AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
1-800-FLOWERS.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 5992 11-3117311
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
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1600 STEWART AVENUE
WESTBURY, NEW YORK 11590
(516) 237-6000
JAMES F. MCCANN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1-800-FLOWERS.COM, INC.
1600 STEWART AVENUE
WESTBURY, NEW YORK 11590
(516) 237-6000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
COPIES TO:
ALEXANDER D. LYNCH, ESQ. PAUL P. BROUNTAS, ESQ.
KENNETH R. MCVAY, ESQ. BRENT B. SILER, ESQ.
BROBECK, PHLEGER & HARRISON LLP HALE AND DORR LLP
1633 BROADWAY, 47TH FLOOR 60 STATE STREET
NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02109
(212) 581-1600 (617) 526-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
Class A common stock, par value $.01 per share.................. $150,000,000 $41,700
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED MAY 21, 1999.
LOGO
SHARES
1-800-FLOWERS.COM, INC.
This is an initial public offering of shares of class A common stock of 1-800-FLOWERS.COM, Inc. All of the shares of class A common stock are being sold by 1-800-FLOWERS.COM. 1-800-FLOWERS.COM anticipates that the initial public offering price will be between $ and $ per share.
Prior to this offering, there has been no public market for the class A common stock. Application has been made for quotation of the class A common stock on the Nasdaq National Market under the symbol "FLWS".
1-800-FLOWERS.COM has two classes of common stock: class A common stock and class B common stock. Holders of class A common stock generally have the same rights as holders of class B common stock, except that holders of class A common stock have one vote per share, while holders of class B common stock have 10 votes per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE CLASS A COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER SHARE TOTAL
----------- ---------
Initial public offering price................................ $ $
Underwriting discount........................................ $ $
Proceeds, before expenses, to 1-800-FLOWERS.COM.............. $ $
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The underwriters may, subject to the terms of the underwriting agreement, purchase up to an additional shares of class A common stock from 1-800-FLOWERS.COM at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares of class A common stock against payment in New York, New York on , 1999.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
WIT CAPITAL CORPORATION
Prospectus dated , 1999.
[GRAPHICS]
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, REFERENCES IN THIS PROSPECTUS TO "1-800-FLOWERS.COM", "WE", "US" AND "OUR" REFER TO 1-800-FLOWERS.COM, INC. AND ITS SUBSIDIARIES.
1-800-FLOWERS.COM, INC.
OUR BUSINESS
1-800-FLOWERS.COM, Inc. is a leading e-commerce provider of floral products and gifts. With the development of our online business and a strategic acquisition, we have continuously expanded our product offerings, most recently to include home and garden merchandise. As a result, we have developed relationships with customers who purchase products not only for gifting occasions but also for everyday consumption.
We believe the 1-800-FLOWERS brand is one of the most recognized brands in the floral industry. We believe our brand is characterized by convenience, high-quality products, a broad selection of merchandise and superior customer service.
We provide our customers the choice of purchasing our products online, by calling us toll-free or by visiting our owned or franchised retail stores. We were one of the first companies to market products online through CompuServe and America Online. In 1995, we opened our own Web site and since then have expanded our Internet presence through strategic online relationships, including AOL and Microsoft Network.
The Internet is our fastest growing sales channel. For the nine months ended March 28, 1999, online revenues were $30.2 million, representing an 85.3% increase over the same period in the previous fiscal year.
We offer more than 1,500 varieties of fresh-cut and seasonal flowers, plants and floral arrangements and more than 6,000 SKUs of gifts and home and garden products, including gift baskets, gourmet foods, garden accessories and casual lifestyle furnishings. We are committed to providing our individual and corporate customers the best possible shopping experience through superior service and a 100% satisfaction guarantee.
We believe we have been and continue to be a leader in implementing integrated technologies and systems that support our online and telephonic sales channels and our fulfillment operations. We have implemented a common transaction processing system and a centrally managed telecommunications network that can serve as a platform for future growth.
Because many of our products must be handled delicately and delivered promptly to ensure customer satisfaction and freshness, we have developed significant expertise in fulfilling our customers' orders reliably, quickly and cost-effectively. We fulfill our products through our network of approximately 1,500 local florists, our owned or franchised stores, third party suppliers and our advanced fulfillment center.
As of December 31, 1998, we had sold our products to more than 6.7 million customers, of which 2.7 million had made a purchase from us in the previous twelve months. Our total net revenues for the nine months ended March 28, 1999 were $203.7 million.
In May 1999, we completed a private placement of preferred stock yielding us net proceeds of $102.6 million. The investors include Benchmark Capital Partners and SOFTBANK America Inc., both leading Internet-focused investment firms, and Forum Holding BV, an affiliate of LVMH Moet Hennessey Louis Vuitton S.A.
OUR STRATEGY
Our objective is to be the leading e-commerce provider of flowers, gifts and products for the home and garden. We intend to meet this objective by:
- aggressively extending our brand from flowers and gifts to home and garden products;
- expanding our offerings of gifts and home and garden products;
- strengthening our customer relationships through enhanced content, features and personalization of our Web site;
- increasing the number of customers placing orders through our Web site;
- continuing to upgrade our technology infrastructure; and
- continuing to improve our fulfillment capabilities.
OUR OFFICES
Our headquarters are located at 1600 Stewart Avenue, Westbury, New York 11590 and our telephone number is (516) 237-6000. Our Web site address is WWW.1800FLOWERS.COM. The information on our Web site is not a part of this prospectus.
OUR TRADEMARKS
We have applied for or received trademark and/or service mark registration for, among others, the marks "1-800-FLOWERS.COM", "1-800-FLOWERS", and "Plow & Hearth". All other trademarks and service marks used in this prospectus are the property of their respective owners.
THE OFFERING
Shares offered by 1-800-FLOWERS.COM........... shares of class A common stock
Shares to be outstanding after this
offering.................................... shares of class A common stock
shares of class B common stock
Proposed Nasdaq National Market symbol........ FLWS
Use of proceeds............................... To repay existing debt, redeem outstanding
stock and stock options, fund our marketing
activities, enhance our infrastructure, enter
into strategic online relationships, expand
our product offerings and for other general
corporate purposes.
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The number of shares to be outstanding after this offering excludes:
- shares of class B common stock subject to options outstanding as of , 1999 at a weighted average exercise price of $ per share;
- additional shares of class A common stock that could be issued under our stock option plan; and
- shares of class A common stock issuable upon the exercise of outstanding warrants at a nominal exercise price.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS:
- REFLECTS THE RECAPITALIZATION OF OUR COMMON STOCK EFFECTED IN 1999;
- REFLECTS A -FOR-1 STOCK SPLIT OF OUR CLASS A AND B COMMON STOCK TO BE EFFECTED PRIOR TO CONSUMMATION OF THIS OFFERING; AND
- ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize our consolidated statement of operations and balance sheet data. We acquired The Plow & Hearth, Inc. in April 1998 and the financial data reflect the results of operations of this subsidiary since its date of acquisition. You should read this information together with the discussion in "Management's Discussion and Analysis of Financial Condition and Result of Operations" and our consolidated financial statements and notes to those statements included elsewhere in this prospectus.
YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------- ------------------------
JUNE 30, JULY 2, JUNE 30, JUNE 29, JUNE 28, MARCH 29, MARCH 28,
1994 1995 1996 1997 1998 1998 1999
----------- --------- --------- --------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................... $ 91,663 $ 116,807 $ 153,128 $ 186,430 $ 220,592 $ 146,217 $ 203,668
Gross profit................................... 38,195 52,150 60,308 71,352 83,626 54,444 79,930
Operating income (loss)........................ 831 1,561 2,702 6,852 6,415 2,144 (9,052)
Net income (loss) applicable to common
stockholders................................. 638 837 268 2,925 3,466 1,190 (8,682)
Net income (loss) per common share applicable
to common stockholders:
Basic........................................ $ 0.13 $ 0.17 $ 0.06 $ 0.66 $ 0.79 $ 0.27 $ (1.97)
Diluted...................................... 0.13 0.17 0.05 0.63 0.74 0.25 (1.97)
Shares used in the calculation of net income
(loss) per common share:
Basic........................................ 4,853 4,860 4,705 4,414 4,412 4,414 4,400
Diluted...................................... 4,853 4,978 4,942 4,674 4,661 4,675 4,400
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The following summary balance sheet data as of March 28, 1999 is presented:
- on an actual basis;
- on a pro forma basis after giving effect to the 1999 recapitalization, the May 1999 private placement and the use of the proceeds therefrom to redeem all outstanding class C common stock; and
- on a pro forma as adjusted basis to reflect our sale of shares of class A common stock in this offering at an assumed initial public offering price of $ per share, after deducting the underwriting discount and estimated offering expenses, and the use of a portion of the proceeds to repay existing debt and redeem outstanding stock and stock options.
AS OF MARCH 28, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents......................................................... $ 2,632
Working capital (deficit).................................................... (9,490)
Total assets................................................................. 86,599
Long-term liabilities........................................................ 38,640
Redeemable class C common stock.............................................. 19,020
Total stockholders' equity (deficit)......................................... (7,919)
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The summary unaudited pro forma combined financial data set forth below give effect to our acquisition of Plow & Hearth in April 1998 as if the acquisition had been consummated at the beginning of the respective periods. The data for the nine months ended March 28, 1999 is actual, reflecting the operations of Plow & Hearth for the entire period, and is provided for comparative purposes. The summary unaudited pro forma combined financial data do not purport to be indicative of future operations and should not be construed as representative of future operations.
NINE MONTHS ENDED
YEAR ENDED --------------------------------
JUNE 28, 1998 MARCH 29, 1998 MARCH 28, 1999
-------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues................................................... $ 257,747 $ 183,372 $ 203,668
Gross profit................................................... 100,663 71,481 79,930
Operating income (loss)........................................ 5,488 1,217 (9,052)
Net income (loss) applicable to common stockholders............ 1,856 (420) (8,682)
Net income (loss) per common share applicable to common
stockholders:
Basic........................................................ $ 0.42 $ (0.10) $ (1.97)
Diluted...................................................... 0.40 (0.10) (1.97)
Shares used in the calculation of net income (loss) per common
share:
Basic........................................................ 4,412 4,414 4,400
Diluted...................................................... 4,661 4,414 4,400
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RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY OUR CLASS A COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN THAT CASE, THE TRADING PRICE OF OUR CLASS A COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE FUTURE
We expect to incur significant operating and capital expenditures in order to:
- expand the 1-800-FLOWERS.COM brand through marketing and other promotional activities;
- enter into strategic online relationships;
- increase the number of products we offer; and
- enhance our technological infrastructure and fulfillment capabilities.
Although we have been profitable in the past, we expect to incur losses for the foreseeable future as a result of these expenditures. In order to achieve and maintain profitability, we will need to generate revenues significantly above historical levels. We cannot assure you that we will achieve sufficient revenues for profitability. Even if we do achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATION AND YOU SHOULD NOT RELY ON THEM AS AN INDICATION OF OUR FUTURE RESULTS
Our future revenues and results of operations may fluctuate significantly due to a combination of factors, many of which are outside of our control. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall. If we have a shortfall in revenue in relation to our expenses, our operating results will suffer. Our operating results for any particular quarter may not be indicative of future operating results. You should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. It is possible that, in future periods, our results of operations may be below the expectations of public market analysts and investors. This could cause the trading price of our class A common stock to fall.
Consumer spending on flowers, gifts and other products we sell may vary with general economic conditions. If general economic conditions deteriorate and our customers have less disposable income, consumers will likely spend less on our products and our quarterly operating results will suffer.
For a discussion of other factors that may affect our quarterly results, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations-- Quarterly Results of Operations".
OUR OPERATING RESULTS WILL SUFFER IF SALES DURING OUR PEAK SEASONS DO NOT MEET OUR EXPECTATIONS
Sales of our products are seasonal, concentrated in the second calendar quarter, due to Mother's Day, Easter and graduations, and the fourth calendar quarter, due to the Thanksgiving and Christmas holidays. In anticipation of increased sales activity during these periods, we hire a significant number of temporary employees to supplement our permanent staff and we significantly increase our inventory levels. If sales during these periods do not meet our expectations, we may not generate sufficient revenue to offset these increased costs and our operating results will suffer.
IF OUR CUSTOMERS DO NOT FIND OUR EXPANDED PRODUCT LINES APPEALING, OUR BUSINESS WILL SUFFER
Our business historically has focused on offering floral and gift products. We have expanded our product lines in the gift, home and garden categories, particularly with our acquisition of Plow & Hearth in April 1998, and we expect to incur significant costs in marketing these new products. If our customers do not find our expanded product lines appealing, we may not generate sufficient revenue to offset their related costs and our business will suffer.
IF WE FAIL TO DEVELOP AND MAINTAIN OUR BRAND, WE WILL NOT INCREASE OR MAINTAIN OUR CUSTOMER BASE OR OUR REVENUES
We must develop and maintain the 1-800-FLOWERS.COM brand to expand our customer base and our revenues. In addition, we may introduce or acquire other brands in the future. We believe that the importance of brand recognition will increase as we expand our product offerings. Many of our customers may not be aware of the non-floral products we offer. We intend to substantially increase our expenditures for creating and maintaining brand loyalty and raising awareness of our additional product offerings. However, if we fail to advertise and market our products effectively, we may not succeed in establishing our brands and our business will suffer.
Our success in promoting and enhancing the 1-800-FLOWERS.COM brand will also depend on our success in providing our customers high-quality products and a high level of customer service. If our customers do not perceive our products and services to be of high quality, the value of the 1-800-FLOWERS.COM brand would be diminished.
A FAILURE TO ESTABLISH AND MAINTAIN STRATEGIC ONLINE RELATIONSHIPS THAT GENERATE A SIGNIFICANT AMOUNT OF TRAFFIC COULD LIMIT THE GROWTH OF OUR BUSINESS
A significant portion of our online customers purchase our products at our AOL online store or come to our Web site from third party Web sites with which we have strategic relationships, including AOL.com and the Microsoft Network. If these third-party sites do not attract a significant number of visitors, we will not receive a significant number of online customers from these relationships and our business will suffer. In addition, we plan to enter into more of these relationships and we may pay significant fees to do so. We may also be required to pay significant fees to maintain and expand existing relationships. Our business will suffer if we fail to enter into new relationships or maintain existing relationships or if these relationships do not result in traffic sufficient to justify their cost.
IF LOCAL FLORISTS AND OTHER THIRD-PARTY VENDORS DO NOT FULFILL ORDERS TO OUR CUSTOMERS' SATISFACTION, OUR BUSINESS WILL SUFFER
Floral orders placed by our customers are fulfilled by local florists, most of which are either part of our BloomNet network of approximately 1,500 florists or are stores that we own or franchise. Except for the stores we own, we do not directly control any of these florists. In addition, many of the non-floral products we sell are manufactured and delivered to our customers by independent third-party vendors. If customers are dissatisfied with the performance of the local florist or other third-party vendors, they may not utilize our services when placing future orders and our business may suffer.
Many of our arrangements with local florists for order fulfillment are not formalized in writing. Of those relationships which have been formalized in writing, most may be terminated with 10 days notice. If a florist discontinues its relationship with us, we will be required to obtain a suitable replacement located in the same area, which may cause delays in delivery or a decline in quality, leading to customer dissatisfaction.
We offer our customers a 100% satisfaction guarantee on our products. If customers are not satisfied with the products they receive, we will either send the customer another product or issue the customer a refund
or a credit. Our business could suffer if a significant number of customers request replacement products, refunds or credits.
INCREASED SHIPPING COSTS AND LABOR STOPPAGES MAY ADVERSELY AFFECT SALES OF OUR NON-FLORAL PRODUCTS
Our non-floral products are delivered to customers either directly from the manufacturer or from our warehouse in Virginia. We have established relationships with the United States Postal Service, Federal Express, United Parcel Service and other common carriers for the delivery of these products. If these carriers were to raise the prices they charge to ship our goods, our customers might choose to buy comparable products locally to avoid shipping charges. In addition, these carriers may experience labor stoppages, which could impact our ability to deliver products on a timely basis to our customers and adversely affect our customer relationships.
IF WE FAIL TO CONTINUOUSLY IMPROVE OUR WEB SITE, WE WILL NOT ATTRACT OR RETAIN CUSTOMERS
If our potential or existing customers do not find our Web site a convenient place to shop, we will not attract or retain customers and our sales will suffer. To encourage the use of our Web site, we must continuously improve its accessibility, content and ease of use. If our competitors' Web sites are perceived as easier to use or better able to satisfy customer needs, our customer traffic and our business would be adversely affected.
COMPETITION COULD HARM OUR BUSINESS
There are many companies that offer products in the floral, gift and home and garden categories. In the floral category, our competitors include:
- retail floral shops, some of which maintain toll-free telephone numbers;
- online floral retailers;
- catalog companies that offer floral products;
- floral telemarketers and wire services; and
- supermarkets and mass merchants with floral departments.
Similarly, the gift, home and garden categories are highly competitive. Each of these categories encompasses a wide range of products and is highly fragmented. Products in these categories may be purchased from a number of outlets, including mass merchants, retail specialty shops, online retailers and mail-order catalogs.
Competition is intense and we expect it to increase. Increased competition could result in:
- price reductions, decreased revenue and lower profit margins;
- loss of market share; and
- increased marketing expenditures.
These and other competitive factors could materially and adversely affect our business.
IF WE DO NOT ACCURATELY ASSESS CUSTOMER RESPONSE TO OUR PRODUCTS, OUR BUSINESS
MAY SUFFER
In the past, we did not need to maintain significant inventory of products. However, as the volume of non-floral products we offer has expanded, we intend to increase inventory levels and the number of products maintained in our warehouses. Because we have limited experience offering many of our non-floral products through our Web site, we may not predict inventory levels accurately. If we overestimate customer demand for our products, excess inventory and outdated merchandise could accumulate, tying up working capital and potentially resulting in reduced warehouse capacity and inventory losses due to damage, theft and obsolescence. If we underestimate customer demand, we will disappoint customers who may turn to our competitors. Moreover, the strength of the 1-800-FLOWERS.COM brand could be diminished due to misjudgments in merchandise selection.
IF THE SUPPLY OF FLOWERS FOR SALE BECOMES LIMITED, THE PRICE OF FLOWERS WILL RISE OR FLOWERS MAY BE UNAVAILABLE
A variety of factors affect the supply of flowers in the United States and the price of our floral products. If the supply of flowers available for sale is limited due to weather conditions or other factors, prices for flowers will likely rise and customer demand for our floral products may be reduced. Alternatively, we may not be able to obtain high quality flowers in an amount sufficient to meet customer demand. Even if available, flowers from alternative sources may be of lesser quality and/or may be more expensive than those currently offered by us.
Most of the flowers sold in the United States are grown by farmers located abroad, primarily in Colombia, Ecuador and Holland, and we expect that this will continue in the future. The availability and price of flowers could be affected by a number of factors affecting these regions, including:
- import duties and quotas;
- agricultural limitations and restrictions to manage pests and disease;
- changes in trading status;
- economic uncertainties and currency fluctuations;
- severe weather;
- work stoppages;
- foreign government regulations and political unrest; and
- trade restrictions, including United States retaliation against foreign trade practices.
A FAILURE TO MANAGE OUR INTERNAL OPERATING AND FINANCIAL FUNCTIONS COULD ADVERSELY AFFECT OUR BUSINESS
Our expansion efforts have significantly strained our operational and financial systems. To accommodate our growth, we recently implemented new or upgraded operating and financial systems, procedures and controls. Any failure to integrate these initiatives in an efficient manner could adversely affect our business. In addition, our systems, procedures and controls may prove to be inadequate to support our future operations.
OUR FRANCHISEES MAY DAMAGE OUR BRAND OR INCREASE OUR COSTS
As of March 28, 1999, we franchised 87 flower shops through 54 franchisees.
Our franchise business is governed by our Uniform Franchise Offering Circular,
franchise agreements and applicable franchise law. If our franchisees do not
comply with our established operating standards or the terms of the franchise
agreements, the 1-800-
FLOWERS.COM brand may be damaged. We may incur significant additional costs,
including time-consuming and expensive litigation, to enforce our rights under
the franchise agreements. Additionally, we are the primary tenant on 56 leases,
which the franchisees sublease from us. If a franchisee fails to meet its
obligations as subtenant, we could incur significant costs to avoid a default
under the primary lease. Furthermore, as a franchisor we have obligations to our
franchisees. Franchisees may challenge the performance of our obligations under
the franchise agreements and subject us to costs in defending these claims and,
if the claims are successful, costs in connection with their compliance.
IF THIRD PARTIES ACQUIRE RIGHTS TO USE SIMILAR DOMAIN NAMES OR PHONE NUMBERS OR IF WE LOSE THE RIGHT TO USE OUR PHONE NUMBERS, OUR BRAND MAY BE DAMAGED AND WE MAY LOSE SALES
Our Internet domain names are an important aspect of our brand recognition. We cannot practically acquire rights to all domain names similar to WWW.1800FLOWERS.COM. If third parties obtain rights to similar domain names, these third parties may confuse our customers and cause our customers to inadvertently place orders with these third parties, which would result in lost sales for us and could damage our brand.
Likewise, the phone number that spells 1-800-FLOWERS is important to our brand and our business. While we have obtained the right to use the phone numbers 1-800-FLOWERS, 1-888-FLOWERS and 1-877-FLOWERS, as well as common "FLOWERS" misdials, we may not be able to obtain rights to use the FLOWERS phone number as new toll-free prefixes are issued, or the rights to all similar and potentially confusing numbers. If third parties obtain the phone number which spells "FLOWERS" with a different prefix or a toll-free number similar to FLOWERS, these parties may also confuse our customers and cause lost sales for us and potential damage to our brand. In addition, under applicable FCC rules, ownership rights to telephone numbers cannot be acquired. Accordingly, the FCC may rescind our right to use any of our phone numbers, including 1-800-FLOWERS.
IF WE DO NOT CONTINUE TO RECEIVE REBATES FROM WIRE SERVICES, OUR RESULTS OF OPERATIONS COULD SUFFER
We have entered into arrangements with independent wire service companies that provide us with rebates when we transmit our customers' floral orders to a local florist utilizing their service. One of these arrangements expires June 30, 1999. If we cannot renew these arrangements or enter similar arrangements on commercially reasonable terms, our results of operations could suffer. In addition, these companies may eliminate or modify the rebate structure they have in place with us. Any adverse modification to these rebate structures could also cause our results of operations to suffer.
