus of at least $125,000 (the "Target Bonus") for each 12-month period ended December 31; provided, however, that the Employee shall be entitled to receive a guaranteed bonus of $125,000 for the 12-month period ending December 31, 2001 whether or not the Employee's Bonusable Goals for such period are achieved. The Company shall pay the Employee an additional bonus for achievements in excess of the Bonusable Goals according to the formula established in the PPP (the "Overachievement Bonus"). (d) WITHHOLDING, ETC. The payment of any salary or bonuses hereunder shall be subject to income tax, social security and other applicable withholdings, as well as such deductions as may be required under the Company's employee benefit plans. 5. BENEFITS. (a) During the Employment Term, the Employee shall be: (i) eligible to participate in all employee fringe benefits and any pension and/or profit sharing plans that may be provided by the Company for its key executive employees in accordance with the provisions of any such plans, as the same may be in effect on and after the date hereof; (ii) eligible to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its key executive employees in accordance with the provisions of any such plans, as the same may be in effect on and after the date hereof; PROVIDED, HOWEVER, that the medical and health plans provided by the Company shall be equivalent to a preferred provider option from a national health care insurance provider; (iii) entitled to paid time off each year in accordance with the Company's standard employee vacation policy, which shall be taken at such time or times as will not unreasonably hinder or interfere with the Company's business or operations; and (iv) entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Employee in the performance of the Employee's duties hereunder in accordance with the Company's policies applicable (on and after the date hereof) thereto. (b) Employee shall cooperate with the Company in the event the Company wishes to obtain key-man insurance on the Employee. Such cooperation shall include, but not be limited to, taking any physical examinations that may be requested by the insurance company. 6. INVENTIONS AND CONFIDENTIAL INFORMATION. The Employee hereby covenants, agrees and acknowledges as follows: 3 (a) The Company is engaged in a continuous program of research, design, development, production, marketing and servicing with respect to its businesses. (b) The Employee's employment hereunder creates a relationship of confidence and trust between the Employee and the Company with respect to certain information pertaining to the business of the Company and its Affiliates (as hereinafter defined) or pertaining to the business of any client or customer of the Company or its Affiliates which may be made known to the Employee by the Company or any of its Affiliates or by any client or customer of the Company or any of its Affiliates or learned by the Employee during the period of Employee's employment by the Company. (c) The Company possesses and will continue to possess information that has been created, discovered or developed by, or otherwise become known to it (including, without limitation, information created, discovered or developed by, or made known to, the Employee during the period of Employee's employment or arising out of Employee's employment) or in which property rights have been or may be assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential. (d) Any and all inventions, products, discoveries, improvements, processes, manufacturing, marketing and services methods or techniques, formulae, designs, styles, specifications, data bases, computer programs (whether in source code or object code), know-how, strategies and data, whether or not patentable or registrable under copyright or similar statutes, made, developed or created by the Employee (whether at the request or suggestion of the Company, any of its Affiliates, or otherwise, whether alone or in conjunction with others, and whether during regular hours of work or otherwise) during the period of Employee's employment by the Company which may pertain to the business, products, or processes of the Company or any of its Affiliates (collectively hereinafter referred to as "Inventions"), will be promptly and fully disclosed by the Employee to an appropriate executive officer of the Company (other than the Employee) without any additional compensation therefor, all papers, drawings, models, data, documents and other material pertaining to or in any way relating to any Inventions made, developed or created by Employee as aforesaid. For the purposes of this Agreement, the term "Affiliate" or "Affiliates" shall mean any person, corporation or other entity directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For the purposes of this definition, "control" when used with respect to any person, corporation or other entity means the power to direct the management and policies of such person or entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (e) The Employee will keep confidential and will hold for the Company's sole benefit any Invention which is to be the exclusive property of the Company under this Section 6 for which no patent, copyright, trademark or other right or protection is issued. (f) The Employee also agrees that the Employee will not without the prior written consent of the Board of Directors of the Company (i) use for Employee's benefit or disclose at any time during Employee's employment by the Company, or thereafter, except to the extent required by the performance by the Employee of the Employee's duties as an employee of the Company, any information obtained or developed by Employee while in the employ of the Company with respect to any Inventions or with respect to any customers, clients, suppliers, 4 products, employees, financial affairs, or methods of design, distribution, marketing, service, procurement or manufacture of the Company or any of its Affiliates, or any confidential matter, except information which at the time is generally known to the public other than as a result of disclosure by the Employee not permitted hereunder, or (ii) take with the Employee upon leaving the employ of the Company any document or paper relating to any of the foregoing or any physical property of the Company or any of its Affiliates. (g) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Company and its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. (h) The Employee agrees that upon termination of Employee's employment by the Company for any reason, the Employee shall immediately return to the Company all documents and other property in Employee's possession belonging to the Company or any of its Affiliates. (i) Without limiting the generality of Section 9 hereof, the Employee hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Employee's heirs, successors and legal representatives. 7. TERMINATION. (a) The Employee's employment hereunder shall be terminated upon the occurrence of any of the following: (i) death of the Employee; (ii) termination of the Employee's employment hereunder by the Employee at any time for any reason whatsoever (including, without limitation, resignation or retirement) other than for "good reason" as contemplated by clause (v)(B) below; (iii) termination of the Employee's employment hereunder by the Company because of the Employee's inability to perform Employee's duties on account of disability (where no reasonable accommodation would permit Employee to perform the essential functions of his job or incapacity) for a period of ninety (90) or more days, whether or not consecutive, occurring within any period of twelve (12) consecutive months; (iv) termination of the Employee's employment hereunder by the Company at any time for "cause" (as hereinafter defined), such termination to take effect immediately upon written notice from the Company to the Employee; and (v) termination of the Employee's employment hereunder (A) by the Company at any time, other than termination by reason of disability or incapacity as contemplated by clause (iii) above or termination by the Company for "cause" as contemplated by clause (iv) above and (B) by the Employee for "good reason" (as hereinafter defined). 5 The following actions, failures or events shall constitute "cause" for termination within the meaning of clause (iv) above: (i) the Employee's conviction of, admission of guilt to or plea of NOLO CONTENDERE or similar plea (which, through lapse of time or otherwise, is not subject to appeal) with respect to any crime or offense that constitutes a felony in the jurisdiction involved; (2) acts constituting fraud or breach of fiduciary duty against the Company which are materially detrimental to the Company, (3) failure by the Employee to obey the reasonable and lawful orders of the Board of Directors of the Company, (4) any act by the Employee in violation of Section 8 hereof, any statement or disclosure by the Employee in violation of Section 6 hereof, or any material breach by the Employee of a representation or warranty contained in Section 1(b) hereof; (5) excessive absenteeism (other than by reason of disability) after written notice from the Board of Directors of the Company of prior similar actions; (6) excessive alcoholism or addiction to drugs not prescribed by a qualified physician (other than by reason of disability) after written notice from the Board of Directors of the Company of prior similar actions; (7) gross negligence by the Employee in the performance of, or willful disregard by the Employee of, the Employee's obligations hereunder. The following actions, failures or events shall constitute "good reason" within the meaning of clause (V)(B) above: (1) a material breach by the Company of its obligations under this Agreement, (2) a material diminution of the Employee's responsibilities or authority hereunder, (3) a decision by the Board of Directors of the Company not to engage in the Business (as that term is defined in the Asset Purchase Agreement dated as of October 10, 2000 between the Company and Storage Technology Corporation, (4) a decrease in a one-year period of ten percent (10%) or more in either the Employee's Base Salary or the maximum bonus percentage that may be paid to Employee unless the same such decrease(s) is imposed equally upon all members of the Company's executive management team and (5) the removal of the Employee from the Board of Directors of the Company or the failure of the shareholders of the Company to elect the Employee to the Board of Directors. (b) In the event that Employee's employment is terminated by the Company for any reason other than "cause," or the Employee's employment is terminated by the Employee for "good reason" (the `Triggering Events'), then (i) all options granted to the Employee under Section 4(b) hereof which have not vested shall immediately vest, (ii) all options granted to the Employee shall be exercisable until the earlier of (a) the expiration date of such options or (b) the second anniversary of the date of the Triggering Event, and (iii) the Company immediately shall pay to the Employee a payment equal to the Base Salary to which Employee would have been entitled during the one-year period following the date of the Triggering Event had the Employee not been terminated, plus a bonus equal to the Target Bonus the Employee would have been paid had he achieved his Bonusable Goals for that year and had continued to achieve the same Bonusable Goals throughout the one-year period following the date of the Triggering Event. (c) Notwithstanding anything to the contrary expressed or implied herein, except as required by applicable law and except as set forth in paragraph (b) above, the Company (and its Affiliates) shall not be obligated to make any payments to the Employee or on the Employee's behalf of whatever kind or nature by reason of the Employee's cessation of employment (including, without limitation, by reason of termination of the Employee's employment by the Company for "cause"), other than (i) such amounts, if any, of the Employee's salary and bonus as shall have accrued and remained unpaid as of the date of said cessation and (ii) such other amounts which may be then otherwise payable to the Employee from the Company's benefits plans or reimbursement policies, if any. 6 (d) No interest shall accrue on or be paid with respect to any portion of any payments hereunder. 