OUR NET SALES AND GROSS MARGINS WOULD DECREASE IF WE EXPERIENCE SIGNIFICANT CREDIT CARD FRAUD
A failure to adequately control fraudulent credit card transactions would reduce our net sales and our gross margins because we do not carry insurance against this risk. We have developed technology to help us to detect the fraudulent use of credit card information. Nonetheless, to date, we have suffered losses as a result of orders placed with fraudulent credit card data even though the associated financial institution approved payment of the orders. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder's signature.
IF WE ARE UNABLE TO INTEGRATE ANY ACQUIRED BUSINESS, OUR OPERATIONS MAY BE DISRUPTED
We have acquired complementary businesses and may continue to do so in the future. We are currently in the process of integrating the Web site, operations, systems and personnel of Plow & Hearth. If we are unable to fully integrate Plow & Hearth or any future acquisition, our business and operations could suffer, our management will be distracted and our expenses may increase.
RISKS RELATED TO THE INTERNET AND OUR TECHNOLOGY
OUR BUSINESS WILL SUFFER IF THE INTERNET IS NOT ACCEPTED AS A MEDIUM FOR COMMERCE
We expect to derive an increasing amount of our revenue from electronic commerce, and intend to extensively market our non-floral products online. If the Internet is not accepted as a medium for commerce, our revenues will not grow as we expect and our business will suffer. A number of factors may inhibit Internet usage, including:
- inadequate network infrastructure;
- consumer concerns for Internet privacy and security;
- inconsistent quality of service; and
- lack of availability of cost-effective, high speed service.
If Internet usage grows, the infrastructure may not be able to support the demands placed on it by that growth and its performance and reliability may decline. Web sites have experienced interruptions as a result of delays or outages throughout the Internet infrastructure. If these interruptions continue, Internet usage may decline.
In addition, a significant barrier to electronic commerce over the Internet has been the need for secure transmission of confidential information and transaction information. Internet usage could decline if any well-publicized compromise of security occurred. As a result, we may be required to expend capital and resources to protect against or to alleviate these problems.
UNEXPECTED SYSTEM INTERRUPTIONS CAUSED BY SYSTEM FAILURES MAY RESULT IN REDUCED REVENUE AND HARM TO OUR REPUTATION
In the past, particularly during peak holiday periods, we have experienced significant increases in traffic on our Web site and in our toll-free customer service centers. Our operations are dependent on our ability to maintain our computer and telecommunications systems in effective working order and to protect our systems against damage from fire, natural disaster, power loss, telecommunications failure or similar events. Our systems have in the past, and may in the future, experience:
- system interruptions;
- long response times; and
- degradation in our service.
We cannot assure you that we will adequately implement systems to improve the speed, security and availability of our Internet and telecommunications systems. Because our business depends on customers making purchases on our systems, our business will suffer and our reputation could be harmed if we experience frequent or long system delays or interruptions or if a disruption occurs during a peak holiday season.
IF OUR THIRD-PARTY TECHNOLOGY PROVIDERS DO NOT ADEQUATELY MAINTAIN OUR WEB SITE AND TELEPHONE SERVICE, WE MAY EXPERIENCE SYSTEM FAILURES AND OUR BUSINESS MAY SUFFER
We are largely dependent on Fry Multimedia to host and maintain our Web site and on AT&T to provide telephone services to our customer service centers. If Fry Multimedia or AT&T experience system failures or fail to adequately maintain our systems, we would experience interruptions and our customers might not continue to utilize our services. While we intend to co-locate the hosting of our Web site with a third-party vendor to provide additional back-up and redundancy, we may not be able to do so. Our future success depends upon these third-party relationships. We may not be able to maintain these relationships or replace them on financially attractive terms. Failure to do so may disrupt our operations or require us to incur significant unanticipated costs.
INTERRUPTIONS IN FTD'S MERCURY SYSTEM MAY DISRUPT OUR CUSTOMERS' ORDER FULFILLMENT AND CREATE CUSTOMER DISSATISFACTION
A significant portion of our customers' orders are communicated to the fulfilling florist through FTD's Mercury system. The Mercury system has in the past experienced interruptions in service. If the Mercury system experiences interruptions in the future, we would experience difficulties in fulfilling our customers' orders and many of our customers might not continue to shop with us.
YEAR 2000 PROBLEMS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS
We are dependent upon the proper functioning of our technology infrastructure. This technology infrastructure is comprised of our computer and telecommunications systems, which include hardware and software provided by third-party vendors, and the systems maintained by our suppliers and BloomNet florists. A failure of any part of our technology infrastructure to correctly recognize dates beyond December 31, 1999 could materially disrupt our ability to receive and fulfill customer orders, cause us to incur significant expenses and cause losses of valuable data, each of which could adversely affect our business and operations. For a discussion of Year 2000 issues, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure".
RISKS RELATING TO OUR ORGANIZATION AND LEGAL UNCERTAINTY
WE ARE CONTROLLED BY OUR CHIEF EXECUTIVE OFFICER, WHOSE INTERESTS MAY DIFFER FROM OTHER STOCKHOLDERS
Our common stock is divided into two classes. The class A common stock has one vote per share and the class B common stock has 10 votes per share. % of the class B common stock will be owned by James F. McCann, our Chairman and Chief Executive Officer. Accordingly, Mr. McCann will own % of the combined voting power of our common stock after this offering and will control the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. The interests of Mr. McCann may differ from the interests of the other stockholders.
IF WE ARE UNABLE TO HIRE AND RETAIN KEY PERSONNEL, OUR BUSINESS AND GROWTH WILL SUFFER
Our success is dependent on our ability to hire, retain and motivate highly qualified personnel. In particular, our success depends on the continued efforts of our Chairman and Chief Executive Officer, James F. McCann, and our Senior Vice President, Christopher G. McCann. In addition, we have recently hired several new members of our senior management team to help manage our growth and we will need to recruit, train and retain a significant number of additional employees, particularly employees with technical backgrounds. These individuals are in high demand and we are not certain we will be able to attract the personnel we need. The loss of the services of any of our executive management or key personnel, our failure to integrate any of our new senior management into our operations or our inability to attract qualified additional personnel could cause our business to suffer.
THE INTERNET IS SUBJECT TO MANY GOVERNMENTAL REGULATIONS THAT MAY AFFECT OUR ABILITY TO CONDUCT BUSINESS
Any new law or regulation, or the application or interpretation of existing laws, may decrease the growth in the use of the Internet or our Web site. We expect there will be an increasing number of laws and regulations pertaining to the Internet in the United States and throughout the world. These laws or regulations may relate to liability for information received from or transmitted over the Internet, online content regulation, user privacy, taxation and quality of products and services sold over the Internet. Moreover, the applicability to the Internet of existing laws governing intellectual property ownership and infringement, copyright, trademark, trade secret, obscenity, libel, employment, personal privacy and other issues is uncertain and developing. This could decrease the demand for our products, increase our costs or otherwise adversely affect our business.
REGULATIONS IMPOSED BY THE FEDERAL TRADE COMMISSION MAY ADVERSELY AFFECT OUR
BUSINESS
The Federal Trade Commission has proposed regulations regarding the collection and use of personal identifying information obtained from individuals when accessing Web sites, with particular emphasis on access by minors. These regulations may include requirements that we establish procedures to disclose and notify users of privacy and security policies, obtain consent from users for collection and use of information and provide users with the ability to access, correct and delete personal information stored by us. These regulations may also include enforcement and redress provisions. Moreover, even in the absence of those regulations, the Federal Trade Commission has begun investigations into the privacy practices of other companies that collect information on the Internet. One investigation resulted in a consent decree pursuant to which an Internet company agreed to establish programs to implement the principles noted above. We may become subject to a similar investigation, or
the Federal Trade Commission's regulatory and enforcement efforts may adversely affect our ability to collect demographic and personal information from users, which could adversely affect our marketing efforts.
UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY DAMAGE OUR BRAND
We regard our copyrights, service marks, trademarks, trade secrets and other intellectual property as critical to our success. Unauthorized use of our intellectual property by third parties may damage our brand and our reputation. We rely on trademark, unfair competition and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our intellectual property rights. Despite our precautions, it may be possible for third parties to obtain and use our intellectual property without authorization. Third parties have in the past infringed or misappropriated our intellectual property or similar proprietary rights. We believe infringements and misappropriations will continue to occur in the future. Although we intend to police for infringements and misappropriations of our intellectual property, we may not be able to do so effectively. Furthermore, the validity, enforceability and scope of protection of intellectual property in Internet-related industries is uncertain and still evolving. The laws of some foreign countries are uncertain or do not protect intellectual property rights to the same extent as do the laws of the United States.
DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE EXPENSIVE AND, IF WE ARE NOT SUCCESSFUL, COULD DISRUPT OUR BUSINESS
We cannot be certain that our products do not or will not infringe valid patents, trademarks, copyrights or other intellectual property rights held by third parties. We may be subject to legal proceedings and claims relating to the intellectual property of others from time to time in the ordinary course of our business. We may incur substantial expense in defending against these third-party infringement claims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability or may materially disrupt our business.
WE MAY INCUR SIGNIFICANT EXPENSES IN SATISFACTION OF CLAIMS FOR STATE SALES AND USE TAXES
At present, except for our retail operations, we do not collect sales or other similar taxes in respect of sales and shipments of our products in states other than New York, Texas, Arizona, Florida, Georgia and Virginia. However, various states have sought to impose state sales tax collection obligations on out-of-state direct marketing companies such as ours. A successful assertion by one or more of these states that we should have collected or be collecting sales tax on the sale of our products could result in additional costs and corresponding price increases to our customers. The U.S. Congress has passed legislation limiting for three years the ability of states to impose taxes on Internet-based transactions. Failure to renew this legislation could result in the broad imposition of state taxes on e-commerce.
PRODUCT LIABILITY CLAIMS MAY ADVERSELY AFFECT OUR BUSINESS
Several of the products we sell, including perishable food products, may expose us to product liability claims in the event that the use or consumption of these products results in personal injury. Although we have not experienced any material losses due to product liability claims to date, we may be subject to product liability claims in the future and incur significant costs in their defense. Product liability claims often create negative publicity, which could materially damage our reputation and our brand. Although we maintain insurance against product liability claims, our coverage may be inadequate to cover any liabilities we may incur.
RISKS RELATED TO THIS OFFERING
WE WILL HAVE DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS OFFERING, WHICH WE
MAY NOT USE EFFECTIVELY
We are not required to use the net proceeds of this offering for any particular purpose, other than to redeem stock and stock options and to repay existing debt. Our management will therefore have significant flexibility in applying the net proceeds of this offering, including uses with which stockholders may disagree. The failure of management to apply such funds effectively could damage our business and result in lost business opportunities. See "Use of Proceeds".
OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY
Following this offering, the price at which our class A common stock will trade is likely to be highly volatile and may fluctuate substantially. The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices of securities, particularly securities of companies with Internet operations. As a result, investors may experience a material decline in the market price of our class A common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation of this type is often expensive and diverts management's attention and resources.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR STOCK PRICE
Sales of a large number of shares in the public market after this offering could have an adverse effect on the market price of our class A common stock. See "Shares Eligible for Future Sale".
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER
Provisions in our charter and bylaws and Delaware law may have the effect of delaying or preventing a change of control or changes in our management that a stockholder might consider favorable. See "Description of Capital Stock". If a change of control or change in management is delayed or prevented, the market price of our class A common stock could decline.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share will significantly exceed the pro forma net tangible book value per share. Accordingly, investors purchasing shares in this offering will suffer immediate and substantial dilution. See "Dilution".
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current expectations, assumptions, estimates and projections about 1-800-FLOWERS.COM and our industry. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, as more fully described under the caption "Risk Factors" and elsewhere in this prospectus. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to publicly update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
USE OF PROCEEDS
We estimate that the net proceeds we will receive from the sale of the shares of class A common stock offered by us will be $ million, assuming an initial public offering price of $ per share and after deducting the estimated underwriting discount and offering expenses. If the underwriters' over-allotment option is exercised in full, we estimate that the net proceeds will be $ million.
We intend to use a portion of the proceeds of this offering as follows:
- $18.0 million to repay a term loan with Chase Bank that matures on the earlier of the consummation of this offering and July 3, 2000 and was used to fund our acquisition of Plow & Hearth;
- $3.0 million to repay a draw on our line of credit with Chase Bank that matures simultaneously with the term loan and was used for working capital and general corporate purposes; and
- $8.8 million to redeem all outstanding Plow & Hearth common stock not held by us and Plow & Hearth stock options.
We intend to use the remaining proceeds over time:
- to fund our marketing activities;
- to enhance our infrastructure;
- to enter into strategic online relationships;
- to expand our product offerings; and
- for other general corporate purposes.
We believe opportunities may exist from time to time to expand our current business through strategic acquisitions. We may use a portion of the proceeds for these purposes. We are not currently a party to any contracts, letters of intent, commitments or agreements, and are not currently engaged in active negotiations, with respect to any acquisitions.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain future earnings, if any, to provide funds to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
CAPITALIZATION
The following table sets forth our capitalization as of March 28, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to (1) the 1999 recapitalization, (2) the May 1999 private placement, and (3) the use of a portion of the proceeds therefrom to redeem all class C common stock outstanding; and
- on a pro forma as adjusted basis to reflect (1) our sale of shares of class A common stock in this offering at an assumed initial public offering price of $ per share, after deducting the underwriting discount and estimated offering expenses, (2) the use of a portion of the proceeds from this offering to repay existing debt and redeem outstanding stock and stock options, (3) the automatic conversion of all outstanding shares of our preferred stock into class A common stock; and (4) the filing of an amendment to our certificate of incorporation upon consummation of this offering. See "Use of Proceeds".
You should read this information together with our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus.
AS OF MARCH 28, 1999
----------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
(IN THOUSANDS)
Long-term debt and obligations under capital leases, excluding current
portion.................................................................... $ 28,148 $ $
Redeemable class C common stock, non-voting; 100,000 shares authorized,
34,822 shares issued and outstanding (actual); no shares authorized, issued
or outstanding (pro forma and pro forma as adjusted)....................... 19,020 -- --
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 200,000 shares authorized (actual);
1,200,000 shares authorized (pro forma) and 10,000,000 share authorized
(pro forma as adjusted):
Series A preferred stock, no shares authorized, issued or outstanding
(actual); 1,200,000 shares authorized, shares issued and
outstanding (pro forma); no shares authorized, issued or outstanding
(pro forma as adjusted).............................................. -- --
Common Stock, $0.01 par value, 10,150,000 shares authorized (actual);
400,000,000 shares authorized (pro forma and pro forma as adjusted):
Class A common stock, one vote per share; 50,000 shares authorized,
48,087 shares issued and 42,807 shares outstanding (actual); no
shares authorized, issued or outstanding (pro forma and pro forma as
adjusted)............................................................ 0 -- --
Class B common stock, non-voting; 10,000,000 shares authorized,
4,884,993 shares issued and 4,356,993 shares outstanding (actual); no
shares authorized, issued or outstanding (pro forma and pro forma as
adjusted)............................................................ 49 -- --
Class A common stock, one vote per share; no shares authorized, issued
or outstanding (actual); 200,000,000 shares authorized (pro forma and
pro forma as adjusted); shares issued and outstanding (pro
forma); shares issued and outstanding (pro forma as adjusted).... --
Class B common stock, ten votes per share; no shares authorized, issued
or outstanding (actual); 200,000,000 shares authorized (pro forma and
pro forma as adjusted); shares issued and outstanding (pro forma
and pro forma as adjusted)........................................... --
Additional paid-in capital................................................. 3,863
Retained earnings (deficit)................................................ (7,148)
Deferred compensation...................................................... (1,575)
Treasury stock, at cost; 5,280 shares of class A common stock and 528,000
shares of class B common stock........................................... (3,108)
------------ ------------ ------------
Total stockholders' equity (deficit)......................................... (7,919)
------------ ------------ ------------
Total capitalization......................................................... $ 39,249 $ $
------------ ------------ ------------
------------ ------------ ------------
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The number of shares of common stock outstanding after this offering (pro forma as adjusted) does not include:
- shares of class B common stock subject to options outstanding as of March 28, 1999 at a weighted average exercise price of $ per share;
- additional shares of class A common stock that could be issued under our stock option plan; and
- shares of class A common stock issuable upon the exercise of outstanding warrants at a nominal exercise price.
DILUTION
Our pro forma net tangible book value as of March 28, 1999 was approximately $ million, or $ per share of common stock. Pro forma net tangible book value per share is determined by dividing the amount of our total tangible assets less total liabilities by the pro forma number of shares of class A and class B common stock outstanding at that date, assuming the consummation of the 1999 recapitalization, the May 1999 private placement, the redemption of the class C common stock and the automatic conversion of our outstanding preferred stock into class A common stock. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of class A common stock in this offering and the net tangible book value per share of common stock after giving effect to the offering. After giving effect to the issuance and sale of the shares of class A common stock offered by us and after deducting the estimated underwriting discount and offering expenses payable by us, our pro forma net tangible book value as of March 28, 1999 would have been $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares in this offering. If the initial public offering price is higher or lower, the dilution to the new investors will be greater or less, respectively. The following table illustrates this per share dilution:
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share at March 28, 1999....... $
Increase in pro forma net tangible book value per share attributable
to this offering..................................................
---------
Pro forma net tangible book value per share after the offering........
---------
Dilution per share to new investors................................... $
---------
---------
|
The following table summarizes, on the pro forma basis described above, as of March 28, 1999 the differences between the number of shares of common stock purchased from us, the aggregate cash consideration paid to us and the average price per share paid by existing class A and class B common stockholders and new investors purchasing shares of class A common stock in this offering. The calculation below is based on an assumed initial public offering price of $ per share, before deducting the estimated underwriting discount and offering expenses payable by us.
TOTAL CONSIDERATION
SHARES PURCHASED
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- --------- ----------- --------------
Existing stockholders...................................% $ % $
New investors...........................................
----- --------- --------- -----
Total................................................. 100.0% $ 100.0%
----- --------- --------- -----
----- --------- --------- -----
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This discussion and table assume no exercise of any stock options or warrants outstanding as of March 28, 1999. As of March 28, 1999, on the pro forma basis described above, there were options outstanding to purchase a total of shares of class B common stock with a weighted average exercise price of $ per share and warrants outstanding to purchase shares of class A common stock at a nominal exercise price. To the extent that any of these options or warrants are exercised, there will be further dilution to new investors. See "Capitalization".
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended June 30, 1996, June 29, 1997 and June 28, 1998 and the nine months ended March 28, 1999 and the consolidated balance sheet data as of June 29, 1997, June 28, 1998 and March 28, 1999 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended June 30, 1994 and July 2, 1995 and the selected consolidated balance sheet data as of June 30, 1994, July 2, 1995 and June 30, 1996 are derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated statement of operations data for the nine months ended March 29, 1998 is derived from our unaudited consolidated financial statements included elsewhere in this prospectus which, in the opinion of management, has been prepared on the same basis as the audited consolidated financial statements and contains all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of our results of operations. The selected unaudited pro forma combined financial data give effect to our acquisition of Plow & Hearth in April 1998 as if the acquisition had been consummated at the beginning of the respective periods. The selected unaudited pro forma combined financial data do not purport to be indicative of what our actual results of operations would have been if the acquisition had been consummated at the assumed times and the interim period financial data do not purport to be indicative of future operations and should not be construed as representative of future operations. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes to those statements included elsewhere in this prospectus.
YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------- ------------------------
JUNE 30, JULY 2, JUNE 30, JUNE 29, JUNE 28, MARCH 29, MARCH 28,
1994 1995 1996 1997 1998 1998 1999
----------- --------- --------- --------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues:
Telephonic..................... $ 87,284 $ 100,826 $ 127,920 $ 145,295 $ 161,874 $ 107,141 $ 146,245
Online......................... 116 4,470 9,936 16,092 26,748 16,309 30,248
Retail fulfillment............. 4,263 11,511 15,272 25,043 31,970 22,767 27,175
----------- --------- --------- --------- --------- ----------- -----------
Total net revenues........... 91,663 116,807 153,128 186,430 220,592 146,217 203,668
Cost of revenues................. 53,468 64,657 92,820 115,078 136,966 91,773 123,738
----------- --------- --------- --------- --------- ----------- -----------
Gross profit..................... 38,195 52,150 60,308 71,352 83,626 54,444 79,930
Operating expenses:
Marketing and sales............ 29,170 38,564 42,952 47,464 55,417 38,089 67,204
Technology and development..... 500 626 851 1,411 1,794 1,128 5,207
General and administrative..... 7,019 10,035 11,556 12,338 15,832 10,315 10,528
Depreciation and
amortization................. 675 1,364 2,247 3,287 4,168 2,768 6,043
----------- --------- --------- --------- --------- ----------- -----------
Total operating expenses..... 37,364 50,589 57,606 64,500 77,211 52,300 88,982
----------- --------- --------- --------- --------- ----------- -----------
Operating income (loss).......... 831 1,561 2,702 6,852 6,415 2,144 (9,052)
Other income (expense), net...... (131) (131) (209) 674 1,654 1,729 (1,129)
----------- --------- --------- --------- --------- ----------- -----------
Income (loss) before income taxes
and minority interests......... 700 1,430 2,493 7,526 8,069 3,873 (10,181)
Provision (benefit) for income
taxes.......................... 62 300 1,255 3,135 3,181 1,515 (2,926)
----------- --------- --------- --------- --------- ----------- -----------
Income (loss) before minority
interests...................... 638 1,130 1,238 4,391 4,888 2,358 (7,255)
Minority interests............... -- -- 59 (4) 186 38 (99)
----------- --------- --------- --------- --------- ----------- -----------
Net income (loss)................ 638 1,130 1,297 4,387 5,074 2,396 (7,354)
Redeemable class C common stock
dividends...................... -- 293 1,029 1,462 1,608 1,206 1,328
----------- --------- --------- --------- --------- ----------- -----------
Net income (loss) applicable to
common stockholders............ $ 638 $ 837 $ 268 $ 2,925 $ 3,466 $ 1,190 $ (8,682)
----------- --------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- --------- ----------- -----------
Net income (loss) per common
share applicable to common
stockholders:
Basic.......................... $ 0.13 $ 0.17 $ 0.06 $ 0.66 $ 0.79 $ 0.27 $ (1.97)
----------- --------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- --------- ----------- -----------
Diluted........................ $ 0.13 $ 0.17 $ 0.05 $ 0.63 $ 0.74 $ 0.25 $ (1.97)
----------- --------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- --------- ----------- -----------
Shares used in the calculation of
net income (loss) per common
share:
Basic.......................... 4,853 4,860 4,705 4,414 4,412 4,414 4,400
----------- --------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- --------- ----------- -----------
Diluted........................ 4,853 4,978 4,942 4,674 4,661 4,675 4,400
----------- --------- --------- --------- --------- ----------- -----------
----------- --------- --------- --------- --------- ----------- -----------
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AS OF
--------------------------------------------------------------------------------------------------
JUNE 30, 1994 JULY 2, 1995 JUNE 30, 1996 JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
--------------- ------------- --------------- --------------- --------------- ---------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET
DATA:
Cash and equivalents...... $ 1,344 $ 10,775 $ 6,639 $ 11,443 $ 8,873 $ 2,632
Working capital
(deficit)............... (3,382) 2,822 (2,452) 1,975 1,950 (9,490)
Total assets.............. 13,669 35,483 36,884 44,130 81,746 86,599
Long-term liabilities..... 7,251 14,959 17,804 9,456 35,359 38,640
Redeemable class C common
stock................... -- 10,293 14,622 16,084 17,692 19,020
Total stockholders' equity
(deficit)............... (4,222) (3,316) (5,615) (2,670) 672 (7,919)
|
NINE MONTHS ENDED
YEAR ENDED --------------------------------
JUNE 28, 1998 MARCH 29, 1998 MARCH 28, 1999
-------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues:
Telephonic................................................... $ 197,303 $ 142,568 $ 146,245
Online....................................................... 26,748 16,310 30,248
Retail fulfillment........................................... 33,696 24,494 27,175
-------------- --------------- ---------------
Total net revenues......................................... 257,747 183,372 203,668
Cost of revenues............................................... 157,084 111,891 123,738
-------------- --------------- ---------------
Gross profit................................................... 100,663 71,481 79,930
Operating expenses:
Marketing and sales.......................................... 67,492 50,164 67,204
Technology and development................................... 2,126 1,460 5,207
General and administrative................................... 20,369 14,852 10,528
Depreciation and amortization................................ 5,188 3,788 6,043
-------------- --------------- ---------------
Total operating expenses................................. 95,175 70,264 88,982
-------------- --------------- ---------------
Operating income (loss)........................................ 5,488 1,217 (9,052)
Other income (expense), net.................................... 194 269 (1,129)
-------------- --------------- ---------------
Income (loss) before income taxes and minority interests....... 5,682 1,486 (10,181)
Provision (benefit) for income taxes........................... 2,548 882 (2,926)
-------------- --------------- ---------------
Income (loss) before minority interests........................ 3,134 604 (7,255)
Minority interests............................................. 330 182 (99)
-------------- --------------- ---------------
Net income (loss).............................................. 3,464 786 (7,354)
Redeemable class C common stock dividends...................... 1,608 1,206 1,328
-------------- --------------- ---------------
Net income (loss) applicable to common stockholders............ $ 1,856 $ (420) $ (8,682)
-------------- --------------- ---------------
-------------- --------------- ---------------
Net income (loss) per common share applicable to common
stockholders:
Basic........................................................ $ 0.42 $ (0.10) $ (1.97)
-------------- --------------- ---------------
-------------- --------------- ---------------
Diluted...................................................... $ 0.40 $ (0.10) $ (1.97)
-------------- --------------- ---------------
-------------- --------------- ---------------
Shares used in the calculation of net income (loss) per common
share:
Basic........................................................ 4,412 4,414 4,400
-------------- --------------- ---------------
-------------- --------------- ---------------
Diluted...................................................... 4,661 4,414 4,400
-------------- --------------- ---------------
-------------- --------------- ---------------
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
1-800-FLOWERS.COM is a leading e-commerce provider of floral products and gifts. With the development of our online business and a strategic acquisition, we have continuously expanded our product offerings, most recently to include home and garden merchandise. As a result, we have developed relationships with customers who purchase products for gifting occasions as well as for everyday consumption. We offer a broad range of products, including fresh-cut and seasonal flowers, floral arrangements, gift baskets, gourmet foods, home and garden accessories and casual lifestyle furnishings.
Our revenues primarily consist of the selling price of merchandise and service and shipping charges, net of returns and credits.
Most of our floral products and some of our gift products are fulfilled by members of our BloomNet network of approximately 1,500 florists or one of our owned or franchised stores. We recognize revenue upon delivery of the order to the recipient. We transmit our orders either through BloomLink, our proprietary Internet-based electronic communication system, or a third-party wire service. Our remittance to the fulfilling florist is processed either through a third-party clearinghouse or directly paid by us. It is industry practice for the clearinghouse to credit back to the originating florist a rebate for payments processed through the clearinghouse. For florist-fulfilled orders, we record the fees paid to the clearinghouses, net of rebates earned, as a cost of revenues.
Our home and garden merchandise and most of our gift products are shipped by us or third parties directly to the customer. We recognize revenue upon shipment of the order. We ship non-floral gift items by United States Postal Service, Federal Express, United Parcel Service or other common carriers. Most of our home and garden products are fulfilled from our Madison, Virginia fulfillment center. For sales of gifts and home and garden merchandise, we record the merchandise cost and the associated costs of inbound freight and outbound shipping as cost of revenues.
Our retail fulfillment operations primarily consist of our 34 owned stores and 87 franchised stores. Retail fulfillment revenues also include revenues attributable to our wholesale business, fees paid to us by members of our BloomNet network and royalties, fees and sublease payments paid to us by our franchised stores. Our owned stores serve as important local points of fulfillment and enable us to test new products and marketing programs. A majority of the revenues derived from our owned stores represent fulfillment of our floral orders and are eliminated as intercompany revenues.
In April 1998, we acquired 88% of the issued and outstanding capital stock of The Plow & Hearth, Inc., a catalog company specializing in home and garden merchandise. We also acquired an advanced distribution facility, which we are currently expanding to approximately 300,000 square feet. The acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on fair values at the date of acquisition. The purchase price, consisting of $16.1 million in cash and a management put liability of $6.3 million, exceeded the estimated fair values of the net assets acquired by $19.6 million. This excess has been recorded as goodwill and is being amortized over 20 years. We borrowed $14.7 million of the purchase price through our bank credit facility.
In connection with the acquisition of Plow & Hearth, we entered into an agreement with a number of Plow & Hearth's stockholders
and optionholders, whose shares and options we did not purchase in the acquisition. Pursuant to the agreement, each stockholder and optionholder has the right to cause Plow & Hearth to purchase all of its outstanding stock or stock options at a price contingent upon the operating profits of Plow & Hearth, upon the occurrence of specified events. Accordingly, we recorded a put liability of $6.3 million at the acquisition date. The put liability was increased by $2.4 million at June 28, 1998 to approximately $8.7 million, based on the formula specified in the agreement, of which $1.6 million was charged to earnings and $800,000 was charged to goodwill. During the first two quarters of fiscal 1999, the prior year charge to earnings was reversed and goodwill adjusted in accordance with the formula to properly state the put liability. We will use a portion of the proceeds of this offering to purchase these stockholders' and optionholders' Plow & Hearth stock and stock options.
Effective for the fiscal year ended June 28, 1998, we adopted Statement of Position 98-1, known as SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. The statement also requires that costs related to the preliminary project stage and post-implementation and post-operations stage in an internal-use computer software development project be expensed as incurred. Capitalized computer software development for internal use totaled approximately $828,000, $5.2 million and $626,000 for the years ended June 29, 1997 and June 28, 1998 and the nine months ended March 28, 1999, respectively. No such costs were capitalized during the year ended June 30, 1996.
Although we have been profitable in the past, we expect to incur losses for the foreseeable future as a result of the significant operating and capital expenditures required to achieve our objectives. In order to achieve and maintain profitability, we will need to generate revenues significantly above historical levels. Our prospects for achieving profitability must be considered in light of the risks, uncertainties, expenses, and difficulties encountered by companies in the rapidly evolving market of online commerce.
RESULTS OF OPERATIONS
The following table sets forth certain items from our consolidated statements of operations expressed as a percentage of total net revenues for the periods indicated:
YEARS ENDED NINE MONTHS ENDED
------------------------------------- ------------------------
JUNE 30, JUNE 29, JUNE 28, MARCH 29, MARCH 28,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
Net revenues:
Telephonic............................................ 83.5% 78.0% 73.4% 73.2% 71.8%
Online................................................ 6.5 8.6 12.1 11.2 14.9
Retail fulfillment.................................... 10.0 13.4 14.5 15.6 13.3
----- ----- ----- ----- -----
Total net revenues.................................. 100.0 100.0 100.0 100.0 100.0
Cost of revenues........................................ 60.6 61.7 62.1 62.8 60.8
----- ----- ----- ----- -----
Gross profit............................................ 39.4 38.3 37.9 37.2 39.2
----- ----- ----- ----- -----
Operating expenses:
Marketing and sales................................... 28.0 25.4 25.1 26.0 33.0
Technology and development............................ 0.6 0.8 0.8 0.8 2.6
General and administrative............................ 7.5 6.6 7.2 7.1 5.1
Depreciation and amortization......................... 1.5 1.8 1.9 1.9 3.0
----- ----- ----- ----- -----
Total operating expenses............................ 37.6 34.6 35.0 35.8 43.7
----- ----- ----- ----- -----
Operating income (loss)................................. 1.8 3.7 2.9 1.4 (4.5)
----- ----- ----- ----- -----
Other income (expense), net............................. (0.2) 0.4 0.8 1.2 (0.5)
Income taxes (benefit).................................. 0.8 1.7 1.4 1.0 (1.4)
----- ----- ----- ----- -----
Net income (loss)....................................... 0.8% 2.4% 2.3% 1.6% (3.6)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
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COMPARISON OF THE NINE MONTHS ENDED MARCH 28, 1999 AND THE NINE MONTHS ENDED
MARCH 29, 1998
NET REVENUES. Net revenues consist primarily of the selling price of merchandise and service and shipping charges, net of returns and credits. Total net revenues increased 39.3%, from $146.2 million for the nine months ended March 29, 1998 to $203.7 million for the nine months ended March 28, 1999. Telephonic revenues increased 36.5%, from $107.1 million for the nine months ended March 29, 1998 to $146.2 million for the nine months ended March 28, 1999 as a result of the Plow & Hearth acquisition. Online revenues increased 85.3%, from $16.3 million for the nine months ended March 29, 1998 to $30.2 million for the nine months ended March 28, 1999. Retail fulfillment revenues increased 19.3%, from $22.8 million for the nine months ended March 29, 1998 to $27.2 million for the nine months ended March 28, 1999, primarily due to an increase in the number of owned retail stores from 21 to 34. We do not expect to materially increase the number of owned retail stores in the foreseeable future.
COST OF REVENUES. Cost of revenues consists primarily of fees paid to clearinghouses, net of rebates, and the cost of merchandise sold, including inbound freight and outbound shipping. Additionally, cost of revenues includes labor and facility expenses related to our wholesale operations and facility costs related to properties that we sublet to our franchisees. Cost of revenues increased 34.7%, from $91.8 million for the nine months ended March 29, 1998 to $123.7 million for the nine months ended March 28, 1999. Cost of revenues increased in line with total net revenues. For the same period, gross margin increased 2.0 percentage points to 39.2%. The improvement in gross margin was primarily attributable to the Plow & Hearth acquisition,
whose product line carries a higher margin than our floral products.
MARKETING AND SALES EXPENSES. Marketing and sales expenses consist primarily of advertising and promotional expenditures, catalog costs, fees paid to strategic online partners, costs associated with retail store, customer service center and fulfillment center operations and the operating expenses of our departments engaged in marketing, selling and merchandising activities. Marketing and sales expenses increased 76.4%, from $38.1 million, or 26.0% of total net revenues, for the nine months ended March 29, 1998, to $67.2 million, or 33.0% of total net revenues, for the nine months ended March 28, 1999. The increase was primarily attributable to catalog printing and circulation expenditures resulting from the Plow & Hearth acquisition, expansion of our online and traditional media advertising campaigns, increased inbound freight and outbound shipping, telephone expenses and payroll and related expenses in support of increased order fulfillment and customer service activities. We expect marketing and sales expenses to increase significantly in future periods as we implement our strategy to expand our base of strategic online partners and to pursue an aggressive branding and marketing campaign.
TECHNOLOGY AND DEVELOPMENT EXPENSES. Technology and development expenses consist primarily of payroll and operating expenses of our information technology group, costs associated with our Web site, including design, development and third-party hosting, and maintenance, support and licensing costs pertaining to our order entry, customer service, fulfillment and database systems. Technology and development expenses increased from $1.1 million for the nine months ended March 29, 1998 to $5.2 million for the nine months ended March 28, 1999. The increase was primarily attributable to staff additions to the technology team, costs incurred to enhance the content and functionality of our Web site, further enhancements of our transaction processing system and increased investment in other areas of our systems infrastructure. For the nine months ended March 28, 1999, we capitalized $626,000 of acquired or developed software in accordance with SOP 98-1. We believe that continued investment in technology and development is critical to attaining our strategic objectives and, as a result, we expect technology and development costs to increase significantly, particularly in the areas of Web site development and database management.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist of payroll and other expenses in support of our executive, finance & accounting, legal, human resources and other administrative functions, as well as professional fees and other general corporate expenses. General and administrative expenses increased 1.9%, from $10.3, or 7.1% of total net revenues, for the nine months ended March 29, 1998 to $10.5 million, or 5.2% of total net revenues, for the nine months ended March 28, 1999. The decrease as a percentage of total net revenues was attributable to a $1.6 million benefit related to the reduction in the Plow & Hearth put liability. We expect that general and administrative expenses will increase in the future due to the expansion of our staff to support our growth strategy and the incremental costs we expect to incur as a public company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from $2.8 million for the nine months ended March 29, 1998 to $6.0 million for the nine months ended March 28, 1999. The increase was primarily due to additional capital expenditures in short-lived information systems hardware and software, as well as the increase in depreciable assets acquired and goodwill created by the Plow & Hearth acquisition.
OTHER INCOME (EXPENSE), NET. Other income (expense), net consists primarily of interest expense attributable to our credit facility, promissory notes issued to sellers in acquisitions, and leases, offset by interest income on our cash and short-term investments and dividend income. For the nine months ended March 28, 1999, we recorded a net expense of $1.1 million due primarily to the
financing of the Plow & Hearth acquisition. For the nine months ended March 29, 1998, we realized other net income of $1.7 million, which consisted primarily of a $1.5 million dividend from a minority investment.
INCOME TAXES. For the nine months ended March 28, 1999, we incurred a loss that provided a tax benefit of $2.9 million at an effective rate of 28.7%. For the nine months ended March 29, 1998, we provided for taxes of $1.5 million at an effective rate of 39.1%. The effective tax rate differed from the combined statutory rate as a result of the non-taxable component of a $1.5 million dividend, offset in part by the non-deductibility of certain goodwill amortization. We anticipate incurring significant losses in the foreseeable future. After accounting for recoverable income taxes due to allowable tax carry-back claims, we intend to provide a full valuation allowance on the related deferred tax asset to reflect the uncertainty of its realization in the future.
YEAR ENDED JUNE 28, 1998 COMPARED TO THE YEAR ENDED JUNE 27, 1997
NET REVENUES. Total net revenues increased 18.3%, from $186.4 million for fiscal 1997 to $220.6 million for fiscal 1998. Telephonic revenues increased 11.4%, from $145.3 million in fiscal 1997 to $161.9 million in fiscal 1998. The increase was primarily due to our April 1998 acquisition of Plow & Hearth, which contributed $11.4 million in net revenues in the fourth quarter. Online revenues increased 65.8%, from $16.1 million in fiscal 1997 to $26.7 million in fiscal 1998. Retail fulfillment revenues increased 28.0%, from $25.0 million in fiscal 1997 to $32.0 million in fiscal 1998, primarily as a result of our acquisition of a wholesale supplier of fresh-cut flowers and floral arrangements to the supermarket industry and an increase in the number of company-owned stores.
COST OF REVENUES. Cost of revenues increased 19.0%, from $115.1 million in fiscal 1997 to $137.0 million in fiscal 1998. The increase was in line with the increase in total net revenues. Our gross margin decreased 0.4 percentage points from 38.3% to 37.9% due to an increase in the percentage of total net revenue from lower margin wholesale operations.
MARKETING AND SALES EXPENSES. Marketing and sales expenses increased 16.6%, from $47.5 million, or 25.4% of total net revenues, for fiscal 1997 to $55.4 million, or 25.1% of total net revenues, for fiscal 1998. The additional spending was primarily attributable to increased catalog expenditures resulting from the Plow & Hearth acquisition as well as expansion of our online presence through an online marketing agreement with AOL, which became effective in May 1997. The decrease as a percentage of net revenues was due to reduced expenditures on traditional marketing activities and the favorable impact of online revenues upon customer service center operating expense.
TECHNOLOGY AND DEVELOPMENT EXPENSES. Technology and development expenses increased 28.6%, from $1.4 million in fiscal 1997 to $1.8 million in fiscal 1998. In addition to recognized product development expenses, we capitalized $5.2 million of software development costs in fiscal 1998 in accordance with SOP 98-1, reflecting our increased investments in our infrastructure. This compares to $828,000 of capitalized development costs in fiscal 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased 28.5%, from $12.3 million, or 6.6% of total net revenues, for fiscal 1997 to $15.8 million, or 7.2% of total net revenues, for fiscal 1998. The increase in general and administrative expenses was primarily due to increased salaries and related expenses associated with our retail and fulfillment operations and a charge to earnings in June 1998 of $1.6 million related to an increase in the Plow & Hearth put liability.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from $3.3 million in fiscal 1997 to $4.2 million in fiscal 1998. The increase relates to the higher level of depreciable assets in fiscal 1998 as well as the depreciable assets acquired and
goodwill created by the Plow & Hearth acquisition.
OTHER INCOME (EXPENSE), NET. Other income, net increased from $674,000 for fiscal 1997 to $1.7 million for fiscal 1998. The increase was primarily attributable to a $1.5 million dividend from a minority investment partially offset by increased interest expense related to borrowings incurred to finance our acquisition of Plow & Hearth.
INCOME TAXES. Income taxes increased from $3.1 million for fiscal 1997 to $3.2 million for fiscal 1998. The effective tax rate decreased 2.3 percentage points, from 41.7% for fiscal 1997 to 39.4% for fiscal 1998. The reduction in rate was caused by receipt of a $1.5 million dividend taxed at more favorable rates, offset in part by the effect of higher non-deductible goodwill related to the Plow & Hearth acquisition.
YEAR ENDED JUNE 27, 1997 COMPARED TO THE YEAR ENDED JUNE 30, 1996
NET REVENUES. Total net revenues increased 21.8%, from $153.1 million in fiscal 1996 to $186.4 million in fiscal 1997. The increase in net revenues was primarily the result of the growth of our telephonic and online customer base and an increase in net revenues related to our retail fulfillment operations.
COST OF REVENUES. Cost of revenues increased 24.0%, from $92.8 million in fiscal 1996 to $115.1 million in fiscal 1997. The increase was in line with the increase in total net revenues. Our gross margin decreased 1.1 percentage points from 39.4% in fiscal 1996 to 38.3% in fiscal 1997 due to an increase in revenue from lower margin wholesale operations.
MARKETING AND SALES EXPENSES. Marketing and sales expenses increased 10.5%, from $43.0 million, or 28.0% of total net revenues, in fiscal 1996 to $47.5 million, or 25.4% of total net revenues, in fiscal 1997. The additional spending increase was primarily attributable to increases in personnel costs supporting the customer service centers as well as an increase in general advertising dollars to support our brand. However, these increases were, in percentage terms, lower than the percentage increase in total net revenues, resulting in a decrease as a percentage of total net revenues.
TECHNOLOGY AND DEVELOPMENT EXPENSES. Technology and development expenses increased 64.5%, from $851,000 in fiscal 1996 to $1.4 million in fiscal 1997. The increase related to the increase in information technology staff to support our growth.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased 6.0%, from $11.6 million, or 7.5% of total net revenues, in fiscal 1996 to $12.3 million, or 6.6% of total net revenues, in fiscal 1997. The increase in general and administrative expenses was primarily due to increased salaries and related expenses associated with the expansion of our fulfillment operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from $2.2 million in fiscal 1996 to $3.3 million in fiscal 1997. The increase relates to a full year of depreciation on $5.0 million of assets purchased in fiscal 1996, as well as depreciation on assets purchased in fiscal 1997.
OTHER INCOME (EXPENSE), NET. Other income, net was $674,000 in fiscal 1997 compared to an expense of $209,000 in fiscal 1996. The difference was primarily attributable to the retirement of $5.8 million of related party debt obligations in fiscal 1996.
INCOME TAXES. Income taxes increased from $1.3 million in fiscal 1996 to $3.1 million in fiscal 1997. The effective tax rate decreased 8.6 percentage points, from 50.3% for fiscal 1996 to 41.7% in fiscal 1997. The effective tax rate reflects the non-deductible amortization related to our 1995 purchase of one of our franchisees and, in fiscal 1996, a non-deductible charge.
PRO FORMA RESULTS OF OPERATIONS
The following table sets forth information expressed as a percentage of total net revenues for the year ended June 28, 1998 (pro forma), the nine months ended March 29, 1998 (pro forma) and the nine months ended March 28, 1999 (actual):
NINE MONTHS ENDED
YEAR ENDED ------------------------
------------- MARCH 29, MARCH 28,
JUNE 28, 1998 1998 1999
------------- ----------- -----------
Net revenues:
Telephonic................................................................ 76.5% 77.7% 71.8%
Online.................................................................... 10.4 8.9 14.9
Retail fulfillment........................................................ 13.1 13.4 13.3
----- ----- -----
Total net revenues...................................................... 100.0 100.0 100.0
Cost of revenues............................................................ 61.0 61.0 60.8
----- ----- -----
Gross profit................................................................ 39.0 39.0 39.2
----- ----- -----
Operating expenses:
Marketing and sales....................................................... 26.2 27.4 33.0
Technology and development................................................ 0.8 0.8 2.6
General and administrative................................................ 7.9 8.1 5.2
Depreciation and amortization............................................. 2.0 2.1 3.0
----- ----- -----
Total operating expenses................................................ 36.9 38.4 43.7
----- ----- -----
Operating income (loss)..................................................... 2.2 0.6 (4.4)
----- ----- -----
Other income (expense), net................................................. 0.2 0.3 (0.6)
Income taxes................................................................ 1.1 0.5 (1.4)
----- ----- -----
Net income (loss)........................................................... 1.3% 0.4% (3.6)%
----- ----- -----
----- ----- -----
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NINE MONTHS ENDED MARCH 28, 1999 (ACTUAL)
COMPARED TO NINE MONTHS ENDED
MARCH 29, 1998 (PRO FORMA)
NET REVENUES. Total net revenues increased 11.1%, from $183.4 million for the nine months ended March 29, 1998 to $203.7 million for the nine months ended March 28, 1999. Telephonic revenues increased 2.5% from $142.6 million for the nine months ended March 29, 1998 to $146.2 million for the nine months ended March 28, 1999. This was due to an increase in sales of home and garden merchandise, offset in part by a decline in telephonic floral revenues as a greater proportion of our floral revenues were generated through our Web site. Online revenues increased 85.3% from $16.3 million for the nine months ended March 29, 1998 to $30.2 million for the nine months ended March 28, 1999. Retail fulfillment revenues increased 11.0%, from $24.5 million for the nine months ended March 29, 1998 to $27.2 million for the nine months ended March 28, 1999 due primarily to the increase in the number of our owned retail stores from 21 to 34.