8. NON-COMPETITION. (a) The term "Non-Compete Term" shall mean the period during which Employee is employed hereunder and the one-year period thereafter. During the Non-Compete Term: (i) the Employee will not make any statement or perform any act intended to advance an interest of any direct competitor of the Company or any of its Affiliates in any way that will or may injure an interest of the Company or any of its Affiliates in its relationship and dealings with existing customers or clients, or knowingly solicit or encourage any other employee of the Company or any of its Affiliates to do any act that is disloyal to the Company or any of its Affiliates or inconsistent with the interest of the Company or any of its Affiliate's interests or in violation of any provision of this Agreement; (ii) the Employee will not discuss with any customers or clients of the Company or any of its Affiliates the present or future availability of services or products of a business, if the Employee has or expects to acquire a proprietary interest in such business or is or expects to be an employee, officer or director of such business, where such services or products are directly competitive with services or products which the Company or any of its Affiliates provides; (iii) the Employee will not make any statement or do any act intended to cause any customers or clients of the Company or any of its Affiliates to make use of the services or purchase the products of any directly competitive business in which the Employee has or expects to acquire a proprietary interest or in which the Employee is or expects to be made an employee, officer or director, if such services or products directly compete with the services or products sold or provided or expected to be sold or provided by the Company or any of its Affiliates to any customer or client; and (iv) the Employee will not directly or indirectly (as a director, officer, employee, manager, consultant, independent contractor, advisor or otherwise) engage in direct competition with, or own any interest in, perform any services for, participate in or be connected with (i) any business or organization which engages in direct competition with the Company or any of its Affiliates in any geographical area where any business is presently carried on by the Company or any of its Affiliates, or (ii) any business or organization which engages in direct competition with the Company or any of its Affiliates in any geographical area where any business shall be hereafter, during the period of the Employee's employment by the Company, carried on by the Company or any of its Affiliates, if such business is then being carried on by the Company or any of its Affiliates in such geographical area; PROVIDED, HOWEVER, that the provisions of this Section 8(a) shall not be deemed to prohibit the Employee's ownership of not more than one percent (1%) of the total shares of all classes of stock outstanding of any publicly held company. At the end of the Employee's employment, if any, the Company, in good faith, shall provide to the Employee a list of the Company's then-existing direct competitors, Affiliates, customers, businesses, organizations and others to which this Section 8 refers. 7 (b) During the Non-Compete Term, the Employee will not directly or indirectly hire, engage, send any work to, place orders with, or in any manner be associated with any supplier, contractor, subcontractor or other person or firm which rendered manufacturing or other services, or sold any products, to the Company or any of its Affiliates if such action by Employee would have a material adverse effect on the business, assets or financial condition of the Company or any of its Affiliates. (c) In connection with the foregoing provisions of this Section 8, the Employee represents that Employee's experience, capabilities and circumstances are such that such provisions will not prevent Employee from earning a livelihood. The Employee further agrees that the limitations set forth in this Section 8 (including, without limitation, any time or territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company and its Affiliates. It is understood and agreed that the covenants made by the Employee in this Section 8 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement. (d) For purposes of this Section 8, proprietary interest in a business is ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of such business. (e) The Employee acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 8 would be inadequate and, therefore, agrees that the Company and any of its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 9. CHANGE IN CONTROL. (a) TERMINATION PAYMENTS. In the event Employee's employment under this Agreement is terminated by the Company on or following a Change in Control (as defined in Section 9(c)), the Company shall pay to Employee and Employee shall be entitled to all the payments and rights he would have had if Employee