COST OF REVENUES. Cost of revenues increased 10.6%, from $111.9 million for the nine months ended March 28, 1998 to $123.7 million for the nine months ended March 28, 1999. Our gross margin increased 0.2 percentage points from 39.0% for the nine months ended March 29, 1998 to 39.2% for the comparable period in fiscal 1999.
MARKETING AND SALES EXPENSES. Marketing and sales expenses increased 33.5%, from $50.2 million, or 27.4% of total net revenues, for the nine months ended March 29, 1998 to $67.2 million, or 33.0% of total net revenues, for the comparable period in fiscal 1999. The increase was primarily attributable to increased catalog circulation,
expansion of our online and traditional media advertising, increased telephone expenses and payroll and other related expenses in support of increased order fulfillment and customer service activities.
TECHNOLOGY AND DEVELOPMENT EXPENSES. Technology and development expenses increased from $1.5 million for the nine months ended March 29, 1998 to $5.2 million for the comparable period in fiscal 1999. The increase was primarily attributable to additions to our technology team, costs incurred to enhance the content and functionality of our Web site, further enhancements of our transaction processing system and increased investments in other areas of our systems infrastructure. In accordance with SOP 98-1, we capitalized $626,000 of acquired or developed software for the nine months ended March 28, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased 29.5%, from $14.9 million, or 8.1% of total net revenues, for the nine months ended March 29, 1998 to $10.5 million, or 5.2% of total net revenues, for the comparable period in fiscal 1999. The decrease was primarily due to a $1.6 million benefit related to a reduction in the Plow & Hearth put liability in the nine months ended March 28, 1999 and a $3.9 million non-recurring and non-cash compensation charge in the nine months ended March 29, 1998 related to the revaluation of Plow & Hearth stock options prior to the acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from $3.8 million for the nine months ended March 29, 1998 to $6.0 million for the comparable period in fiscal 1999. The increase was primarily due to additional capital expenditures in short-lived information technology assets.
OTHER INCOME (EXPENSE), NET. For the nine months ended March 28, 1999, we recorded a net expense of $1.1 million compared to net income of $269,000 for the comparable period in fiscal 1998. Other income (expense), net consists primarily of interest expense attributable to our credit facility and seller financed notes and leases, offset by interest income on our cash and short-term investments and dividend income. The higher net interest income in fiscal 1998 was due to a one-time $1.5 million dividend from a minority investment.
INCOME TAXES. For the nine months ended March 28, 1999, we incurred a loss that provided a tax benefit of $2.9 million at an effective rate of 28.7%. For the comparable period in fiscal 1998, we provided for taxes of $882,000 at an effective rate of 59.4%. The effective tax rate differed from the combined federal and state statutory rate of 40.0% as a result of the non-deductibility of goodwill amortization related to the Plow & Hearth acquisition as well as, for fiscal 1999, our inability to recognize certain state tax benefits.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly statement of operations data for the last seven quarters and such data expressed as a percentage of total net revenues. We believe this unaudited information has been prepared substantially on the same basis as the annual audited financial statements and all necessary adjustments, consisting of only normal recurring adjustments, have been included in the amounts stated below to present fairly our results of operations. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
THREE MONTHS ENDED
---------------------------------------------------------------------------------
SEPT. 28, DEC. 28, MAR. 29, JUNE 28, SEPT. 27, DEC. 27, MAR. 28,
1997 1997 1998 1998 1998 1998 1999
----------- --------- --------- ----------- ----------- --------- ---------
(IN THOUSANDS)
Net revenues:
Telephonic........................ $ 28,601 $ 40,041 $ 38,498 $ 54,734 $ 34,370 $ 67,972 $ 43,903
Online............................ 3,276 5,938 7,095 10,439 6,258 10,771 13,219
Retail fulfillment................ 5,638 7,610 9,520 9,202 6,946 10,061 10,168
----------- --------- --------- ----------- ----------- --------- ---------
Total net revenues.............. 37,515 53,589 55,113 74,375 47,574 88,804 67,290
Cost of revenues.................... 23,499 33,361 34,913 45,193 29,793 51,847 42,098
----------- --------- --------- ----------- ----------- --------- ---------
Gross profit........................ 14,016 20,228 20,200 29,182 17,781 36,957 25,192
----------- --------- --------- ----------- ----------- --------- ---------
Operating expenses:
Marketing and sales............... 9,792 14,689 13,609 17,327 14,455 33,065 19,684
Technology and development........ 409 185 534 665 1,127 1,807 2,273
General and administrative........ 3,280 3,730 3,305 5,518 2,348 3,273 4,906
Depreciation and amortization..... 905 905 958 1,400 1,532 1,676 2,836
----------- --------- --------- ----------- ----------- --------- ---------
Total operating expenses...... 14,386 19,509 18,406 24,910 19,462 39,821 29,699
----------- --------- --------- ----------- ----------- --------- ---------
Operating income (loss)............. (370) 719 1,794 4,272 (1,681) (2,864) (4,507)
----------- --------- --------- ----------- ----------- --------- ---------
Other income (expense), net......... 1,724 (13) 56 71 (227) (623) (378)
Income taxes........................ 524 273 718 1,666 (552) (1,010) (1,363)
----------- --------- --------- ----------- ----------- --------- ---------
Net income (loss)................... $ 830 $ 433 $ 1,132 $ 2,677 $ (1,356) $ (2,478) $ (3,522)
----------- --------- --------- ----------- ----------- --------- ---------
----------- --------- --------- ----------- ----------- --------- ---------
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THREE MONTHS ENDED
---------------------------------------------------------------------------------
SEPT. 28, DEC. 28, MAR. 29, JUNE 28, SEPT. 27, DEC. 27, MAR. 28,
1997 1997 1998 1998 1998 1998 1999
----------- --------- --------- ----------- ----------- --------- ---------
Net revenues:
Telephonic........................ 76.2% 74.8% 69.9% 73.6% 72.3% 76.5% 65.2%
Online............................ 8.7 11.0 12.9 14.0 13.2 12.2 19.6
Retail fulfillment................ 15.1 14.2 17.2 12.4 14.5 11.3 15.2
----------- --------- --------- ----------- ----------- --------- ---------
Total net revenues.............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues.................... 62.6 62.3 63.3 60.8 62.6 58.4 62.6
----------- --------- --------- ----------- ----------- --------- ---------
Gross profit........................ 37.4 37.7 36.7 39.2 37.4 41.6 37.4
----------- --------- --------- ----------- ----------- --------- ---------
Operating expenses:
Marketing and sales............... 26.1 27.4 24.7 23.3 30.4 37.2 29.2
Technology and development........ 1.1 0.3 1.0 0.9 2.4 2.0 3.4
General and administrative........ 8.7 7.0 6.0 7.4 4.9 3.7 7.3
Depreciation and amortization..... 2.4 1.7 1.7 1.9 3.2 1.9 4.2
----------- --------- --------- ----------- ----------- --------- ---------
Total operating expenses........ 38.3 36.4 33.4 33.5 40.9 44.8 44.1
----------- --------- --------- ----------- ----------- --------- ---------
Operating income (loss)............. (0.9) 1.3 3.3 5.7 (3.5) (3.2) (6.7)
----------- --------- --------- ----------- ----------- --------- ---------
Other income (expense), net......... 4.5 (0.0) 0.1 0.1 (0.5) (0.7) (0.6)
Income taxes........................ 1.4 0.5 1.3 2.2 (1.2) (1.1) (2.0)
----------- --------- --------- ----------- ----------- --------- ---------
Net income (loss)................... 2.2% 0.8% 2.1% 3.6% (2.8)% (2.8)% (5.3)%
----------- --------- --------- ----------- ----------- --------- ---------
----------- --------- --------- ----------- ----------- --------- ---------
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Our quarterly results are subject to seasonal fluctuations. Historically, revenues have been highest in the fourth fiscal quarter, due to a number of major floral gifting occasions, including Mother's Day, Easter and graduations. Due to our acquisition of Plow & Hearth, which generates more revenues in our second fiscal quarter due to Christmas and Thanksgiving, our second fiscal quarter revenues in fiscal 1999 increased significantly from historical levels. We expect our second fiscal quarter revenues to represent a larger proportion of our total revenues in the future.
It is difficult for us to forecast our revenues or earnings accurately. We believe that period-to-period comparisons of our operating results may not be meaningful and should not be
relied upon as an indication of future performance. We do not have a backlog, and almost all of our net revenues are derived from transactions that are consummated and fulfilled on the same day, the next day or shortly thereafter.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through loans from our Chief Executive Officer, which were repaid in June 1996, cash flow from operations and a sale of class C common stock in January 1995. In addition, to finance acquisitions, we have issued promissory notes to sellers and entered into a $30.0 million credit agreement that provides for an $18.0 million term loan and a $12.0 million revolving credit facility. Additionally, we have a $4.5 million revolving credit line with another bank. At March 28, 1999, $2.8 million was outstanding under this revolving credit line and we had $2.3 million in cash and equivalents. In May 1999, we issued preferred stock yielding us net proceeds of $102.6 million in a private placement.
We used $9.7 million in cash to fund operations during the nine months ended March 28, 1999, principally to fund our net loss as well as increases in accounts receivable and inventories. This use of cash was offset in part by increases in accounts payable and accrued expenses, due primarily to our revenue growth. We generated $5.8 million, $10.7 million and $9.5 million in cash from operations in fiscal 1996, 1997 and 1998, respectively.
We used $1.7 million in cash for investing activities in the nine months ended March 28, 1999. We used $4.0 million, $4.2 million and $25.5 million in cash for investing activities in fiscal 1996, 1997 and 1998, respectively. In each period, cash used for investing activities related primarily to the purchase of property, equipment and investments in our systems infrastructure and, in fiscal 1998, the acquisition of Plow & Hearth. For the nine months ended March 28, 1999, we generated cash by liquidating investments yielding proceeds of $5.4 million. In fiscal 1998, we used $15.2 million, net of cash acquired, related to the Plow & Hearth acquisition.
We generated $5.2 million in cash from financing activities in the nine months ended March 28, 1999 and $13.4 million in fiscal 1998. In the nine months ended March 28, 1999, financing activities included net borrowings of $6.2 million under our credit facility and revolving lines of credit and an increase in our mortgage notes payable of $1.1 million related to the expansion of the Plow & Hearth credit facility. In fiscal 1998, we borrowed $15.5 million to finance the Plow & Hearth acquisition, offset in part by repayments of capital leases and seller acquisition notes and the purchase into treasury of $133,000 of outstanding class A and B common stock. In fiscal 1997, we used $1.7 million in financing activities related to the repayment of capital leases and promissory notes issued to sellers. Finally, in 1996 we used $3.0 million in financing to repay capital leases and related party loans as well as purchased into treasury $3.0 million of outstanding class A and B common stock.
Our material capital commitments consist of borrowings under our credit facility, promissory notes issued to sellers, obligations outstanding under capital and operating leases and payments owing to AOL. Pursuant to our agreement with AOL, we are obligated to pay $10.8 million to AOL during the four-year term of this agreement. In addition, we are required to share a small portion of our AOL-derived revenue with AOL. Pursuant to the agreement, we paid AOL $3.3 million in fiscal 1998 and approximately $5.6 million during the nine months ended March 28, 1999. A scheduled payment of $2.5 million will be made in July 1999.
We believe that the net proceeds from this offering, together with our current cash and cash equivalents, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional
equity or debt securities. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21(st) century dates from 20(th) century dates. As a result, computer systems and software used by many companies and governmental agencies may need to be upgraded to comply with Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities.
OUR STATE OF READINESS
We have made a preliminary assessment of the state of our operating and administrative systems including our telecommunications systems, our order processing and data collection systems and our internet related systems to assess our state of Year 2000 readiness. Our assessment plan consists of:
- evaluating our date dependent code, software and hardware and evaluating external dependencies;
- quality assurance testing of our internally developed software and systems; and
- obtaining assurances or warranties from third-party vendors and licensors of material hardware, software and services that are related to the delivery of our services.
To date, our assessment has determined that our critical business systems are all Year 2000 compliant, except our call routing system, and that most of our other systems are Year 2000 compliant. We expect all of our internal systems, including the call routing system, to be fully Year 2000 compliant by October 1999. All material commercial software and hardware on which we depend is either Year 2000 compliant or will be upgraded to be compliant in the normal course of business through the installation of upgrades or replacements. Our material hardware, software and service vendors have informed us that the products we use, or will be using as upgrades or replacements, to support our operations are Year 2000 compliant. Our Web site hosting service, Fry Multimedia, has represented to us that its hardware and software systems are Year 2000 compliant.
COSTS TO ADDRESS YEAR 2000 ISSUES
To date, we have not incurred any significant costs attributable to Year 2000 compliance. Our recent information technology investments have been in support of our expanding operating and decision support requirements and to the extent they involved a replacement of an existing system, also accommodated Year 2000 compliance. We do, however, expect to incur approximately $1.0 million in the third calendar quarter to make our call routing system Year 2000 compliant. Other than these costs, we are not currently aware of any material operational issues or costs associated with preparing our systems for the Year 2000. Nonetheless, we may experience material unexpected costs caused by undetected errors or defects in the technology used in our systems or because of the failure of a material vendor to be Year 2000 compliant.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
Notwithstanding our Year 2000 compliance efforts, the failure of a material system or vendor, or the Internet generally, to be Year 2000 compliant could harm the operation of our systems or have other unforeseen, material adverse consequences to us. We are also subject to external Year 2000-related failures or disruptions that might generally affect industry and commerce, such as utility or transportation company Year 2000 compliance failures and related service interruptions. All of these factors could materially adversely affect our business.
CONTINGENCY PLANS
As discussed above, we are engaged in an ongoing Year 2000 assessment and have developed no contingency plans to address situations that might occur if technologies on which we depend are not Year 2000 compliant. The results of our Year 2000 assessment and testing, and the responses received from third-party vendors and service providers will be taken into account in determining the need for and nature and extent of any contingency plans.
BUSINESS
OVERVIEW
1-800-FLOWERS.COM, Inc. is a leading e-commerce provider of floral products and gifts. With the development of our online business and a strategic acquisition, we have continuously expanded our product offerings, most recently to include home and garden merchandise. As a result, we have developed relationships with customers who purchase products not only for gifting occasions but also for everyday consumption.
We believe the 1-800-FLOWERS brand is one of the most recognized brands in the floral industry. We offer more than 1,500 varieties of fresh-cut and seasonal flowers, plants and floral arrangements and more than 6,000 SKUs of gifts and home and garden products, including gift baskets, gourmet foods, garden accessories and casual lifestyle furnishings. We provide our customers the choice of purchasing our products online, by calling us toll-free or by visiting our owned or franchised retail stores.
Today, the Internet is our fastest growing sales channel. For the nine months ended March 28, 1999, online revenues were $30.2 million, representing an 85.3% increase over the same period in the previous fiscal year.
We believe we have been and continue to be a leader in implementing integrated technologies and systems that support our online and telephonic sales channels and our fulfillment operations. Because many of our products must be handled delicately and delivered promptly to ensure customer satisfaction and freshness, we have developed significant experience in fulfilling our customers' orders reliably, quickly and cost-effectively.
As of December 31, 1998, we had sold our products to more than 6.7 million customers, of which 2.7 million had made a purchase from us in the previous twelve months. Our total net revenues for the nine months ended March 28, 1999 were $203.8 million.
In May 1999, we completed a private placement of preferred stock yielding us net proceeds of $102.6 million. The investors include Benchmark Capital Partners and SOFTBANK America Inc., both leading Internet-focused investment firms, and Forum Holding BV, an affiliate of LVMH Moet Hennessey Louis Vuitton S.A.
THE ORIGINS OF 1-800-FLOWERS.COM
Our business began in 1976, when James F. McCann, our Chairman and Chief Executive Officer, acquired a single retail florist in New York City. We expanded to 14 retail locations by 1986, when we changed our business strategy to take advantage of the rapid emergence of toll-free calling. We acquired the right to use the toll-free telephone number 1-800-FLOWERS, adopted it as our corporate identity and began to aggressively build a national brand around it. We believe we were one of the first companies to embrace this new way of conducting business.
To support the growth of our toll-free business and to provide superior customer service, we began developing an operating infrastructure that incorporated the best available technologies. Over time, we implemented:
- a sophisticated transaction processing system that facilitated rapid order entry and fulfillment;
- a redundant, fault tolerant telecommunications system; and
- multiple customer service centers to handle increasing call volume.
To enable us to deliver products reliably nationwide on a same-day or next-day basis and to market pre-selected, high-quality floral products, we created BloomNet, a nationwide network of approximately 1,500 local florists selected by us for their high-quality products,
superior customer service and order fulfillment and delivery capabilities.
In the early 1990s, we recognized the emergence of the Internet as a significant strategic opportunity and moved aggressively to embrace this new medium. Leveraging our previous investments in our infrastructure, we were able to quickly develop and implement an online presence. As a result, we were one of the first companies to market products online through CompuServe beginning in 1992 and AOL beginning in 1994 (keyword: flowers). In April 1995, we opened our fully functional, e-commerce Web site (WWW.1800FLOWERS.COM) and subsequently entered into strategic relationships with AOL and Microsoft Network, among others, to build our online brand and customer base.
Our online presence has enabled us to expand the number and types of products we can effectively offer. Since 1995, we have expanded our online product offerings of flowers and gifts and added complementary home and garden merchandise through our April 1998 acquisition of Plow & Hearth.
1-800-FLOWERS.COM TODAY
[Graphic consisting of four circles arranged around the periphery, each containing a depiction of one category of products and labeled "Floral", "Garden", "Home" and "Gifts". In the center of graphic are the Company name and logo and the words "Brand", "Product Selection", "Customer Relationships", "Technology Infrastructure" and "Fulfillment Capabilities".]
We believe our success in selling floral, gift and home and garden products is attributable to the following key elements of our business:
OUR BRAND. We believe that 1-800-FLOWERS is one of the most recognized brands in the floral industry. The strength of our brand has enabled us to extend our product offerings to complementary products, including gifts and home and garden merchandise, and to attract a significant number of customers to our Web site. We continue to invest heavily in building our brand through strategic online relationships and extensive marketing, advertising and public relations programs. We believe our brand is characterized by:
- Convenience. Our customers may purchase floral, gift and home and garden products online or by calling our toll-free telephone number from the home or office 24 hours a day, seven days a week. We offer a variety of delivery options, including same-day or next-day service throughout the United States.
- Quality. High-quality products are critical to our continued brand strength. We offer our customers a 100% satisfaction guarantee on all of our products.
- Selection. Over the course of a year, we offer more than 1,500 varieties of fresh-cut and seasonal flowers, plants and floral arrangements, and more than 6,000 SKUs of gifts and home and garden products, including gift baskets, gourmet foods, garden accessories and casual lifestyle furnishings.
- Customer Service. We ensure a high level of customer service by training our agents to assist our customers over the telephone and online to select the appropriate flowers or gifts and to monitor order fulfillment.
OUR PRODUCT SELECTION. We continuously expand our product offerings to offer a better shopping experience for our customers. Our merchandising team works closely with manufacturers and suppliers to select and design our principal floral, gift and home and garden merchandise as well as other products that meet the seasonal and other special needs of our customers.
Because we offer a wide selection of products, we create the opportunity to have a relationship with customers who purchase products not only for gifting occasions but also for everyday consumption.
OUR CUSTOMER RELATIONSHIPS. Through our direct contact with our customers, we collect information and maintain a database about our customers. This information includes the customer's name, address, e-mail address, telephone number, demographic information, individual preferences, shopping and buying patterns and other key attributes. We use this information to improve our customers' experience with us by offering products that meet their needs, to target promotional offers, to identify future consumption and giving occasions and to send gift reminders and e-mail messages, including our electronic newsletter. As of December 31, 1998, our total database of customers numbered approximately 6.7 million. We also gather information about the recipients of our products, including their name, address, telephone number and the products received.
We also market our products to businesses for gifting, incentive and reward programs. As of March 28, 1999, approximately 2,900 corporate customers had made a purchase from us within the previous 12 months. These customers, which are served by our Corporate Gift Services division, include NationsBank/Bank of America, IBM, Omnipoint, Ford Motor Co. and Scudder Investments. We currently provide many of our large corporate customers with an account manager, a team of floral and gifting coordinators and a customized, password-protected area of our Web site. In addition, each employee of our corporate customers is entitled to receive special offers and discounts on personal purchases.
OUR TECHNOLOGY INFRASTRUCTURE. We believe we have been and continue to be a leader in implementing new technologies and systems to give our customers the best possible experience with us, whether online or over the telephone. Our Web site has been designed to be secure, fast and easy to use. To serve our telephone customers, we have implemented a centrally managed telecommunications system.
We process both online and telephonic orders through a common transaction processing system. This system selects the florist or other vendor to fulfill a customer's order, electronically transmits the order for fulfillment and captures the customer's profile and purchasing history. In addition, our customer service representatives are electronically linked to this system, enabling them to facilitate placement of an order and subsequently track customer and order information.
OUR FULFILLMENT CAPABILITIES. Fresh-cut and seasonal flowers and floral arrangements are perishable and often sent as gifts. We have developed significant experience in fulfilling our customers' orders reliably, quickly and cost-effectively. Most of our customers' purchases of floral products are fulfilled through our BloomNet network of approximately 1,500 florists or one of our owned or franchised retail stores. This allows us to deliver our floral products on a same-day or next-day basis to ensure freshness and to meet our customers' need for prompt delivery. In addition, we are better able to ensure consistent product quality and presentation and offer a greater variety of arrangements, which we believe creates a better experience for our customers and gift recipients. We select BloomNet members for their high-quality products, superior customer service and order fulfillment and delivery capabilities.
To ensure reliable and efficient communication of online and telephonic orders to our BloomNet members, we created BloomLink, a proprietary Internet-based communications system. A majority of our BloomNet members have adopted BloomLink since its introduction in January 1998. We also have the ability to arrange for delivery of floral products internationally through independent wire services.
We fulfill most of our gift basket and gourmet food items primarily through electronic connection to third-party suppliers that ship products directly to the customer by next-day or other delivery method chosen by the customer. We select our third-party vendors based upon the quality of their products, their
reliability and their ability to meet our volume requirements.
We package and ship our home and garden products from our advanced 185,000 square foot fulfillment center located in Madison, Virginia by next-day or other delivery method chosen by the customer. We are currently enlarging this facility to approximately 300,000 square feet to support our anticipated future growth.
OUR STRATEGY
Our objective is to be the leading e-commerce provider of flowers, gifts and products for the home and garden. The key elements of our strategy to achieve this objective are:
AGGRESSIVELY EXTEND OUR BRAND. Our goal is to make the 1-800-FLOWERS.COM brand synonymous with flowers, gifts and home and garden products. To do this, we intend to invest in building our brand and in communicating the benefits and convenience of shopping with 1-800-FLOWERS.COM. We intend to significantly increase our marketing expenditures to:
- maintain and develop new strategic online relationships;
- expand our Internet advertising and promotion;
- broaden our television, radio, print and outdoor advertising campaigns; and
- increase our public relations programs, such as community events, radio and television demonstrations and trade conferences.
We intend to market other high-quality brands in addition to 1-800-FLOWERS.COM. We may accomplish this through internal development, co-branding arrangements, strategic partnerships or acquisitions of complementary businesses.
EXPAND OUR OFFERINGS OF GIFTS AND HOME AND GARDEN PRODUCTS. To broaden our relationships with our existing customers, we intend to offer more products designed for everyday occasions and sentiments, as well as products for the home and garden. To do this, we intend to expand our relationships with product manufacturers or acquire businesses with complementary product lines.
ENHANCE OUR CUSTOMER RELATIONSHIPS. We intend to enhance our relationships with our customers, encouraging more frequent and more extensive use of our Web site, by introducing enhanced product-related content and interactive features. We will also continue to personalize the features of our Web site and increase our use of both customer and recipients' information to target product promotions, remind our customers of upcoming occasions and convey other marketing messages. In addition, we are committed to continuing to make shopping and visiting WWW.1800FLOWERS.COM an easy, secure and pleasurable experience for our customers.
We believe we have a significant opportunity to expand our corporate accounts. We intend to focus greater resources on developing customized programs for our corporate customers to meet their gifting needs and those of their employees.
INCREASE THE NUMBER OF ONLINE CUSTOMERS. Our goal is to increase the number of customers placing orders through our Web site. To achieve this goal, we intend to:
- actively promote our Web site through Web portals and online networks;
- aggressively expand our online affiliate program, in which independent Web sites link directly to our Web site;
- aggressively market our Web site in our advertising campaigns;
- promote our Web site to our existing telephonic customers; and
- facilitate access to our Web site for our corporate customers by developing direct links from their internal corporate networks.
CONTINUE TO UPGRADE OUR TECHNOLOGY INFRASTRUCTURE. We will continue to make significant investments and use the best available technologies in order to improve the functionality of our Web site and our underlying operations. In particular, we intend to:
- continue to improve the speed and ease of use of our Web site;
- improve our transaction processing system to facilitate order tracking and to enhance the interface with our accounting and financial systems;
- enhance our ability to analyze our database of customer information and conduct personalized one-to-one marketing; and
- further expand the functionality and features of BloomLink.
CONTINUE TO IMPROVE OUR FULFILLMENT CAPABILITIES. We intend to improve our fulfillment capabilities to make our operations more efficient by:
- strengthening our relationships with our BloomNet member florists and increasing the number of BloomLink installations in their stores;
- evaluating and implementing alternative means of fulfillment, such as centralized production and logistics partnering; and
- continuing to improve our operations that support our gift and home and garden product lines.
OUR PRODUCTS
We offer a wide range of products, including fresh-cut and seasonal flowers, floral arrangements, gifts and home and garden merchandise. In addition to selecting our core products, our merchandising team works closely with manufacturers and suppliers to select and design products that meet the seasonal and other special needs of our customers. Over the course of a year, our product selection consist of:
FLOWERS AND PLANTS. We offer more than 1,300 varieties of fresh-cut and seasonal flowers and floral arrangements for all occasions and holidays. We also offer more than 200 varieties of popular plants for the home and garden.
GIFTS. We offer more than 200 SKUs of gifts, including gift baskets, dolls, plush toys, balloons, bath and spa items, wreaths and ornaments. In addition, we offer more than 100 SKUs in the specialty food and gourmet categories, including candies, chocolates, nuts, cookies and fruits.
HOME. We offer more than 2,500 SKUs for the home, including candles and lighting, vases, kitchen items and accents, casual lifestyle furniture and home accessories.
GARDEN. We offer more than 3,000 SKUs for the garden, including outdoor furniture, tools and accessories, pottery, nature-related products, clothing and footwear.
OUR WEB SITE
We offer floral, gift and home and garden products through our 1-800-FLOWERS.COM Web site (WWW.1800FLOWERS.COM). Customers may come to our Web site directly or may be referred to us by our strategic online partners. Our online partners include AOL.com, Excite and Microsoft Network and more than 3,000 members of our online affiliate program, which we initiated in February 1999. In addition, our customers can shop at our AOL store (keyword: flowers). We also offer home and garden products through the Plow & Hearth Web site (WWW.PLOWHEARTH.COM). We intend to integrate the Plow & Hearth Web site into our 1-800-FLOWERS.COM Web site to provide our customers the ability to purchase floral, gift and home and garden products conveniently in a single visit. As of December 27, 1998, approximately 400,000 customers had made a purchase through our Web site or our AOL store in the previous twelve months.
Our Web site allows customers to easily browse and purchase our products, promotes brand loyalty and encourages repeat purchases by providing an inviting customer experience. Our Web site offers customers detailed product information, complete with photographs, contests, home decorating and how-to tips, information on floral trends, gift-giving suggestions and information about special events and offers. We have designed our Web site to be fast, secure and easy to use and to enable customers to order products with minimal effort. Our Web site includes the following key features:
SEARCHING. We have incorporated sophisticated search capabilities, which enable customers to search for products by category, occasion, price, flower type or keyword. We also have a "Gift Ideas" section that provides popular gift ideas for each occasion.
PERSONALIZATION. We utilize our Web site to enhance the direct relationship with our customers. The "My Flower Shop" area of our site enables customers to establish their floral and gift preferences, which personalizes and simplifies their visits. "My Flower Shop" members are also provided with an online address book of names and addresses of their gift recipients, access to their purchasing history and e-mail notification of specials and events at our local retail stores. Our customers can also register for our "Gift Reminder Program," in which we send them an e-mail reminder a few days prior to an occasion to remind them of the occasion and to recommend specific flowers and gifts.
SECURITY. We use secure server software to encrypt the customer's credit card number prior to transmitting it over the Internet.
DELIVERY. We offer customers a variety of delivery and shipping options, including same-day or next-day delivery by the fulfilling local florist and a number of delivery options through Federal Express, United Parcel Service, the United States Postal Service and other common carriers.
CUSTOMER SERVICE. Through our seven customer service centers, we offer service and support to our customers 24 hours a day, seven days a week over the telephone. We also provide real-time online messaging and e-mail support to our customers. We intend to enhance our ability to provide a high level of customer service through the use of new Internet-based technologies.
PRIVACY. We recognize the importance of maintaining the privacy of our customers. We use the information gathered from our customers and others who have registered on our Web site from time to time to send our own promotional materials. We periodically make information available to selected third parties for direct marketing purposes. However, customers may elect not to receive our promotional information or instruct us not to make their information available to third parties. We also gather information concerning how visitors use and navigate our Web site. We use this information only internally to better allow us to serve our customers. Our current online privacy policy is set forth on our Web site.
MARKETING AND PROMOTION
Our marketing and promotion strategy is designed to strengthen our 1-800- FLOWERS.COM brand, build customer loyalty, increase the number of online and telephonic customers, encourage repeat purchases and develop additional product revenue opportunities. We also intend to develop and market other high-quality brands in addition to 1-800-FLOWERS.COM through internal development, co-branding arrangements, strategic partnerships or acquisitions of complementary businesses. We market and promote our brand and products as follows:
OUR STRATEGIC ONLINE RELATIONSHIPS. We promote our products through strategic relationships with leading Web portals and online networks. Our key relationships include:
- America Online. We have worked with AOL since 1994 and maintain a separate online 1-800-FLOWERS.COM store for the convenience of AOL's subscribers. We are the exclusive provider of fresh-cut flowers and plants through
AOL's proprietary online service and AOL.com, subject to a limited number of exceptions. In addition, we are prominently promoted through banner and other advertisements across AOL's online service and AOL.com. Our agreements with AOL extend through June 2001.
- Microsoft Network. Our products, advertisements and links to our Web site are prominently featured on Microsoft Network's online shopping channel. Our agreement with Microsoft Network extends through September 1999.
- Excite. Our products and links to our Web site are also prominently featured on Excite's shopping channel. Our agreement with Excite extends through June 1999 and may be renewed, at our option, through June 2000.
- StarMedia Network. Through our relationship with StarMedia Network, we are developing Spanish and Portuguese language versions of our Web site.
OUR ONLINE AFFILIATE PROGRAM. In addition to securing alliances with frequently visited Web sites, in February 1999 we established an affiliate network that has grown to more than 3,000 Web sites operated by third parties. These Web sites earn commissions by referring customers from their sites to our Web site. Affiliates include AT&T WorldNet, Earthlink/ Sprint, Gateway 2000, HomeArts, About.com and PCWorld Online.
TRADITIONAL MEDIA. We utilize traditional media, such as television, radio, print and outdoor advertising, to market our brand and products. Traditional media allows us both to reach a large number of customers and to target particular market segments.
DIRECT MAIL AND CATALOGS. We use our direct mail promotions and catalogs to increase the number of new customers and to introduce additional products to our existing customers. Through the use of PLOW & HEARTH'S catalogs, we intend to cross-promote our floral and gift products to our home and garden customers as well as home and garden products to our floral and gift customers. For the nine months ended March 28, 1999, we mailed a total of approximately 28.6 million catalogs, including PLOW & HEARTH and AMERICAN COUNTRY HOME. We believe these catalogs will attract additional customers to our WWW.1800FLOWERS.COM and WWW.PLOWHEARTH.COM Web sites.
CO-MARKETING AND PROMOTIONS. We have established a number of significant co-marketing relationships and promotions to advertise our products. For example, we have established co-marketing arrangements with United, American and Delta airlines as well as American Express, VISA and MasterCard, among others.
FULFILLMENT OPERATIONS
Our customers primarily place orders for our products online or over the telephone. Our fulfillment operations are represented in the following diagram:
[Graphical representation of fulfillment operations, consisting of three headings labeled "Channel", "Fulfillment" and "Products". Under the heading "Channel" are depictions of a computer terminal, with the caption "Online", and a telephone sales agent, with the caption "Telephonic". Under the heading "Fulfillment" is a map of the United States with scattered dots representing our retail stores and the caption "1500 BloomNet Stores" and depictions of other types of fulfillment facilities and the captions "Owned & Franchised Florists", "Unaffiliated Florists", "Direct from Vendor" and "Our Fulfillment Centers". Under the heading "Products" are depictions of our various product offerings and the captions "Flowers & Plants", "Gifts" and "Home and Garden".]
FLOWERS AND PLANTS. Most of our floral orders are fulfilled through our BloomNet network of approximately 1,500 florists or one of our owned or franchised retail stores. This allows us to deliver a majority of our floral products on a same-day or next-day basis to ensure freshness and to meet our customers' need for prompt delivery. In addition, we are better able to ensure consistent product quality and presentation and offer a greater variety of arrangements, which we believe creates a better experience for our customers and gift recipients. A majority of our BloomNet members and many of our owned or franchised stores are connected to us electronically via BloomLink, an Internet-based electronic communications system. Where we are not connected to our BloomNet partners or our owned and franchised stores via BloomLink, we utilize an independent wire service to transmit an order to the fulfilling florist. In addition, we also ship to the customer directly from growers.
We own and operate 34 retail stores, located primarily in the New York and Los Angeles metropolitan areas. In addition, we have 87 franchised stores, located primarily in California. Our owned stores serve as important local points of fulfillment and enable us to test new products and marketing programs. We do not expect to materially increase the number of owned or franchised retail stores in the foreseeable future.
GIFTS. Most of our gift products are shipped directly to the customer by third-party product suppliers using next-day or other delivery method selected by the customer.
HOME AND GARDEN. We fulfill most purchases of home and garden merchandise from our Madison, Virginia fulfillment center using next-day or other delivery method selected by the customer. In calendar year 1998, we shipped more than 800,000 packages from this facility. Construction is currently underway to expand this facility from 185,000 square feet to approximately 300,000 square feet, which will approximately double our shipping capacity. This facility employs advanced technology for receiving, packaging, shipping and inventory control.
TECHNOLOGY INFRASTRUCTURE
We believe we have an advanced technology platform. Our technology infrastructure, primarily consisting of our Web site, transaction processing, customer databases and telecommunications systems, is built and maintained for reliability, scalability, security and flexibility. To minimize the risk of service interruptions from unexpected component or telecommunications failure, maintenance and upgrades, we have built redundancy into those components of our systems that we have identified as critical. Since July 1, 1997, we spent a total of $21.3 million on our technology infrastructure. We plan to continue to invest in technologies that will improve and expand our e-commerce and telecommunication capabilities.
Our Web site and BloomLink are hosted and maintained by Fry Multimedia, a hosting and online services company headquartered in Ann Arbor, Michigan. In addition to Fry Multimedia's two hosting facilities, we also intend to co-locate the hosting of our Web site and BloomLink with a third-party vendor to provide additional back-up and system redundancy.
Our transaction processing system selects the florist or vendor to fulfill the order and captures customer profile and history in a customized Oracle database. Through the use of customized software applications, we are able to retrieve, sort and analyze customer information to enable us to better serve our customers and target our product offerings. We expect to develop or license additional software applications to expand our ability to analyze and use this information.
Our seven customer service centers and many of our third party product suppliers are connected electronically to our transaction processing system to permit the rapid transmission of, and access to, critical order and customer information. In addition, BloomLink electronically connects us to a majority of the retail florists in our BloomNet network and 56 of our owned or franchised stores.
Our operation center is located in our headquarters in Westbury, New York. We provide comprehensive facility management services, including human and technical monitoring of all production servers, 24 hours per day, seven days per week.
COMPETITION
The growing popularity and convenience of e-commerce has given rise to mass merchants on the Internet. In addition to selling their products over the Internet, many of these retailers sell their products through a combination of channels by maintaining a Web site, a toll-free phone number and physical locations. These mass merchants offer an expanding variety of products and are attracting an increasing number of customers. Some of these merchants have expanded their offerings to include competing products and may continue to do so in the future. These mass merchants, as well as other potential competitors, may be able to:
- undertake more extensive marketing campaigns for their brands and services;
- adopt more aggressive pricing policies; and
- make more attractive offers to potential employees, distribution partners and retailers.
In addition, we face intense competition in each of our individual product categories. In the floral industry, our competitors include:
- retail floral shops, some of which maintain toll-free telephone numbers;
- online floral retailers;
- catalog companies that offer floral products;
- floral telemarketers and wire services; and
- supermarkets and mass merchants with floral departments.
Similarly, the gift, home and garden categories are highly competitive. Each of these categories encompasses a wide range of products and is highly fragmented. Products in these categories may be purchased from a number of outlets, including mass merchants, telemarketers, retail specialty shops, online retailers and mail-order catalogs.
We believe our brand strength, product selection, customer relationships, technology infrastructure and fulfillment capabilities position us to compete effectively against our current and potential competitors. However, increased competition could result in:
- price reductions, decreased revenues and lower profit margins;
- loss of market share; and
- increased marketing expenditures.
These and other competitive factors may adversely impact our business and results of operations.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The Internet is rapidly evolving and there are few laws or regulations directly applicable to e-commerce. Legislatures are considering an increasing number of laws and regulations pertaining to the Internet, including laws and regulations addressing:
- user privacy;
- pricing;
- content;
- connectivity;
- intellectual property;
- distribution;
- taxation;
- liabilities;
- antitrust; and
- characteristics and quality of products and services.
Further, the growth and development of the market for online services may prompt more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The adoption of any additional laws or regulations may impair the growth of the Internet or commercial online services. This could decrease the demand for our services and increase our cost of doing business. Moreover, the applicability to the Internet of existing laws regarding issues like property ownership, taxes, libel and personal privacy is uncertain. Any new legislation or regulation that has an adverse impact on the Internet or the application of existing laws and regulations to the Internet could have a material adverse effect on our business, financial condition and results of operations.
States or foreign countries might attempt to regulate our business or levy sales or other taxes relating to our activities. Because our products and services are available over the Internet anywhere in the world, multiple jurisdictions may claim that we are required to do business as a foreign corporation in one or more of those jurisdictions. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. States or foreign governments may charge us with violations of local laws.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our service marks, trademarks, trade secrets, domain names and similar intellectual property as critical to our success. We have applied for or received trademark and/or service mark registration for, among others, the marks "1-800-FLOWERS.COM", "1-800-FLOWERS", and "Plow & Hearth". We also have rights to numerous domain names, including WWW.1800FLOWERS.COM, WWW.FLOWERS.COM and WWW.PLOWHEARTH.COM. In addition, we have developed a transaction processing system and operating systems as well as marketing data, including customer information databases.
We rely on trademark, unfair competition and copyright law, trade secret protection and contracts such as confidentiality and license agreements with our employees, customers, partners and others to protect our proprietary rights. Despite our precautions, it may be possible for competitors to obtain and/or use our proprietary information without authorization or to develop technologies similar to ours and independently create a similarly functioning infrastructure. Furthermore, the protection of proprietary rights in Internet-related industries is uncertain and still evolving. The laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. Our means of protecting our proprietary rights in the United States or abroad may not be adequate.
We intend to continue to license certain technology from third parties, including Oracle, Microsoft and AT&T, for our communications technology and the software that underlies our
business systems. The market is evolving and we may need to license additional technologies to remain competitive. We may not be able to license these technologies on commercially reasonable terms or at all. In addition, we may fail to successfully integrate licensed technology into our operations.
Third parties have in the past infringed or misappropriated our intellectual property or similar proprietary rights. We believe infringements and misappropriations will continue to occur in the future. We intend to police against infringement or misappropriation. However, we cannot guarantee we will be able to enforce our rights and enjoin the alleged infringers from their use of confusingly similar trademarks, servicemarks, telephone numbers and domain names.
In addition, third parties may assert infringement claims against us. We cannot be certain that our technologies or marks do not infringe valid patents, trademarks, copyrights or other proprietary rights held by third parties. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. Intellectual property litigation is expensive and time-consuming and could divert management resources away from running our business.
EMPLOYEES
As of April 29, 1999, we had 1,464 full-time and 227 part-time employees, of which 185 worked in administration, 887 in customer service and 619 in retail and fulfillment operations. During peak periods, we substantially increase the number of customer service and retail and fulfillment personnel. Our personnel are not represented under collective bargaining agreements and we consider our relations with our employees to be good.
PROPERTIES
Our headquarters and one of our customer service centers are located in approximately 71,000 square feet office space in Westbury, New York, under a lease that expires in May 2005. In addition, we own an approximately 185,000 square foot fulfillment center in Madison, Virginia, with an additional 115,000 square feet under construction, and lease an approximately 27,000 square foot local distribution center in Phoenix, Arizona and an approximately 24,000 square foot local distribution center in Denver, Colorado. We lease a total of approximately 53,000 square feet for our customer service centers in:
- Westbury, New York;
- Marietta, Georgia;
- San Antonio, Texas;
- Phoenix, Arizona;
- Madison, Virginia;
- Bethpage, New York; and
- Long Beach, California.
As of March 28, 1999, we leased approximately 239,000 gross square feet for our owned or franchised retail stores. Most of the existing stores are leased by 1-800-FLOWERS.COM with lease terms typically ranging from five to 20 years. Most of our leases provide for a minimum rent plus a percentage rent based upon sales after certain minimum thresholds are achieved. The leases generally require us to pay insurance, utilities, real estate taxes and repair and maintenance expenses.
LEGAL PROCEEDINGS
From time to time, we may be involved in legal proceedings and litigation incidental to the normal conduct of our business. We are not currently involved in any material legal proceedings or litigation.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers, directors and key employees of 1-800-FLOWERS.COM, their ages as of May 20, 1999 and the positions held by them are set forth below:
NAME AGE POSITION ---------------------------------- --- -------------------------------------------------- EXECUTIVE OFFICERS AND DIRECTORS: James F. McCann................... 47 Chairman and Chief Executive Officer Christopher G. McCann............. 38 Director and Senior Vice President John W. Smolak.................... 50 Senior Vice President--Finance and Administration Peter G. Rice..................... 53 President--Plow & Hearth Kerry W. Coin..................... 51 Vice President--Retail and Fulfillment Kenneth J. Mesnik................. 49 Vice President--Merchandising T. Guy Minetti.................... 48 Director Jeffrey C. Walker................. 43 Director KEY EMPLOYEES: Donna M. Iucolano................. 35 Vice President--Interactive Services Vincent J. McVeigh................ 38 Vice President--Customer Service Centers Thomas G. Hartnett................ 35 Vice President--Development William E. Shea................... 40 Treasurer and Vice President--Finance Guru P. Ghosh..................... 54 Vice President--Information Technology Brian McGee....................... 35 Vice President--Real Estate and Construction |
JAMES F. MCCANN has been our Chairman and Chief Executive Officer since our inception in 1992. Prior to that, Mr. McCann founded Flora Plenty, a chain of 14 flower shops in the New York metropolitan area. Mr. McCann is a member of the boards of directors of Gateway 2000, OfficeMax, Inc., PETCO Animal Supplies, Inc., the National Retail Federation and Very Special Arts, as well as the boards of Hofstra University and Winthrop-University Hospital. James F. McCann is the brother of Christopher G. McCann.
CHRISTOPHER G. MCCANN has been our Senior Vice President and one of our directors since our inception in 1992. Prior to joining us, Mr. McCann was President of Flora Plenty. Mr. McCann serves on the board of directors of Neoware, Inc. and is a member of the Advisory Board of the Marist College School of Management, the National Retail Federation Marketing Committee and the Society of American Florists Marketing Committee. Christopher G. McCann is the brother of James F. McCann.