had terminated his employment for "good reason" as set forth in Section 7(b). The aforesaid amount shall be paid to Employee within thirty (30) days of the date of termination. In addition, the maximum number of options granted pursuant to Sections 4(b) hereof that have not previously vested shall immediately vest as of the date of the Change of Control regardless of the vesting schedule set forth in such Section. Neither the occurrence of a Change in Control, nor the vesting in any options as a result thereof shall require the Employee to exercise any options. In the event of a conflict between any option grant agreement or plan and this Agreement, the terms of this Agreement shall control. (b) EXCISE TAX GROSS UP. If it is determined by an independent accountant mutually acceptable to the Company and Employee that as a result of any payment in the nature of compensation made by the Company to (or for the benefit of) Employee pursuant to this Agreement or otherwise, an excise tax may be imposed on Employee pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay Employee 8 in cash an amount to provide Employee with a full tax gross-up under the provisions of this Section, so that on a net after-tax basis, the result to Employee shall be the same as if the excise tax under Section 4999 of the Code (or any successor provisions) had not been imposed. (c) CHANGE IN CONTROL. For purposes of this Agreement "Change in Control" shall mean that any of the following events has occurred: (A) any "person" or "group" of persons, as such terms are used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than any employee benefit plan sponsored by the Company, becomes the "beneficial owner", as such term is used in Section 13 of the Exchange Act, (irrespective of any vesting or waiting periods) of Common Stock or any class of stock convertible into Common Stock in an amount equal to forty (40%) percent or more of the Common Stock (treating all classes of outstanding stock, units or other securities convertible into stock units as if they were converted into Common Stock) issued and outstanding immediately prior to such acquisition and disregarding any equity raise in connection with the financing of such transaction; (B) Common Stock in excess of forty (40%) percent is purchased pursuant to a tender or exchange offer other than an offer by the Company; or (C) the dissolution or liquidation of the Company or the consummation of any merger or consolidation of the Company or any sale or other disposition of all or substantially all of its assets, if the shareholders of the Company own immediately after consummation of such transaction, equity securities possessing less than fifty (50%) percent of the surviving or acquiring company. (d) Except for any rights which Employee may have pursuant to this Section 9, the Company shall have no further obligations hereunder following such termination after a Change of Control. 10. NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, Employee's beneficiaries, or legal representatives without the Company's prior written consent; PROVIDED, HOWEVER, that nothing in this Section 10(a) shall preclude the Employee from designating a beneficiary to receive any benefit payable hereunder upon Employee's death or incapacity. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 11. BINDING EFFECT. Without limiting or diminishing the effect of Section 10 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 12. NOTICE. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the Company, at the Company's principal place of business, attention: Chief Financial Officer (with a copy to Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York, New York 10022, Attention: Eric M. Hellige, Esq.), and if to the Employee, at Employee's home address set forth above, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 9 13. SEVERABILITY. The Employee agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 8 hereof is void or constitutes an unreasonable restriction against the Employee, such provision shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 8 is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 14. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 15. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 16. APPLICABLE LAW AND VENUE. This Agreement shall be interpreted and construed in accordance with the laws of the State of Colorado, without regard to its conflicts of law provisions. Any action to enforce the terms of this Agreement shall be brought in a court of proper jurisdiction within the State of Colorado. 17. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18. SURVIVAL. The termination of Employee's employment hereunder shall not affect the enforceability of Sections 6 or 8. 19. FURTHER ASSURANCES. The parties agree to execute and deliver all such further instruments and take such other and further action as may be reasonably necessary or appropriate to carry out the provisions of this Agreement. 20. HEADINGS. The Section headings appearing in this Agreement are for purposes of easy reference and shall not be considered a part of this Agreement or in any way modify, amend or affect its provisions. 21. FACSIMILE SIGNATURES. Facsimile signatures will be accepted as originals. IN WITNESS WHEREOF, the Company and the Employee have duly executed and delivered this Agreement as of the day and year first above written. 