JOHN W. SMOLAK has been our Senior Vice President--Finance and Administration since January 1999. From February 1995 until joining us, Mr. Smolak was senior vice president and chief financial officer of Lechters, Inc., a national housewares specialty retailer. Prior to that, Mr. Smolak was senior vice president of finance and administration of Jungle Jim's Playlands, Inc.
PETER G. RICE, President--Plow & Hearth, was co-founder of The Plow & Hearth, Inc. and served as its President and Chairman of the Board since its inception in November 1980. Mr. Rice was also involved in the formation of Blue Ridge Mountain Sports, a retail chain of backpacking/outdoor stores, and Phoenix Products, a manufacturer of kayaks. He is a director of the New England Mail Order Association and a member of the U.S. Senate Productivity and Quality Award Board for Virginia.
KERRY W. COIN has been our Vice President--Retail and Fulfillment since January 1999. From February 1998 until joining us, Mr. Coin was an independent consultant.
From August 1996 until February 1998, Mr. Coin was the president and chief operating officer of Diedrich Coffee, a California-based purveyor of gourmet coffee. Prior to that, Mr. Coin founded and served as president and chief executive officer of Boston West, the largest area developer of Boston Chicken, from January 1993.
KENNETH J. MESNIK has been our Vice President--Merchandising since January 1999. From May 1993 until joining us, Mr Mesnik was the Senior Vice President of Federated Merchandising. Prior to that, Mr. Mesnik served as Vice President of May Company in charge of home furnishings from January 1990.
T. GUY MINETTI has been one of our directors since December 1993. Mr. Minetti serves as President of Bayberry Advisors, an investment banking firm which he founded in March 1989. In September 1993, Mr. Minetti co-founded American Sports Products Group Inc., a holding company which has acquired nine niche sporting goods manufacturers. Prior to forming Bayberry, Mr. Minetti was a Managing Director at Kidder, Peabody & Company.
JEFFREY C. WALKER has been one of our directors since February 1995. Mr. Walker has been General Managing Partner of Chase Capital Partners, the private equity division of The Chase Manhattan Corporation, since 1988, and a General Partner thereof since 1984. Mr. Walker is a director of the Monet Group, Guitar Center, House of Blues and Domain.
DONNA M. IUCOLANO has been our Vice President--Interactive Services since
August 1998. Prior to that role, Ms. Iucolano held various positions within
1-800-
FLOWERS.COM since her arrival in June 1994, including Director, Manager and
Marketing Coordinator of our interactive services division. Before joining us,
Ms. Iucolano was a marketing and creative services consultant to educational and
other non-profit organizations.
VINCENT J. MCVEIGH has been our Vice President--Customer Service Centers since September 1998. He joined us in May 1991 as a BloomNet manager, assisting in the development of our independently owned BloomNet affiliates. He was promoted to general manager of the New York customer service center in May 1993, and then in October 1995 to Director of Call Center Operations. From February 1988 until joining us, Mr. McVeigh worked with Hyundai Motor America as a district manager.
THOMAS G. HARTNETT has been our Vice President--Development since January 1999. Prior to that role, Mr. Hartnett held various positions within 1-800-FLOWERS.COM since his arrival in August 1991, including Controller, director of Store Operations and Vice President of Retail Operations. From June 1984 until joining us, Mr. Hartnett was a certified public accountant at Ernst & Young.
WILLIAM E. SHEA has been our Treasurer and Vice President of Finance since August 1998. Prior to that role, Mr. Shea served as our Corporate Controller after joining us in April 1996. From 1980 until joining us, Mr. Shea was a certified public accountant with Ernst & Young.
GURU P. GHOSH has been our Vice President--Information Technology since July 1996. From August 1989 until joining us, Mr. Ghosh was the director of information technology at Independence Blue Cross, a nationwide health insurance company. Prior to that, Mr. Ghosh was a senior vice president at Prudential Securities Incorporated from January 1984.
BRIAN MCGEE has been our Vice President--Real Estate and Construction since February 1996. From August 1990 until joining us, Mr. McGee was the Northeast construction manager for Blockbuster Entertainment Corp.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to our third amended and restated certificate of incorporation, which will become effective upon consummation of this offering, our board of directors will be divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the board of directors will be elected each year. These
provisions, when coupled with the provision of our third amended and restated certificate of incorporation authorizing the board of directors to fill vacant directorships or increase the size of the board of directors, may delay a stockholder from removing incumbent directors and simultaneously gaining control of the board of directors by filling the vacancies with its own nominees. We intend to expand the size of our board after this offering.
Mr. Walker had originally been elected to our board of directors pursuant to an agreement we entered into with Chase. The provision of this agreement providing Chase with the right to select one of our directors has terminated in connection with the amendment to the Chase agreement. However, Mr. Walker will remain on our board following this offering.
BOARD COMMITTEES
The audit committee reports to the board regarding the appointment of our independent public accountants, the scope and results of our annual audits, compliance with our accounting and financial policies and management's procedures and policies relative to the adequacy of our internal accounting controls. The audit committee consists of Messrs. Minetti and James F. McCann. After this offering, an additional outside director will be added to the audit committee.
The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies and all forms of compensation to be provided to our executive officers and directors. In addition, the compensation committee reviews bonus and stock compensation arrangements for all of our other employees. The current members of the compensation committee are Messrs. Minetti, Walker and James F. McCann.
No interlocking relationships exist between our board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past.
DIRECTOR COMPENSATION
Directors currently do not receive a stated salary from 1-800-FLOWERS.COM for their service as members of the board of directors, although by resolution of the board they may receive a fixed sum and reimbursement for expenses in connection with the attendance at board and committee meetings. We currently do not provide additional compensation for committee participation or special assignments of the board of directors.
We have entered into an agreement with Bayberry Advisors, Inc., pursuant to which Bayberry provides us with consulting and advisory services. T. Guy Minetti, one of our directors, serves as Bayberry's President and owns 70% of its outstanding stock, and James F. McCann, our Chairman and Chief Executive Officer, owns 30% of its outstanding stock. We pay Bayberry a retainer fee of $100,000 per year for these services. In connection with our April 1998 acquisition of Plow & Hearth, we paid Bayberry advisory fees in the amount of $210,000, against which the $100,000 retainer for that year was credited.
In July 1998, we granted Mr. Minetti options to purchase shares of class B common stock with an exercise price of $ per share for his services on our board of directors.
EMPLOYMENT CONTRACTS
We have entered into employment agreements with each of John W. Smolak, Peter G. Rice and Kerry W. Coin.
Mr. Smolak's employment agreement with us became effective on January 4, 1999. The annual salary for Mr. Smolak is $260,000, with the possibility of a bonus of up to 30% of his salary. In addition, he has received options to purchase shares of our class B common stock, which options vest at the rate of 25% per year beginning on the first anniversary of the date of grant. Mr. Smolak is not entitled to any compensation from us after his employment is terminated, except that if Mr. Smolak's employment is terminated within the first 12 months following his
commencement of employment, then we will continue to pay his salary for a period of six months following the date of termination.
Mr. Rice has entered into an employment agreement with Plow & Hearth, which became effective April 3, 1998. The agreement terminates on April 3, 2001, with automatic one year renewals unless prior notice is given. Mr. Rice's annual salary is $200,000 and he is eligible to participate in Plow & Hearth's annual profit sharing bonus plan. Upon termination without cause, Mr. Rice is entitled to an amount equal to his salary through the end of the agreement, any amounts earned, accrued or owing but not yet paid as of the date of the termination and other benefits, if any, as are payable to or for the benefit of Mr. Rice as of the date of his termination until the end of the agreement.
Mr. Coin's agreement with us became effective on January 18, 1999. Mr.
Coin's annual salary is $170,000, with the possibility of a bonus of up to 25%
of his salary. In addition, Mr. Coin is entitled to receive options to purchase
shares of our class B common stock, which options vest at the rate of 25%
per year beginning on the first anniversary of the date of grant. Mr. Coin is
not entitled to any compensation from us after his employment is terminated,
except that if Mr. Coin's employment is terminated within the first 12 months
following his commencement of employment, then we will continue to pay his
salary for a period of six months following the date of termination.
Each of these executives has agreed not to compete with us or solicit our
clients or other employees during their term of employment and for two years
immediately following their termination. Each of these executives is also bound
by confidentiality provisions, which prohibit the executive from, among other
things, disseminating or using confidential information about our clients in any
way that would be adverse to us.
We are in the process of finalizing employment agreements for James F. McCann and Christopher G. McCann, which we expect will include similar non-competition and confidentiality provisions. We expect these agreements to be in place prior to the consummation of this offering.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for the year ended June 28, 1998 to our Chief Executive Officer and to our most highly compensated executive officer, other than the Chief Executive Officer, whose salary and bonus for that fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
---------------------------
AWARDS
ANNUAL COMPENSATION ---------------------------
-------------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS(#)
------------------------------------------------------------- ------------- ----------- ---------------------------
James F. McCann.............................................. $ 1,229,930 $ -- --
Chairman and Chief Executive Officer
Christopher G. McCann........................................ 191,667 42,600 --
Senior Vice President
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OPTION GRANTS IN LAST FISCAL YEAR
We did not grant options to either our Chief Executive Officer or the named executive officer for the fiscal year ended June 28, 1998. In addition, we have never granted any stock appreciation rights to our Chief Executive Officer or the named executive officer.
FISCAL YEAR-END OPTION VALUES
The following table provides information about stock options held as of June 28, 1998
by our Chief Executive Officer and the named executive officer. No options were exercised during fiscal 1998 by either of these executive officers. There was no pubic trading market for the common stock as of June 28, 1998. Accordingly, the value of unexercised in-the-money options at fiscal year-end is based on the assumed initial public offering price of $ per share, less the exercise price per share, multiplied by the number of shares underlying the options. All options indicated are to purchase shares of class B common stock.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING
VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END AT FISCAL YEAR-END
---------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------------------------------- --------------- ----------------- ------------- ---------------
James F. McCann...................................... -- -- $ -- $ --
Christopher G. McCann................................
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STOCK OPTION PLANS
1997 STOCK OPTION PLAN
Our 1997 Stock Option Plan was adopted by the board of directors in January 1997 and was subsequently approved by the stockholders in December 1997. Options to purchase shares of class B common stock have been granted under the 1997 Plan. No further options will be granted under the 1997 Plan.
The 1997 Plan is administered by the compensation committee. This committee has complete discretion to determine which eligible individuals in our employ or service (including officers, non-employee board members and consultants) are to receive option grants, the exercise price of each such option, the time or times when such option grants are to be made, the number of shares subject to each such grant, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant and the maximum term for which any granted option is to remain outstanding.
The exercise price for the shares of our class B common stock subject to option grants made under the 1997 Plan may be paid in cash or in shares of our common stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee.
In the event of an acquisition of 1-800-FLOWERS.COM, whether by merger or asset sale, each outstanding option which is not to be assumed by the successor corporation will automatically accelerate in full.
The board may amend or modify the 1997 Plan at any time, subject to any required stockholder approval.
CERTAIN TRANSACTIONS
In January 1995, we entered into an investment agreement with the predecessor of Chase Venture Capital Associates whereby Chase purchased 26,345 shares of our class C common stock and warrants to purchase 237,104 shares of class A common stock with a nominal exercise price for an aggregate of $10.0 million, in both cases prior to adjustment for the redemption of our class C common stock and -for-1 stock split. Chase currently holds over 5% of our class A common stock, assuming exercise of their warrants, and Jeffrey C. Walker, one of our directors, is a managing partner of Chase. In connection with the private placement completed in May 1999, we entered into an amendment to the investment agreement, whereby Chase agreed to allow us to redeem the class C common stock owned by them in exchange for shares of class A common stock and approximately $14.9 million. We sold shares of preferred stock to Chase in our May 1999 private placement for a purchase price equal to the $14.9 million proceeds from the redemption of their class C common stock. In connection with the private placement, Chase has waived its registration rights for this offering, but retained registration rights for the future pursuant to the investors' rights agreement described below. See "Description of Capital Stock--Registration Rights" for a description of these registration rights.
Concurrent with the closing of the May 1999 private placement, we redeemed the 8,747 shares of existing class C common stock owned by Mr. James McCann in exchange for $4.4 million and shares of class A common stock.
In March 1999, we entered into a credit agreement with The Chase Manhattan Bank, an affiliate of Chase Venture Capital Associates and Jeffrey C. Walker, whereby Chase agreed to provide us with a term loan of $18.0 million and a revolving loan commitment of $12.0 million. At March 28, 1999, the amount of indebtedness to Chase outstanding was $18.0 million. The term loan matures in March 2004 and the revolving loan commitment terminates in September 2000. In connection with this offering, we have amended the terms of the credit agreement to provide, among other things, that the indebtedness outstanding under the credit agreement matures on the earlier of the consummation of this offering and July 3, 2000. We intend to use a portion of the proceeds from this offering to repay all of our outstanding indebtedness under the credit facility.
In connection with our acquisition of 88% of the outstanding common stock of Plow & Hearth, we entered into a stockholders agreement, pursuant to which the remaining stockholders of Plow & Hearth have the right to either convert their shares of Plow & Hearth and Plow & Hearth options granted under one of its option plans into cash or shares of our class A common stock after the completion of this offering. In connection with this offering, we have amended the Plow & Hearth stockholders agreement to provide that each of these minority holders will have their interests redeemed upon consummation of this offering for an aggregate of $8.4 million. In addition, we have amended Plow & Hearth's other option plan so that upon consummation of this offering, 40% of these options will accelerate and be redeemed for an aggregate of $354,000 and the remaining 60% will terminate. Peter G. Rice, an executive officer, will receive an aggregate of $4.0 million pursuant to these amendments.
In connection with our private placement of preferred stock to Forum Holding, SOFTBANK, Benchmark and other investors and the amendment to our Chase investment agreement, we entered into an investors' rights agreement with these investors and James F. McCann and Christopher G. McCann. Pursuant to the investors' rights agreement, we will be required to register the stock held by these investors and Messrs. McCann upon their request. See "Description of Capital Stock-- Registration Rights" for a description of these registration rights.
We have entered into an agreement with Bayberry Advisors, Inc., pursuant to which Bayberry provides us with consulting and advisory services. T. Guy Minetti, one of our directors, serves as Bayberry's President and owns 70% of its outstanding stock, and James F. McCann, our Chairman and Chief Executive Officer, owns 30% of its outstanding stock. We pay Bayberry a retainer fee of $100,000 per year for these services. In connection with our April 1998 acquisition of Plow & Hearth, we paid Bayberry advisory fees in the amount of $210,000, against which the $100,000 retainer for that year was credited.
In July 1998, we loaned Christopher G. McCann, our Senior Vice President, an amount of $67,631 at an interest rate of 7% per annum. Mr. Christopher McCann repaid those borrowings in May 1999.
We maintain life insurance for each of our executive officers in the amount of $50,000 and also maintain a directors and officers insurance policy.
We have adopted a policy providing that all future material transactions between us and our officers, directors and other affiliates must:
- be approved by a majority of the members of our Board of Directors and by a majority of the disinterested members of our Board of Directors; and
- be on terms no less favorable to us than could be obtained from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial ownership of our common stock, as of , 1999 and as adjusted to reflect the sale of class A common stock offered by us in this offering for:
- each person known by us to beneficially own more than 5% of our common stock;
- each of our directors;
- each executive officer named in the Summary Compensation Table; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. Unless otherwise indicated, the address for those listed below is c/o 1-800-FLOWERS.COM, 1600 Stewart Avenue, Westbury, New York 11590. Except as indicated by footnote, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes the shares of common stock underlying options or warrants held by such persons that are exercisable within 60 days of , 1999, but excludes shares of common stock underlying options held by any other person. Percentage of beneficial ownership is based on shares of class A common stock, assuming conversion of our preferred stock, and shares of class B common stock outstanding as of , 1999 and shares of class A common stock outstanding after completion of this offering.
PERCENTAGE OF PERCENTAGE OF
SHARES BENEFICIALLY SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED PRIOR TO OWNED AFTER
OWNED THE OFFERING THE OFFERING
------------------------ ------------------------ ------------------------
NAME OF BENEFICIAL OWNER A SHARES B SHARES A SHARES B SHARES A SHARES B SHARES
----------------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
James F. McCann(1)...................................
Christopher G. McCann(2).............................
T. Guy Minetti(3)....................................
Jeffrey C. Walker(4).................................
Chase Venture Capital Associates(5)..................
Benchmark Capital Partners(6)........................
SOFTBANK America Inc.(7).............................
All directors and executive officers as a group (7
persons)(8)........................................
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our third amended and restated certificate of incorporation, which will
become effective upon the completion of this offering, authorizes the issuance
of up to 200,000,000 shares of class A common stock, par value $.01 per share,
200,000,000 shares of class B common stock, par value $.01 per share, and
10,000,000 shares of preferred stock, par value $.01 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of ,1999
shares of class A common stock were outstanding, shares of class B common
stock were outstanding and shares of preferred stock were outstanding.
Each outstanding share of preferred stock will be automatically converted into
shares of class A common stock upon consummation of this offering. As of
May 17, 1999, we had 66 stockholders.
No additional shares of class B common stock may be issued except (a) upon the exercise of stock options existing upon the closing of this offering or (b) in connection with a stock split or stock dividend on the class B common stock in which the class A common stock is similarly split or receives a similar dividend.
COMMON STOCK
Holders of our class A and class B common stock have identical rights, except that holders of class A common stock are entitled to one vote for each share held of record and holders of class B common stock are entitled to 10 votes for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors. Stockholders do not have cumulative voting rights. Holders of class A common stock and class B common stock vote together as a single class on all matters presented to the stockholders for their vote or approval, except as may be required by Delaware law. Each share of class B common stock is convertible at any time, at the option of the holder, into one share of class A common stock. Each share of class B common stock shall convert automatically into on share of class A common stock upon transfer, with limited exceptions for related party and estate planning transfers. Once transferred and converted to class A common stock, the class B common stock shall be terminated and shall not be reissued. None of the class A common stock or the class B common stock may be subdivided or combined in any manner unless the shares of the other class are subdivided or combined in the same proportion.
Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of our common stock are entitled to receive ratably dividends, if any, as may be declared by the board of directors out of legally available funds. In case of a liquidation, dissolution or winding up of 1-800-FLOWERS.COM, the holders of common stock will be entitled to share ratably in the net assets legally available for distribution to shareholders after payment of all of our liabilities and the liquidation preferences of any preferred stock then outstanding. Holders of common stock have no preemptive or subscription rights and no conversion rights except as described above. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of class A common stock are, and the shares of class A common stock sold in this offering when issued and paid for will be, fully paid and non-assessable.
The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. After the closing of this offering, there will be no shares of preferred stock outstanding.
PREFERRED STOCK
Our board of directors has the authority, without further action by the stockholders, to issue from time to time shares of preferred
stock in one or more series. The board of directors may fix the number of shares, designations, preferences, powers and other special rights of the preferred stock. The preferences, powers, rights and restrictions of different series of preferred stock may differ. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to holders of common stock or adversely affect the rights and powers, including voting rights, of the holders of common stock. The issuance may also have the effect of delaying, deferring or preventing a change in control of 1-800-FLOWERS.COM. We have no plans to issue any preferred stock.
REGISTRATION RIGHTS
We have entered into an investors' rights agreement with Forum Holding, SOFTBANK, Benchmark, Chase, James F. McCann, Christopher G. McCann and other investors. Pursuant to this agreement, these parties will have the right to require us to register shares of class A common stock they own, or will own upon the conversion of their preferred stock at the closing of this offering, on various occasions. One year after the completion of this offering, a majority in interest of Forum Holding, SOFTBANK, Benchmark and Chase will have the right to require us on one occasion to register their stock. In addition, one year after this offering, these investors, as well as Messrs. McCann, have the right to require us to register their shares of stock at any time we propose to register any of our common stock for offerings to the public. The investors and Messrs. McCann can also require us to register their shares on a registration statement on Form S-3 up to two times per year. These registration rights expire on the earlier of the third anniversary of this offering and the date on which all shares held by these parties can be sold pursuant to Rule 144 under the Securities Act of 1933, as amended, and are subject to customary limitations. We have agreed to pay the offering expenses in connection with the registration of these shares, other than underwriters' commissions.
WARRANTS
We have issued warrants to purchase an aggregate of shares of class A common stock to Chase Capital Partners. Each warrant entitles Chase to purchase one share of class A common stock for a nominal purchase price. The exercise price and number and kind of shares are subject to adjustment upon a stock split, stock dividend or other recapitalization of our common stock. The warrants do not give Chase any voting or other rights until exercised for shares of class A common stock.
CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law, or DGCL, regulating corporate takeovers. This section prevents Delaware corporations from engaging under specified circumstances in a "business combination", which includes a merger or sale of more than 10% of the corporation's assets, with any "interested stockholder", or a stockholder who owns 15% or more of the corporation's outstanding voting stock, as well as affiliates and associates of any such persons, for three years following the date such stockholder became an "interested stockholder" unless:
- the transaction in which such stockholder became an "interested stockholder" is approved by the board of directors prior to the date the "interested stockholder" attained this status;
- upon consummation of the transaction that resulted in the stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers; or
- on or after the date the business combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
Our third amended and restated certificate of incorporation will provide
that, upon the completion of this offering, our board of directors will be
divided into three classes of directors with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of 1-800-FLOWERS.COM and may maintain the incumbency of the board
of directors, because the classification of the board of directors generally
increases the difficulty of replacing a majority of the directors. In addition,
our third amended and restated certificate of incorporation will provide that
directors may be removed only for cause and only by the vote of the holders of
66.67% of the combined voting power of the outstanding class A and class B
common stock, which also will increase the difficulty of replacing a majority of
directors. Our third amended and restated certificate of incorporation will
eliminate the right of stockholders to act by written consent without a meeting
and our amended and restated bylaws eliminate the right of stockholders to call
special meetings of stockholders. The third amended and restated certificate of
incorporation and amended and restated bylaws will not provide for cumulative
voting in the election of directors. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of 1-800-FLOWERS.COM. These and other provisions may
have the effect of deferring hostile takeovers or delaying changes in control or
management of 1-800-
FLOWERS.COM. The amendment of any of these provisions would require approval by
holders of at least 66.67% of the combined voting power of the outstanding class
A and class B common stock.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Section 145 of the DGCL empowers a corporation to indemnify its directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers, provided that this provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) arising under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The DGCL provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of stockholders or otherwise.