10 FRONT PORCH DIGITAL INC. By: /S/ TIMOTHY M. PETRY ------------------------------- Name: Timothy M. Petry Title: Chief Financial Officer /S/ JEAN REICZYK ---------------------------------- JEAN REICZYK 11 SCHEDULE A ---------- Equity Pier LLC EX-10.2 4 c21557_ex10-2.txt CONSULTING AGREEMENT CONSULTING AGREEMENT CONSULTING AGREEMENT, dated as of May 1, 2001, by and between FRONT PORCH DIGITAL INC., a Nevada corporation (the "Company"), and TIMOTHY M. PETRY, an individual residing at 622 Lake Avenue, Wilmette, Illinois 60091 (the "Consultant"). W I T N E S S E T H: WHEREAS, the Company desires to retain the consulting services of the Consultant and to have the Consultant, in his capacity as such, serve as the Company's Chief Financial Officer, and the Company wishes to acquire and be assured of Consultant's consulting services on the terms and conditions hereinafter set forth; and WHEREAS, the Consultant desires to serve and consult with the Company on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual terms, covenants, agreements and conditions hereinafter set forth, the Company and the Consultant hereby agree as follows: 1. CONSULTING RELATIONSHIP. (a) The Company hereby retains the Consultant to consult with the Company from time to time and to perform the consulting services provided in Section 3 hereof, and the Consultant hereby agrees to perform such consulting services, for the period set forth in Section 2 hereof. During the Consulting Term (as hereinafter defined) Consultant shall not be deemed to be an employee of the Company but shall be an independent contractor and all of the terms and conditions of this Agreement shall be interpreted in light of that relationship. This Agreement does not create any employer-employee, agency or partnership relationship. As an independent contractor, Consultant's expenses shall be limited to those expressly stated in this Agreement. (b) To the best of the Consultant's knowledge: (i) the Consultant is under no obligation to any former employer or other party that is in any way inconsistent with, or that imposes any restriction upon, the Consultant's acceptance of his engagement hereunder with the Company, the engagement of the Consultant by the Company, or the Consultant's undertakings under this Agreement and (ii) his performance of all the terms of this Agreement and his engagement by the Company as a consultant does not and will not breach any agreement to keep in confidence proprietary information acquired by him in confidence or in trust prior to his engagement by the Company. 2. TERM. (a) This Agreement commences as of the date set forth above and will continue for an initial term of one (1) year (the "Initial Term"). After the Initial Term, this Agreement shall be automatically renewed on a month-to-month basis unless either party hereto gives 90 days' prior written notice (the "Termination Notice") to the other party hereto of termination (the "Term"). (b) Notwithstanding Section 2(a) hereof, the Company may terminate this Agreement at any time for "Cause". For purposes of this Agreement, "Cause," shall mean: (i) any fraud, misappropriation or embezzlement by the Consultant in connection with the Company's business; (ii) any conviction of or guilty plea to a felony or a gross misdemeanor by the Consultant that has or can be expected to have a detrimental effect on the Company or on the Consultant's ability to perform the Consultant's duties; (iii) any communication or disclosure by the Consultant that may result in potential harm or damage to the reputation or business prospects of the Company, as determined in the sole discretion of the Company; or (iv) a breach by the Consultant of the provisions of Section 6 or 7 hereof. 3. DUTIES. (a) The Consultant shall consult with management of the Company regarding financial, accounting and fund-raising matters as requested by management from time to time, and in his capacity as a consultant to the Company, shall have the title of Chief Financial Officer of the Company. The Consultant shall faithfully and competently perform such consulting services at such times and places and in such manner as the Company may from time to time reasonably direct or as the Board of Directors or Chief Executive Officer of the Company shall from time to time determine. (b) The Consultant shall be entitled to serve on the Company's Board of Directors during the Consulting Term; PROVIDED, HOWEVER, that the fee payable to the Consultant pursuant to Section 4(a) hereof shall constitute consideration for any such service and the Consultant shall not be entitled to any additional compensation in respect of such service on the Board. 4. FEES AND BONUS; EXPENSES. (a) MONTHLY FEE. Commencing as of the date hereof, the Company shall pay Consultant a non-refundable fee of Fifteen Thousand Six Hundred Thirty-Three Dollars ($15,663) per month on the first business day of each month (each, a "Payment Date"). (b) STOCK OPTIONS. Promptly following execution and delivery of this Agreement, the Company shall grant stock options to the Consultant pursuant to and subject to the terms and conditions of the 2000 Equity Incentive Plan of the Company to purchase 500,000 shares of Common Stock, par value $.001 per share (the "Common Stock"), of the Company. Of such options, options to purchase 100,000 shares shall be at an exercise price of $2.00 per share and options to purchase 400,000 shares shall be at an exercise price of $4.00 per share. Such options shall vest pro rata in three equal annual installments, with the first installment vesting on July 1, 2001, the second installment vesting on July 1, 2002 and the final installment on July 1, 2003, and shall expire on June 30, 2010; PROVIDED, HOWEVER, that if the Company delivers to the Consultant a Termination Notice pursuant to which the Consultant is terminated without Cause (i) on or after July 1, 2001 and prior to July 1, 2002, all options that would otherwise have vested on July 1, 2002 shall immediately vest and (ii) on or after July 1, 2002 and prior to July 1, 2003, all options that would have otherwise have vested on July 1, 2003 shall immediately vest; and 2 PROVIDED, FURTHER, that all such options shall vest immediately upon a Change in Control (as defined) of the Company. All such stock options, whether or not vested, will be subject to forfeiture or termination in the event of a breach by the Consultant of the provisions of Sections 6 or 8 hereof. For purposes of this Agreement a "Change in Control" shall mean that any of the following events has occurred: (A) any "person" or "group" of persons, as such terms are used in Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than any employee benefit plan sponsored by the Company, becomes the "beneficial owner", as such term is used in Section 13 of the Exchange Act, (irrespective of any vesting or waiting periods) of Common Stock or any class of stock convertible into Common Stock in an amount equal to forty (40%) percent or more of the Common Stock (treating all classes of outstanding stock, units or other securities convertible into stock units as if they were converted into Common Stock) issued and outstanding immediately prior to such acquisition and disregarding any equity raise in connection with the financing of such transaction; (B) Common Stock in excess of forty (40%) percent is purchased pursuant to a tender or exchange offer other than an offer by the Company; or (C) the dissolution or liquidation of the Company or the consummation of any merger or consolidation of the Company or any sale or other disposition of all or substantially all of its assets, if the shareholders of the Company own immediately after consummation of such transaction, equity securities possessing less than fifty (50%) percent of the surviving or acquiring company. (c) BONUSES. During the Term, the Consultant shall be entitled to an annual bonus on the same terms as the annual bonus, if any, payable to the Chief Operating Officer of the Company. (d) EXPENSES. The Consultant shall be entitled to reimbursement for all reasonable and necessary out-of-pocket business expenses incurred by the Consultant in the performance of the Consultant's duties hereunder in accordance with the Company's policies applicable (on and after the date hereof) thereto. (e) WITHHOLDING, ETC. In conformity with the Consultant's independent contractor status and without limiting any of the foregoing, the Consultant understands that no deduction or withholding for taxes or contributions of any kind shall be made by the Company. The Consultant agrees to accept exclusive liability for the payment of all self employment taxes or contributions for unemployment insurance or pensions or annuities or social security payments which are measured by the remuneration paid to the Consultant or the Consultant's agents, if any, as independent contractors and to reimburse and indemnify the Company for any such taxes or contributions or penalties which the Company may be compelled to pay as a result of the Consultant's non payment of the same as a self employed individual. The Consultant also agrees to take all action and comply with all applicable administrative regulations necessary for the payment by the Consultant of such. 5. BENEFITS. Consultant shall not participate in the Company's fringe benefit plans or any other compensation or benefit plans the Company maintains for its own employees. 3 6. INVENTIONS AND CONFIDENTIAL INFORMATION. The Consultant hereby covenants, agrees and acknowledges as follows: (a) The Company is engaged in a continuous program of research, design, development, production, marketing and servicing with respect to its businesses. (b) The Consultant's engagement hereunder creates a relationship of confidence and trust between the Consultant and the Company with respect to certain information pertaining to the business of the Company and its Affiliates (as hereinafter defined) or pertaining to the business of any client or customer of the Company or its Affiliates which may be made known to the Consultant by the Company or any of its Affiliates or by any client or customer of the Company or any of its Affiliates or learned by the Consultant during the period of Consultant's engagement by the Company. (c) The Company possesses and will continue to possess information that has been created, discovered or developed by, or otherwise become known to it (including, without limitation, information created, discovered or developed by, or made known to, the Consultant during the period of Consultant's engagement or arising out of Consultant's engagement) or in which property rights have been or may be assigned or otherwise conveyed to the Company, which information has commercial value in the business in which the Company is engaged and is treated by the Company as confidential. (d) Any and all inventions, products, discoveries, improvements, processes, manufacturing, marketing and services methods or techniques, formulae, designs, styles, specifications, data bases, computer programs (whether in source code or object code), know-how, strategies and data, whether or not patentable or registrable under copyright or similar statutes, made, developed or created by the Consultant (whether at the request or suggestion of the Company, any of its Affiliates, or otherwise, whether alone or in conjunction with others, and whether during regular hours of work or otherwise) during the period of Consultant's engagement by the Company which may pertain to the business, products, or processes of the Company or any of its Affiliates (collectively hereinafter referred to as "Inventions"), will be promptly and fully disclosed by the Consultant to an appropriate executive officer of the Company (other than the Consultant) without any additional compensation therefor, all papers, drawings, models, data, documents and other material pertaining to or in any way relating to any Inventions made, developed or created by Consultant as aforesaid. For the purposes