Our third amended and restated certificate of incorporation provides for indemnification of our directors and officers against, and absolution of, liability to us and our stockholders. We maintain directors' and officers' liability insurance covering certain liabilities that may be incurred by our directors and officers in connection with the performance of our duties.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the class A common stock is ChaseMellon Shareholder Services, LLC.
LISTING
We have applied to list our class A common stock on the Nasdaq National Market under the trading symbol "FLWS".
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our class A common stock in the public market could adversely affect prevailing market prices of our class A common stock and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of shares of our class A common stock, assuming no exercise of the underwriters' over-allotment option, and shares of class B common stock, assuming no exercise of outstanding options. Each share of class B common stock is convertible at any time, at the option of the holder, into one share of class A common stock. Each share of class B common stock shall convert automatically into one share of class A common stock upon their transfer, with limited exceptions for related party and estate planning transfers. Of the outstanding shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless such shares are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining shares of class A and class B common stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 701 under the Securities Act, which rules are summarized below.
LOCK-UP AGREEMENTS
All of our executive officers, directors, key employees and significant stockholders, who together will hold an aggregate of shares of class A or class B common stock following this offering, have signed lock-up agreements under which they agreed not to transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, for a period of 180 days after the date of this prospectus. Transfers or dispositions can be made sooner:
- with the prior written consent of Goldman, Sachs & Co.;
- in the case of transfers to specified trusts; or
- as a bona fide gift.
As a result of these lock-up agreements and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market as follows:
- approximately restricted securities will be eligible for immediate sale on the date of this prospectus;
- approximately restricted securities will be eligible for sale beginning 90 days after the date of this prospectus, subject in some cases to compliance with Rule 144;
- approximately additional restricted securities will be eligible for sale beginning 180 days after the effective date of this offering upon expiration of the lock-up agreements, subject in some cases to compliance with Rule 144; and
- the remainder of the restricted securities will be eligible for sale from time to time thereafter, subject in some cases to compliance with Rule 144.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of class A common stock then outstanding, which will equal approximately shares immediately after this offering; or
- the average weekly trading volume of the class A common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases shares from us in connection with a compensatory stock plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of our class A common stock or their transferees will be entitled to certain rights with respect to the registration of their shares under the Securities Act. See "Description of Capital Stock-Registration Rights".
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement under the Securities Act covering shares of class A common stock that may be issued upon the conversion of class B common stock reserved for issuance under our 1997 Stock Plan. As of April 30, 1999, options to purchase shares of class B common stock were issued and outstanding.
Upon the expiration of the lock-up agreements described above, at least shares of class B common stock will be subject to vested options, based on options outstanding as of April 30, 1999. Such registration statement is expected to be filed and effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under such registration statement will, subject to vesting provisions and Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the 180-day lock-up agreements expire.
LEGAL MATTERS
The validity of the class A common stock offered hereby will be passed upon for 1-800-FLOWERS.COM by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal matters will be passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial statements and schedule at March 28, 1999, June 28, 1998 and June 29, 1997, and for the nine months ended March 28, 1999 and for each of the three years in the period ended June 28, 1998, as set forth in their report. We have included our consolidated financial statements and schedule in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.
The consolidated financial statements of The Plow & Hearth, Inc. as of December 31, 1996 and December 31, 1997 and for the years ended December 31, 1996 and December 31, 1997 included in this prospectus have been so included in reliance upon the report of KPMG LLP, independent certified public accountants, given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 (including exhibits and schedules thereto) under the Securities Act with respect to the class A common stock to be sold in this offering. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. For further information with respect to 1-800-FLOWERS.COM and the class A common stock, reference is made to the registration statement and the exhibits and schedules thereto. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete, and in each case reference is made to the copy of such contract, agreement or other document filed as an exhibit to the registration statement for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference.
You may read and copy all or any portion of the registration statement or any reports, statements or other information in our files in the Commission's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these documents upon payment of a duplicating fee by writing to the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our Commission filings, including the registration statement, will also be available to you on the Commission's Internet site (http://www.sec.gov).
We intend to furnish to our stockholders annual reports containing financial statements audited by our independent auditors and to make available to our stockholders quarterly reports containing unaudited financial data for the first three quarters of each fiscal year.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets as of June 29, 1997, June 28, 1998 and March 28,
1999...................................................................... F-3
Consolidated Statements of Operations for the years ended June 30, 1996,
June 29, 1997 and June 28, 1998 and the nine months ended March 29, 1998
(unaudited) and March 28, 1999............................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended June 30, 1996, June 29, 1997 and June 28, 1998 and the nine months
ended March 28, 1999...................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1996,
June 29, 1997 and June 28, 1998 and the nine months ended March 29, 1998
(unaudited) and March 28, 1999............................................ F-6
Notes to Consolidated Financial Statements.................................. F-7
THE PLOW & HEARTH, INC.
Independent Auditors' Report................................................ F-28
Consolidated Balance Sheets as of December 31, 1996 and 1997................ F-29
Consolidated Statements of Income for the years ended December 31, 1996 and
1997 and the three months ended March 31, 1998 (unaudited)................ F-30
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996 and 1997 and the three months ended March 31, 1998
(unaudited)............................................................... F-31
Consolidated Statements of Cash Flows for the years ended December 31, 1996
and 1997 and the three months ended March 31, 1998 (unaudited)............ F-32
Notes to Consolidated Financial Statements.................................. F-33
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Pro Forma Consolidated Statement of Operations for the
year ended June 28, 1998.................................................. F-43
Unaudited Pro Forma Consolidated Statement of Operations for the nine months
ended March 29, 1998...................................................... F-44
Notes to Unaudited Pro Forma Consolidated Statements of Operations.......... F-45
|
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of 1-800-FLOWERS.COM, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of 1-800-FLOWERS.COM, Inc. and Subsidiaries (the "Company") as of March 28, 1999, June 28, 1998 and June 29, 1997, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the nine months ended March 28, 1999 and for each of the three years in the period ended June 28, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 1-800-FLOWERS.COM, Inc. and Subsidiaries at March 28, 1999, June 28, 1998 and June 29, 1997, and the consolidated results of their operations and their cash flows for the nine months ended March 28, 1999 and for each of the three years in the period ended June 28, 1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Melville, New York
May 20, 1999
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
--------------- --------------- ---------------
ASSETS
Current assets:
Cash and equivalents.......................................... $ 11,443 $ 8,873 $ 2,632
Short-term investments........................................ 3,210 5,034 --
Receivables, net.............................................. 6,520 8,432 10,966
Inventories................................................... 786 4,971 8,060
Prepaid and other............................................. 538 1,026 1,318
Recoverable income taxes...................................... -- -- 3,217
Deferred tax assets........................................... 738 1,637 1,175
--------------- --------------- ---------------
Total current assets...................................... 23,235 29,973 27,368
Property, plant and equipment at cost, net...................... 8,486 19,379 24,832
Investments..................................................... 2,854 1,383 987
Capitalized investment in leases................................ 2,149 1,837 1,529
Notes receivable, net........................................... 1,243 902 780
Licenses, goodwill and other.................................... 6,163 28,272 31,103
--------------- --------------- ---------------
Total assets.................................................... $ 44,130 $ 81,746 $ 86,599
--------------- --------------- ---------------
--------------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................. $ 15,448 $ 20,790 $ 27,037
Accrued expenses.............................................. 2,625 3,101 4,321
Current maturities of long-term debt and obligations under
capital leases.............................................. 2,055 3,287 5,500
Income taxes payable.......................................... 1,132 845 --
--------------- --------------- ---------------
Total current liabilities................................. 21,260 28,023 36,858
Long-term debt and obligations under capital leases............. 6,591 22,463 28,148
Deferred tax liabilities........................................ 168 1,332 237
Deferred rent and other liabilities............................. 2,697 2,904 3,955
Management put liability........................................ -- 8,660 6,300
--------------- --------------- ---------------
Total liabilities............................................... 30,716 63,382 75,498
Redeemable Class C common stock, $.01 par value, 100,000 shares
authorized, 34,822 shares issued and outstanding, stated at
liquidation and redemption value.............................. 16,084 17,692 19,020
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 200,000 shares authorized,
none issued................................................. -- -- --
Class A common stock, $.01 par value, 50,000 shares
authorized, 48,087 shares issued............................ 0 0 0
Class B common stock, $.01 par value, 10,000,000 shares
authorized, 4,884,993 shares issued......................... 49 49 49
Additional paid-in capital.................................... 2,183 2,183 3,863
Accumulated other comprehensive income........................ 5 14 --
Retained earnings (deficit)................................... (1,932) 1,534 (7,148)
Deferred compensation......................................... -- -- (1,575)
Treasury stock, at cost--5,140 Class A and 514,000 Class B
shares in 1997 and 5,280 Class A and 528,000 Class B shares
in 1998 and 1999............................................ (2,975) (3,108) (3,108)
--------------- --------------- ---------------
Total stockholders' equity (deficit)...................... (2,670) 672 (7,919)
--------------- --------------- ---------------
Total liabilities and stockholders' equity (deficit)............ $ 44,130 $ 81,746 $ 86,599
--------------- --------------- ---------------
--------------- --------------- ---------------
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SEE ACCOMPANYING NOTES.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED NINE MONTHS ENDED
---------------------------------------------- --------------------------------
JUNE 30, 1996 JUNE 29, 1997 JUNE 28, 1998 MARCH 29, 1998 MARCH 28, 1999
-------------- -------------- -------------- --------------- ---------------
(UNAUDITED)
Net revenues......................... $ 153,128 $ 186,430 $ 220,592 $ 146,217 $ 203,668
Cost of revenues..................... 92,820 115,078 136,966 91,773 123,738
-------------- -------------- -------------- --------------- ---------------
Gross profit......................... 60,308 71,352 83,626 54,444 79,930
Operating expenses:
Marketing and sales................ 42,952 47,464 55,417 38,089 67,204
Technology and development......... 851 1,411 1,794 1,128 5,207
General and administrative......... 11,556 12,338 15,832 10,315 10,528
Depreciation and amortization...... 2,247 3,287 4,168 2,768 6,043
-------------- -------------- -------------- --------------- ---------------
Total operating expenses....... 57,606 64,500 77,211 52,300 88,982
-------------- -------------- -------------- --------------- ---------------
Operating income (loss).............. 2,702 6,852 6,415 2,144 (9,052)
Other income (expense):
Interest income.................... 1,205 1,121 1,290 812 702
Interest expense................... (1,444) (912) (1,177) (720) (1,863)
Other, net......................... 30 465 1,541 1,637 32
-------------- -------------- -------------- --------------- ---------------
Total other income (expense)... (209) 674 1,654 1,729 (1,129)
-------------- -------------- -------------- --------------- ---------------
Income (loss) before income taxes and
minority interests................. 2,493 7,526 8,069 3,873 (10,181)
Provision (benefit) for income
taxes.............................. 1,255 3,135 3,181 1,515 (2,926)
-------------- -------------- -------------- --------------- ---------------
Income (loss) before minority
interests.......................... 1,238 4,391 4,888 2,358 (7,255)
Minority interests in operations of
consolidated subsidiaries.......... 59 (4) 186 38 (99)
-------------- -------------- -------------- --------------- ---------------
Net income (loss).................... 1,297 4,387 5,074 2,396 (7,354)
Redeemable Class C common stock
dividends.......................... (1,029) (1,462) (1,608) (1,206) (1,328)
-------------- -------------- -------------- --------------- ---------------
Net income (loss) applicable to
common stockholders................ $ 268 $ 2,925 $ 3,466 $ 1,190 $ (8,682)
-------------- -------------- -------------- --------------- ---------------
-------------- -------------- -------------- --------------- ---------------
Net income (loss) per common share
applicable to common stockholders:
Basic.............................. $ 0.06 $ 0.66 $ 0.79 $ 0.27 $ (1.97)
-------------- -------------- -------------- --------------- ---------------
-------------- -------------- -------------- --------------- ---------------
Diluted............................ $ 0.05 $ 0.63 $ 0.74 $ 0.25 $ (1.97)
-------------- -------------- -------------- --------------- ---------------
-------------- -------------- -------------- --------------- ---------------
Shares used in the calculation of net
income (loss) per common share:
Basic.............................. 4,705 4,414 4,412 4,414 4,400
-------------- -------------- -------------- --------------- ---------------
-------------- -------------- -------------- --------------- ---------------
Diluted............................ 4,942 4,674 4,661 4,675 4,400
-------------- -------------- -------------- --------------- ---------------
-------------- -------------- -------------- --------------- ---------------
|
SEE ACCOMPANYING NOTES.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1996, JUNE 29, 1997 AND JUNE 28, 1998 AND NINE MONTHS ENDED
MARCH 28, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
--------------------------------------------------
ACCUMULATED
CLASS A CLASS B ADDITIONAL OTHER
------------------------ ------------------------ PAID-IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME
----------- ----------- --------- ------------- ----------- -------------------
Balance at July 2, 1995............... 48,087 $ 0 4,808,700 $ 48 $ 1,691 $ 70
Issuance of warrants.................. -- -- -- -- 492 --
Issuance of common stock.............. -- -- 76,293 1 -- --
Accrual of Redeemable Class C common
stock dividends..................... -- -- -- -- -- --
Purchase of treasury stock............ -- -- -- -- -- --
Comprehensive income:
Net income.......................... -- -- -- -- -- --
Unrealized loss on marketable
securities........................ -- -- -- -- -- (85)
Total comprehensive income........ -- -- -- -- -- --
----------- ----- --------- --- ----------- ---
Balance at June 30, 1996.............. 48,087 0 4,884,993 49 2,183 (15)
Accrual of Redeemable Class C common
stock dividends..................... -- -- -- -- -- --
Comprehensive income:
Net income.......................... -- -- -- -- -- --
Unrealized gain on marketable
securities........................ -- -- -- -- -- 20
Total comprehensive income........ -- -- -- -- -- --
----------- ----- --------- --- ----------- ---
Balance at June 29, 1997.............. 48,087 0 4,884,993 49 2,183 5
Accrual of Redeemable Class C common
stock dividends..................... -- -- -- -- -- --
Purchase of treasury stock............ -- -- -- -- -- --
Comprehensive income:
Net income.......................... -- -- -- -- -- --
Unrealized gain on marketable
securities........................ -- -- -- -- -- 9
Total comprehensive income........ -- -- -- -- -- --
----------- ----- --------- --- ----------- ---
Balance at June 28, 1998.............. 48,087 0 4,884,993 49 2,183 14
Accrual of Redeemable Class C common
stock dividends..................... -- -- -- -- -- --
Employee stock options................ -- -- -- -- 1,680 --
Amortization of deferred
compensation........................ -- -- -- -- -- --
Comprehensive loss:
Net loss............................ -- -- -- -- -- --
Unrealized loss on marketable
securities........................ -- -- -- -- -- (14)
Total comprehensive loss.......... -- -- -- -- -- --
----------- ----- --------- --- ----------- ---
Balance at March 28, 1999............. 48,087 $ 0 4,884,993 $ 49 $ 3,863 $ --
----------- ----- --------- --- ----------- ---
----------- ----- --------- --- ----------- ---
TOTAL
RETAINED TREASURY STOCK STOCKHOLDERS'
EARNINGS DEFERRED ---------------------- EQUITY
(DEFICIT) COMPENSATION SHARES AMOUNT (DEFICIT)
----------- --------------- --------- ----------- ---------------
Balance at July 2, 1995............... $ (5,125) $ -- -- $ -- $ (3,316)
Issuance of warrants.................. -- -- -- -- 492
Issuance of common stock.............. -- -- -- -- 1
Accrual of Redeemable Class C common
stock dividends..................... (1,029) -- -- -- (1,029)
Purchase of treasury stock............ -- -- 519,140 (2,975) (2,975)
Comprehensive income:
Net income.......................... 1,297 -- -- -- 1,297
Unrealized loss on marketable
securities........................ -- -- -- -- (85)
-------
Total comprehensive income........ -- -- -- -- 1,212
----------- ------- --------- ----------- -------
Balance at June 30, 1996.............. (4,857) -- 519,140 (2,975) (5,615)
Accrual of Redeemable Class C common
stock dividends..................... (1,462) -- -- -- (1,462)
Comprehensive income:
Net income.......................... 4,387 -- -- -- 4,387
Unrealized gain on marketable
securities........................ -- -- -- -- 20
-------
Total comprehensive income........ -- -- -- -- 4,407
----------- ------- --------- ----------- -------
Balance at June 29, 1997.............. (1,932) -- 519,140 (2,975) (2,670)
Accrual of Redeemable Class C common
stock dividends..................... (1,608) -- -- -- (1,608)
Purchase of treasury stock............ -- -- 14,140 (133) (133)
Comprehensive income:
Net income.......................... 5,074 -- -- -- 5,074
Unrealized gain on marketable
securities........................ -- -- -- -- 9
-------
Total comprehensive income........ -- -- -- -- 5,083
----------- ------- --------- ----------- -------
Balance at June 28, 1998.............. 1,534 -- 533,280 (3,108) 672
Accrual of Redeemable Class C common
stock dividends..................... (1,328) -- -- -- (1,328)
Employee stock options................ -- (1,680) -- -- --
Amortization of deferred
compensation........................ -- 105 -- -- 105
Comprehensive loss:
Net loss............................ (7,354) -- -- -- (7,354)
Unrealized loss on marketable
securities........................ -- -- -- -- (14)
-------
Total comprehensive loss.......... -- -- -- -- (7,368)
----------- ------- --------- ----------- -------
Balance at March 28, 1999............. $ (7,148) $ (1,575) 533,280 $ (3,108) $ (7,919)
----------- ------- --------- ----------- -------
----------- ------- --------- ----------- -------
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SEE ACCOMPANYING NOTES.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED NINE MONTHS ENDED
----------------------------------- -------------------------
JUNE 30, JUNE 29, JUNE 28, MARCH 29, MARCH 28,
1996 1997 1998 1998 1999
----------- ----------- --------- ------------ -----------
(UNAUDITED)
OPERATING ACTIVITIES:
Net income (loss)..................................... $ 1,297 $ 4,387 $ 5,074 $ 2,396 $ (7,354)
Reconciliation of net income (loss) to net cash
provided by (used in) operations:
Depreciation and amortization....................... 2,247 3,287 4,168 2,768 6,043
Deferred income taxes............................... 645 (170) 265 126 (633)
Management put liability............................ -- -- 1,631 -- (1,631)
Bad debt expense.................................... 319 553 383 235 231
Minority interest................................... (59) 4 (186) (38) 99
Issuance of warrants................................ 492 -- -- -- --
Amortization of deferred compensation............... -- -- -- -- 105
Loss on disposal of equipment and other............. -- -- 313 -- 151
Changes in operating items, excluding the effects of
acquisitions:
Working capital items............................. 891 2,547 (284) (3,229) (2,741)
Nonworking capital items.......................... (13) 56 (1,864) (1,493) (3,972)
----------- ----------- --------- ------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................... 5,819 10,664 9,500 765 (9,702)
----------- ----------- --------- ------------ -----------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.................... -- (1,057) (15,206) (939) --
Proceeds on sale of retail operations................. -- 83 -- -- --
Capital expenditures, net of noncash
expenditures--$2,071, $1,114, $561, $245 and $3,009,
for fiscal 1996, 1997, 1998 and nine months ended
March 29, 1998 and March 28, 1999, respectively..... (2,890) (1,814) (10,302) (2,965) (7,254)
(Purchases) sales of investments...................... (741) (1,305) (296) (800) 5,428
Notes receivable, net................................. (47) (97) 341 (650) 122
Other, net............................................ (336) -- -- -- --
----------- ----------- --------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES........... (4,014) (4,190) (25,463) (5,354) (1,704)
----------- ----------- --------- ------------ -----------
FINANCING ACTIVITIES:
Proceeds from bank borrowings......................... -- -- 15,500 -- 32,402
Acquisition of treasury stock......................... (2,975) -- (133) -- --
Payments of capital lease obligations................. (1,032) (1,408) (1,648) (1,523) (1,062)
Payments of related party debt........................ (1,886) -- -- -- --
Repayment of notes payable............................ (48) (262) (326) (231) (26,175)
----------- ----------- --------- ------------ -----------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES.................................... (5,941) (1,670) 13,393 (1,754) 5,165
----------- ----------- --------- ------------ -----------
Net change in cash and equivalents.................... (4,136) 4,804 (2,570) (6,343) (6,241)
Cash and equivalents:
Beginning of period................................. 10,775 6,639 11,443 11,443 8,873
----------- ----------- --------- ------------ -----------
End of period....................................... $ 6,639 $ 11,443 $ 8,873 $ 5,100 $ 2,632
----------- ----------- --------- ------------ -----------
----------- ----------- --------- ------------ -----------
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SEE ACCOMPANYING NOTES.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 28, 1999
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS
1-800-FLOWERS.COM, Inc. (the "Company") is a leading e-commerce provider of floral products and gifts. Customers can purchase products through any of three sales channels: online, by calling toll-free and by visiting one of 123 retail stores (owned or franchised) located across the United States. The Company has broadened its product lines to include home and garden merchandise through its acquisition of The Plow & Hearth, Inc. ("P&H") in April 1998 (see Note 3).
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of 1-800-FLOWERS.COM, Inc. and its wholly-owned and majority-owned subsidiaries and partnerships. All significant intercompany balances and transactions have been eliminated in consolidation.
INTERIM FINANCIAL STATEMENTS
The financial statements for the nine months ended March 29, 1998, have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations and cash flows for the nine months ended March 29, 1998 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or eliminated. The results of operations for the nine months ended March 28, 1999, are not necessarily indicative of the results to be expected for any future interim period or for the year ending June 27, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
CASH AND EQUIVALENTS
Cash and equivalents consist of demand deposits with banks, highly liquid money market funds, overnight repurchase agreements and commercial paper with maturities of three months or less when purchased.
RECEIVABLES AND CONCENTRATION OF CREDIT RISK
Concentration of credit risk with respect to accounts receivable are limited due to the Company's large number of customers and their dispersion substantially throughout the United States. A substantial portion of receivables are related to balances owed by major credit card
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
companies. The timing of the related cash realization and fees accrued are
determined based upon agreements with these companies. Credit is also extended
to customers based upon an evaluation of the customer's financial condition and
collateral is generally not required. Allowances relating to accounts receivable
(June 29, 1997--$509,000, June 28, 1998--$784,000 and March 28, 1999-- $998,000)
have been recorded based upon previous experience and other relevant factors, in
addition to management's periodic evaluation. Credit losses have been within
management's expectations.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method of accounting.