of this Agreement, the term "Affiliate" or "Affiliates" shall mean any person, corporation or other entity directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For the purposes of this definition, "control" when used with respect to any person, corporation or other entity means the power to direct the management and policies of such person or entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (e) The Consultant will keep confidential and will hold for the Company's sole benefit any Invention which is to be the exclusive property of the Company under this Section 6 for which no patent, copyright, trademark or other right or protection is issued. (f) The Consultant also agrees that the Consultant will not without the prior written consent of the Board of Directors or Chief Executive Officer of the Company (i) use for Consultant's benefit or disclose at any time during Consultant's engagement by the Company, or 4 thereafter, except to the extent required by the performance by the Consultant of the Consultant's duties as an Consultant of the Company, any information obtained or developed by Consultant while in the employ of the Company with respect to any Inventions or with respect to any customers, clients, suppliers, products, Consultants, financial affairs, or methods of design, distribution, marketing, service, procurement or manufacture of the Company or any of its Affiliates, or any confidential matter, except information which at the time is generally known to the public other than as a result of disclosure by the Consultant not permitted hereunder, or (ii) take with the Consultant upon leaving the employ of the Company any document or paper relating to any of the foregoing or any physical property of the Company or any of its Affiliates. (g) The Consultant acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 6 would be inadequate and, therefore, agrees that the Company and its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in case of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. (h) The Consultant agrees that upon termination of Consultant's engagement by the Company for any reason, the Consultant shall immediately return to the Company all documents and other property in Consultant's possession belonging to the Company or any of its Affiliates. (i) Without limiting the generality of Section 8 hereof, the Consultant hereby expressly agrees that the foregoing provisions of this Section 6 shall be binding upon the Consultant's heirs, successors and legal representatives. 7. NON-COMPETITION. (a) The term "Non-Compete Term" shall mean the period during which Consultant is engaged hereunder and the one-year period thereafter. During the Non-Compete Term: (i) the Consultant will not make any statement or perform any act intended to advance an interest of any direct competitor of the Company or any of its Affiliates in any way that will or may injure an interest of the Company or any of its Affiliates in its relationship and dealings with existing customers or clients, or knowingly solicit or encourage any other Consultant of the Company or any of its Affiliates to do any act that is disloyal to the Company or any of its Affiliates or inconsistent with the interest of the Company or any of its Affiliate's interests or in violation of any provision of this Agreement; (ii) the Consultant will not discuss with any customers or clients of the Company or any of its Affiliates the present or future availability of services or products of a business, if the Consultant has or expects to acquire a proprietary interest in such business or is or expects to be an Consultant, officer or director of such business, where such services or products are directly competitive with services or products which the Company or any of its Affiliates provides; (iii) the Consultant will not make any statement or do any act intended to cause any customers or clients of the Company or any of its Affiliates to make use of 5 the services or purchase the products of any directly competitive business in which the Consultant has or expects to acquire a proprietary interest or in which the Consultant is or expects to be made an Consultant, officer or director, if such services or products directly compete with the services or products sold or provided or expected to be sold or provided by the Company or any of its Affiliates to any customer or client; and (iv) the Consultant will not directly or indirectly (as a director, officer, Consultant, manager, consultant, independent contractor, advisor or otherwise) engage in direct competition with, or own any interest in, perform any services for, participate in or be connected with (i) any business or organization which engages in direct competition with the Company or any of its Affiliates in any geographical area where any business is presently carried on by the Company or any of its Affiliates, or (ii) any business or organization which engages in direct competition with the Company or any of its Affiliates in any geographical area where any business shall be hereafter, during the period of the Consultant's engagement by the Company, carried on by the Company or any of its Affiliates, if such business is then being carried on by the Company or any of its Affiliates in such geographical area; PROVIDED, HOWEVER, that the provisions of this Section 7(a) shall not be deemed to prohibit the Consultant's ownership of not more than one percent (1%) of the total shares of all classes of stock outstanding of any publicly held company. At the end of the Consultant's engagement, if any, the Company, in good faith, shall provide to the Consultant a list of the Company's then-existing direct competitors, Affiliates, customers, businesses, organizations and others to which this Section 7 refers. (b) During the Non-Compete Term, the Consultant will not directly or indirectly hire, engage, send any work to, place orders with, or in any manner be associated with any supplier, contractor, subcontractor or other person or firm which rendered manufacturing or other services, or sold any products, to the Company or any of its Affiliates if such action by Consultant would have a material adverse effect on the business, assets or financial condition of the Company or any of its Affiliates. (c) In connection with the foregoing provisions of this Section 7, the Consultant represents that Consultant's experience, capabilities and circumstances are such that such provisions will not prevent Consultant from earning a livelihood. The Consultant further agrees that the limitations set forth in this Section 7 (including, without limitation, any time or territorial limitations) are reasonable and properly required for the adequate protection of the businesses of the Company and its Affiliates. It is understood and agreed that the covenants made by the Consultant in this Section 7 (and in Section 6 hereof) shall survive the expiration or termination of this Agreement. (d) For purposes of this Section 7, proprietary interest in a business is ownership, whether through direct or indirect stock holdings or otherwise, of one percent (1%) or more of such business. (e) The Consultant acknowledges and agrees that a remedy at law for any breach or threatened breach of the provisions of this Section 7 would be inadequate and, therefore, agrees that the Company and any of its Affiliates shall be entitled to injunctive relief in addition to any other available rights and remedies in cases of any such breach or threatened breach; PROVIDED, HOWEVER, that nothing contained herein shall be construed as prohibiting the 6 Company or any of its Affiliates from pursuing any other rights and remedies available for any such breach or threatened breach. 8. NON-ASSIGNABILITY. (a) Neither this Agreement nor any right or interest hereunder shall be assignable by the Consultant, Consultant's beneficiaries, or legal representatives without the Company's prior written consent. (b) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 9. BINDING EFFECT. Without limiting or diminishing the effect of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, successors, legal representatives and assigns. 10. NOTICE. Any notice required or permitted to be given under this Agreement shall be sufficient if in writing and either delivered in person or sent by first class certified or registered mail, postage prepaid, if to the Company, at the Company's principal place of business, attention: Chief Executive Officer (with a copy to Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York, New York 10022, Attention: Eric M. Hellige, Esq.), and if to the Consultant, at Consultant's home address set forth above, or to such other address or addresses as either party shall have designated in writing to the other party hereto. 11. SEVERABILITY. The Consultant agrees that in the event that any court of competent jurisdiction shall finally hold that any provision of Section 6 or 7 hereof is void or constitutes an unreasonable restriction against the Consultant, such provision shall not be rendered void but shall apply with respect to such extent as such court may judicially determine constitutes a reasonable restriction under the circumstances. If any part of this Agreement other than Section 6 or 7 is held by a court of competent jurisdiction to be invalid, illegible or incapable of being enforced in whole or in part by reason of any rule of law or public policy, such part shall be deemed to be severed from the remainder of this Agreement for the purpose only of the particular legal proceedings in question and all other covenants and provisions of this Agreement shall in every other respect continue in full force and effect and no covenant or provision shall be deemed dependent upon any other covenant or provision. 12. WAIVER. Failure to insist upon strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. 13. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the entire and final expression of the agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral and written, between the parties hereto with respect to the subject matter hereof. This Agreement may be modified or amended only by an instrument in writing signed by both parties hereto. 14. APPLICABLE LAW AND VENUE. This Agreement shall be interpreted and construed in accordance with the laws of the State of Colorado, without regard to its conflicts of law 7 provisions. Any action to enforce the terms of this Agreement shall be brought in a court of proper jurisdiction within the State of Colorado. 15. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 16. SURVIVAL. The termination of Consultant's engagement hereunder shall not affect the enforceability of Sections 6 or 7. 17. FURTHER ASSURANCES. The parties agree to execute and deliver all such further instruments and take such other and further action as may be reasonably necessary or appropriate to carry out the provisions of this Agreement. 18. HEADINGS. The Section headings appearing in this Agreement are for purposes of easy reference and shall not be considered a part of this Agreement or in any way modify, amend or affect its provisions. 19. FACSIMILE SIGNATURES. Facsimile signatures will be accepted as originals. IN WITNESS WHEREOF, the Company and the Consultant have duly executed and delivered this Agreement as of the day and year first above written. FRONT PORCH DIGITAL INC. By: /s/ JEAN REICZYK ------------------------------------ Name: Jean Reiczyk Title: Chief Executive Officer /s/ TIMOTHY M. PETRY ------------------------------------ TIMOTHY M. PETRY 8 -----END PRIVACY-ENHANCED MESSAGE-----