DEFERRED CATALOG COSTS
The Company capitalizes the costs of producing and distributing its catalogs. These costs are amortized in direct proportion with actual sales from the corresponding catalog over a period not to exceed twenty-six weeks. No costs were deferred at June 29, 1997. The unamortized balance of deferred catalog costs at June 28, 1998 and March 28, 1999 was approximately $669,000 and $1,772,000, respectively, and is included in other non-current assets.
DEPRECIATION AND AMORTIZATION
Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Amortization of assets held under capital leases is calculated using the straight-line method over the estimated useful life of the asset. Amortization of leasehold improvements is calculated using the straight-line method over the shorter of the lease terms, including renewal options expected to be exercised, or estimated useful lives of the improvements. The useful lives of property, plant and equipment are as follows:
YEARS
-----------
Building............................................................................ 40
Leasehold improvements.............................................................. 15-20
Furniture, fixtures and equipment (including computer equipment, software
development costs and telecommunication equipment)................................ 3-5
|
COMPUTER SOFTWARE DEVELOPED FOR INTERNAL USE
The Company follows the provisions of Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, which requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. These costs are amortized over a period of three years, the estimated useful life of the software. Internet and Web site development costs are expensed as incurred. No costs for computer software developed for internal use were capitalized during the year ended June 30, 1996. Capitalized computer software developed for internal use approximated $828,000, $5,169,000, $3,860,000 and $626,000 for the years ended June 29, 1997 and June 28, 1998 and for the nine months ended March 29, 1998 and March 28, 1999, respectively.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
INVESTMENTS
The Company's investments, consisting primarily of debt and equity securities, are classified as available-for-sale and are stated at fair value, with unrealized gains and losses, net of tax, reported in accumulated other comprehensive income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in other income. The cost of investments sold is determined using the specific identification method. Estimated fair values of investments are based on quoted market prices on the last business day of the fiscal year. Interest, dividends and other distributions of earnings are included in other income.
NOTES RECEIVABLE
Notes receivable are principally the result of (i) an acquired entity's land and building sales from prior years, which mature through 2011 and bear interest at rates ranging from 8% to 11% per annum; (ii) converting certain past due franchise receivables into three-year promissory notes bearing interest of up to 10% per annum; (iii) the sale of certain Company-owned stores to new franchisees; (iv) the resale of franchises and (v) the license fees associated with certain termination agreements designed to compensate the Company for the loss of future license fees. Gains resulting from the sale of stores described in (iii) and the transactions in (iv) above have been deferred and are included in other liabilities and will be recognized over the life of the related notes. The balance of deferred gains at June 29, 1997, June 28, 1998 and March 28, 1999 are approximately $233,000, $127,000 and $103,000, respectively. Allowances relating to such notes (1997--$423,000, 1998--$593,000 and, 1999--$258,000) have been recorded based upon previous experience and management's periodic evaluation of other relevant factors.
LICENSES, GOODWILL AND OTHER ASSETS
Licenses represent the fair value of franchise agreements acquired in the Company's acquisition of Amalgamated Consolidated Enterprises, Inc. ("ACE") and are amortized on a straight-line basis over a 16-year period.
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Amortization expense relating to goodwill is amortized on a straight-line basis over periods ranging from 15 to 20 years.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts of the Company's cash and equivalents, notes and accounts receivable, accounts payable, and accrued liabilities approximate their fair values principally because of the short-term nature of the significant items. The fair value of the Company's long-term obligations are estimated based on the current rates offered to the Company for obligations of similar terms and maturities. Under this method, the Company's fair value of long-term obligations was not significantly different than the stated values at June 29, 1997, June 28, 1998 and March 28, 1999.
REVENUE RECOGNITION
Net revenues are generated by online, telephonic and retail fulfillment operations and primarily consist of the selling price of merchandise, net of returns and credits, and include customer service and shipping charges. Net revenues are recognized upon delivery of the order to the recipient of
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
floral products and upon shipment of non-floral products. The Company provides an allowance for sales returns in the period of sale, based upon historical experience.
COST OF REVENUES
Cost of revenues consists primarily of florist fulfillment costs (fees paid to wire services that serve as clearinghouses for floral orders, net of rebates), the cost of floral and non-floral merchandise sold from inventory or through third parties, and the associated costs of inbound freight and outbound shipping. Additionally, cost of revenues includes labor and facility costs related to wholesale operations.
MARKETING AND SALES
Marketing and sales expenses consist primarily of advertising and promotional expenditures, catalog costs, fees paid to strategic online partners, fulfillment (other than costs included in cost of revenues) and customer service center expenses as well as payroll and non-payroll related expenses for those areas engaged in marketing, selling, merchandising, customer service and fulfillment activities. All such marketing and sales costs are expensed when incurred.
In accordance with Statement of Position 93-7, REPORTING OF ADVERTISING COSTS, the Company expenses all advertising costs at the time the advertisement is first shown. Advertising expense (including the amortization of deferred catalog costs of approximately $2,604,000, $0 and $13,771,000 for the year ended June 28, 1998 and for the nine months ended March 29, 1998 and March 28, 1999, respectively) was approximately $15,100,000, $16,700,000, $16,691,000, $11,421,000 and $27,581,000 for the years ended June 30, 1996, June 29, 1997 and June 28, 1998 and for the nine months ended March 29, 1998 and March 28, 1999, respectively.
TECHNOLOGY AND DEVELOPMENT
Technology and development expenses consist primarily of the payroll and operating expenses for the information technology group, maintenance, support and licensing costs pertaining to the order entry, customer service, fulfillment and database systems as well as all costs associated with the Web site, including designing, developing and third party hosting. All such technology and development costs are expensed as incurred.
LONG-LIVED ASSETS
When impairment indicators are present, the Company reviews the carrying value of its assets in determining the ultimate recoverability of their unamortized values using future undiscounted cash flow analysis expected to be generated by the asset. If such assets are considered impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the future discounted cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.
INCOME TAXES
Income taxes are provided using the liability method. Accordingly, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
determined under enacted tax laws and rates that will be in effect when the differences are expected to reverse.
STOCK-BASED COMPENSATION
The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION ("Statement 123").
SEGMENT DISCLOSURES
Effective June 29, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("Statement 131"). Statement 131 superseded Statement of Financial Accounting Standards No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. Statement 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company operates in one business segment through any of its three access channels. The adoption of Statement 131 did not affect the Company's consolidated results of operations or financial position.
COMPREHENSIVE INCOME
Effective June 29, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("Statement 130"). Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on the Company's net income (loss) or stockholders' equity (deficit). Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities, which prior to adoption was reported separately in stockholders' equity, to be included in comprehensive income. The related tax effect on comprehensive income is not material for the periods presented. Prior year consolidated financial statements have been restated to conform to the requirements of Statement 130.
3. ACQUISITIONS
During the three years ended June 28, 1998, the Company made the acquisitions described below, each of which has been accounted for as a purchase. Accordingly, the consolidated financial statements include the operating results of each business from the respective date of acquisition. No acquisitions were consummated during the nine month period ended March 28, 1999.
THE PLOW & HEARTH, INC.
In April 1998, the Company acquired 88% of the issued and outstanding shares of common stock of P&H (70% of the fully diluted equity of P&H due to the existence of 28,334 outstanding management stock options). P&H is a catalog company located in Virginia. The acquisition price was $16,100,000, exclusive of the management put liability described below, of which $14,700,000 was financed through the Company's credit agreement (see Note 5). The purchase price has been
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
3. ACQUISITIONS (CONTINUED) allocated to the assets acquired and the liabilities assumed based on fair values at the date of acquisition. The excess of the purchase price over the estimated fair values of the net assets acquired of $19,600,000 has been recorded as goodwill and is being amortized over 20 years.
The Company, P&H and P&H management shareholders and option holders (collectively, "Management Stockholders") entered into a Stockholders' Agreement effective with the acquisition. In accordance with the Management Stockholder put option contained within the agreement, as amended, each Management Stockholder has the right to cause P&H to purchase all of its outstanding management stock options at a price contingent upon the operating profits of P&H, with a minimum obligation, as defined, upon the occurrence of a put event, as defined in the agreement, or a put period which represents the 60-day period commencing on April 3, 2002 and terminating on June 3, 2002. Accordingly, the Company recorded a put liability of $6,300,000 at the acquisition date. The put liability at June 28, 1998 was adjusted to approximately $8,700,000 and, subsequently at March 28, 1999, to $6,300,000, based on the formula defined in the Stockholders' Agreement. This resulted in an increase and subsequent reduction of general and administrative expenses of approximately $1,631,000 for the year ended June 28, 1998 and the nine months ended March 28, 1999, respectively, reflecting the option holders percentage of the increase (decrease), with the remainder adjusted to goodwill. The Company's minimum obligation under the put liability increases to $8,400,000 upon the completion of an initial public offering, as defined, of the Company's common stock.
Additionally, under P&H's Amended and Restated Stock Option Plan, 35,342 shares of unissued P&H common stock are reserved for issuance. The aforementioned 28,334 management stock options are immediately exercisable and expire in February 2008. In April 1998, P&H issued 3,504 stock options to management at an exercise price equal to the per share acquisition price of $153.65. Such options do not contain the management stockholder put option as defined in the preceding paragraph. Such options will expire ten years from the issuance date and vest ratably over five years.
Concurrently with the acquisition of P&H, the Company also acquired an 85% interest in Plow & Hearth, LP (the "Partnership"). P&H owns the remaining 15%. The Partnership owns the land and distribution center/office facility of P&H and leases the facility to P&H. The $800,000 purchase price has been allocated to the assets acquired and the liabilities assumed based on fair values at the date of acquisition. The purchase price approximates the estimated fair values of the net assets acquired, including the assumption of a $2,400,000 construction loan payable.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
3. ACQUISITIONS (CONTINUED) The following table reflects unaudited pro forma results of operations of the Company and P&H on the basis that the acquisition had taken place at the beginning of the year for each of the periods presented:
YEARS ENDED
------------------------------
JUNE 29, 1997 JUNE 28, 1998
-------------- --------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Net revenues...................................................................... $ 222,324 $ 257,747
-------------- --------------
-------------- --------------
Net income........................................................................ $ 4,468 $ 3,464
-------------- --------------
-------------- --------------
Net income applicable to common stockholders...................................... $ 3,006 $ 1,856
-------------- --------------
-------------- --------------
Net income per common share applicable to common stockholders:
Basic........................................................................... $ 0.68 $ 0.42
-------------- --------------
-------------- --------------
Diluted......................................................................... $ 0.64 $ 0.40
-------------- --------------
-------------- --------------
Shares used in the calculation of net income per common share:....................
Basic........................................................................... 4,414 4,412
-------------- --------------
-------------- --------------
Diluted......................................................................... 4,674 4,661
-------------- --------------
-------------- --------------
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The unaudited pro forma consolidated results of operations are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on July 1, 1996 or June 30, 1997 or of future operations of the combined companies.
GREAT PLAINS WHOLESALE FLORISTS, INC.
In July 1997, the Company's subsidiary, Floral Works, Inc. ("Floral Works"), acquired the business and assets of Great Plains Wholesale Florists, Inc. ("Great Plains"), a supplier of fresh cut flowers and arrangements to the supermarket industry, for $900,000 in cash and the issuance of a $900,000 four-year seller financed note bearing interest at 6.5% per annum. The purchase price has been allocated to the assets acquired and the liabilities assumed based on their fair values at the date of acquisition.
The excess of the purchase price over the net assets acquired, of approximately $1,744,000, has been recorded as goodwill and is being amortized over 15 years. Had this acquisition been consummated as of July 1, 1996, the unaudited pro forma consolidated net revenues and results of operations would not have been considered material for the year ended June 29, 1997.
FLORAL WORKS, INC.
In September 1996, the Company invested $1,100,000 in cash for an 80% interest in Floral Works, Inc. which was formed in order to acquire specific assets and liabilities of FLS Floral Wholesalers Ltd. The purchase price has been allocated to the assets acquired and the liabilities assumed based on fair values at the date of acquisition. The excess of the purchase price over the
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
3. ACQUISITIONS (CONTINUED) estimated fair value of the net assets acquired of approximately $826,000 has been recorded as goodwill and is being amortized over 15 years.
Under certain circumstances, the Company may elect to issue shares of its common stock in exchange for the minority stockholders' shares. Additionally, the minority stockholders received 75 Stock Appreciation Rights ("SARs") with an exercise price of $2,800 per right. The SARs vest ratably over 5 years and the exercise price increases 10% annually. At March 28, 1999, 40% of the SARs are exercisable. Since issuance, the Company has not recorded any provision related to such SARs.
Had this acquisition been consummated as of July 3, 1995, the unaudited pro forma consolidated net revenues and results of operations would not have been considered material for the year ended June 30, 1996.
AMERICAN FLORAL SERVICES, INC.
In February 1994, the Company completed an investment transaction with American Floral Services, Inc. ("AFS"), a floral wire service. The investment consisted of the Company purchasing a minority interest in AFS Class A common stock and 15% preferred stock and a long-term note receivable. During the year ended June 30, 1996, the long-term note receivable was converted into additional preferred stock of AFS. On June 30, 1997, AFS repurchased, on a pro-rata basis, 59% of its then outstanding shares of Class A common stock in the amount of $387.16 per share. This transaction resulted in a gain on the Company's investment in AFS of approximately $1,545,000 which was received and recorded as other income during the year ended June 28, 1998. In addition, during the years ended June 29, 1997 and June 28, 1998 and the nine months ended March 29, 1998 and March 28, 1999, the Company recorded $318,000, $123,000, $92,000 and $92,000, respectively, of other income representing the accrual of cumulative preferred stock dividends. Accrued preferred stock dividends at June 29, 1997 of $318,000 were paid in July 1997.
4. CAPITAL STOCK INVESTMENT AGREEMENTS
In January 1995, the Company, its principal shareholder and a venture capital firm ("Investor") entered into an Investment Agreement ("Investment Agreement"), whereby each existing share of Common Stock was converted into one share of Class A common stock (which shares contain all voting rights of the Company) and 100 shares of Class B common stock. Additionally, Class C common stock and a preferred stock class were established.
Pursuant to the Investment Agreement, the Company, upon obtaining certain targets, has the right to draw up to $25,000,000 in funds. As of March 28, 1999, the Company has taken $10,000,000 and based upon the structure and targets of the Investment Agreement, an additional $10,000,000 is immediately available. In exchange for each funds takedown, the Company provides the Investor a predetermined number of shares of Class C common stock and warrants to acquire shares of Class B common stock at $.02 per share. Upon the takedown of $10,000,000 by the Company in January 1995, the Investor received 26,345 shares of Class C common stock and warrants to acquire 237,104 shares of Class B common stock expiring in 2005. The fair value of the warrants was estimated by the Company at approximately $1,375,000. As of March 28, 1999, all of
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
4. CAPITAL STOCK INVESTMENT AGREEMENTS (CONTINUED) such warrants are outstanding. The Class C common stock accrues a cumulative dividend at the rate of 10% per annum and has a liquidation preference as to unpaid dividends and the original investment. The Company may, at its option, under certain terms and conditions, repurchase and/or retire the shares of Class B and/or C common stock held by the Investor in advance of the Class C common stock's 2005 stated redemption date, at which time the redemption value, including accrued dividends, of the Class C common stock would be approximately $970 per share. The Investment Agreement contains certain covenants with which the Company is in compliance as of March 28, 1999.
On June 28, 1996, the Company retired related party debt obligations of approximately $5,800,000, through $2,500,000 in cash and the balance in shares of Class B and Class C common stock. Accordingly, $3,300,000 of debt was converted to equity under terms similar to the terms of the Investment Agreement. As such, 8,477 shares of Class C common stock and 76,293 Class B warrants were issued. The fair value of the warrants was estimated by the Company at approximately $492,000 and was charged to operations during the year ended June 30, 1996. The Class B warrants were immediately exercised into 76,293 shares of Class B common stock. The redemption value, including accrued dividends, of the Class C common stock at the 2005 stated redemption date would be approximately $917 per share.
Additionally, upon the completion of an exchange event, as defined in the Investment Agreement, each share of Class C common stock is convertible into one share of preferred stock and one share of Class B common stock.
On May 8, 1998, the Company entered into a Stock Purchase Agreement with a stockholder whereby the Company purchased 140 shares of its Class A common stock and 14,000 shares of its Class B common stock for $133,000.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
5. LONG-TERM DEBT
The Company's long-term debt obligations are as follows:
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
-------------- -------------- ---------------
(IN THOUSANDS)
Bank term loan (1).............................................. $ -- $ -- $ 18,000
Standby credit note (2)......................................... -- 15,500 --
Commercial notes and revolving credit line (3-5)................ -- 2,333 6,497
Seller financed acquisition obligations (6-11).................. 3,277 3,867 3,430
Obligations under capital leases (see Note 11).................. 5,369 4,050 5,721
------- -------------- ---------------
8,646 25,750 33,648
Less current maturities of long-term debt and obligations under
capital leases................................................ 2,055 3,287 5,500
------- -------------- ---------------
$ 6,591 $ 22,463 $ 28,148
------- -------------- ---------------
------- -------------- ---------------
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(1) On March 19, 1999, the Company entered into an agreement with a bank that provided for an $18,000,000 term loan and a $12,000,000 revolving credit line, bearing interest at LIBOR Index plus 2.25% per annum (7.31% at March 28, 1999) payable monthly. The Company received the proceeds under the term loan during the nine-month period ended March 28, 1999 and used such proceeds to repay amounts outstanding under its previous credit agreement. Subsequent to March 28, 1999, the Company borrowed $3,000,000 under the $12,000,000 revolving credit line.
As of March 28, 1999, the Company is in default of certain covenants within the agreement. The bank has subsequently waived such defaults and amended the agreement whereby the term loan will be due and payable on the earlier of the Company's successful completion of an initial public offering of its common stock or July 3, 2000. Additionally, the revolving credit line was reduced to $5,000,000. The amended agreement contains limited restrictive financial covenants.
(2) On April 3, 1998, the Company entered into a Credit Agreement (the "Agreement") with a bank that provided for a $15,500,000 Standby Credit Note and a $5,000,000 revolving credit facility. The Company borrowed the full amount under the Standby Credit Note in connection with the acquisitions of P&H and the Partnership (see Note 3). The Agreement requires interest to be paid monthly. On March 19, 1999, the Company repaid amounts then outstanding and entered into a new credit agreement with the same bank (see (1) above).
Other components of long-term debt, relating to obligations of P&H, are as follows:
(3) $2,400,000 commercial note dated June 13, 1997 ($2,278,000 outstanding at March 28, 1999) assumed in the P&H and the Partnership acquisitions, bearing interest at 8.19% per annum. The note is payable in 203 equal monthly installments of principal and interest commencing June 13, 1997.
(4) $4,500,000 revolving credit line dated September 28, 1998 ($2,789,000 outstanding at March 28, 1999) bearing interest equal to the monthly LIBOR Index plus 1.75% per annum
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
5. LONG-TERM DEBT (CONTINUED) (6.7% at March 28, 1999). Interest is paid monthly on the outstanding principal balance. The note is payable upon expiration of the line on September 15, 1999.
(5) $1,460,000 note dated July 1, 1998 ($1,430,000 outstanding at March 28, 1999) bearing interest equal to the monthly LIBOR Index plus 1.75% per annum (6.7% at March 28, 1999). The note is payable in 180 equal monthly installments of principal and interest commencing November 1, 1998.
The following notes relate to seller-financed acquisition obligations, all of which have been collateralized by either the stock or assets of various subsidiaries of the Company:
(6) $2,225,000 in promissory notes payable dated October 10, 1994 bearing interest at rates between 9% and 12% per annum. Interest is paid monthly on the outstanding principal balance until the notes have been paid in full. The notes are payable in 60 equal monthly installments commencing November 1, 1999.
(7) $800,000 promissory note payable assumed October 10, 1994 ($133,000 outstanding at March 28, 1999) and dated September 1, 1993 bearing interest at 12% per annum. Interest is paid monthly on the outstanding principal balance until the note has been paid in full. The note is payable in 36 equal monthly installments commencing October 1, 1996.
(8) $200,000 promissory note payable assumed October 10, 1994 and dated September 1, 1993 bearing interest at 9% per annum. Interest is paid monthly on the outstanding principal balance until the note has been paid in full. The note is payable in 60 equal monthly installments commencing November 1, 1999.
(9) $275,000 promissory note payable dated November 1, 1994 ($180,000 outstanding at March 28, 1999) bearing interest at 8% per annum. The note is payable in 120 equal monthly installments of principal and interest commencing December 1, 1994.
(10) $95,000 note payable assumed November 1, 1994 ($17,000 outstanding at March 28, 1999) bearing interest at 8% per annum. The note is payable in 60 equal monthly installments of principal and interest commencing February 1, 1995.
(11) $900,000 promissory note payable dated July 1,1997 ($675,000 outstanding at March 28, 1999) bearing interest at 6.5% per annum. The note is payable in four equal installments of principal and interest commencing July 1, 1998.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
5. LONG-TERM DEBT (CONTINUED) As of March 28, 1999, long-term debt maturities, excluding amounts relating to capital leases, are as follows (in thousands):
YEAR DEBT MATURITIES
----------------------------------------------------------------------------- ---------------
2000......................................................................... $ 3,532
2001......................................................................... 5,655
2002......................................................................... 5,658
2003......................................................................... 5,436
2004......................................................................... 5,439
Thereafter................................................................... 2,207
---------------
$ 27,927
---------------
---------------
|
The aggregate fair value of the long-term debt approximated the recorded amounts at March 28, 1999.
6. INCOME TAXES
Significant components of the provision (benefit) for income taxes are as follows (in thousands):
YEARS ENDED NINE MONTHS ENDED
------------------------------------- --------------------------
JUNE 30, JUNE 29, JUNE 28, MARCH 29, MARCH 28,
1996 1997 1998 1998 1999
----------- ----------- ----------- ------------- -----------
Current:
Federal............................................. $ 430 $ 2,600 $ 2,039 $ 971 $ (2,293)
State and local..................................... 180 705 877 418 --
----------- ----------- ----------- ------------- -----------
610 3,305 2,916 1,389 (2,293)
Deferred.............................................. 645 (170) 265 126 (633)
----------- ----------- ----------- ------------- -----------
$ 1,255 $ 3,135 $ 3,181 $ 1,515 $ (2,926)
----------- ----------- ----------- ------------- -----------
----------- ----------- ----------- ------------- -----------
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The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is as follows:
YEARS ENDED NINE MONTHS ENDED
------------------------------------- ----------------------------
JUNE 30, JUNE 29, JUNE 28, MARCH 28,
1996 1997 1998 MARCH 29, 1998 1999
----------- ----------- ----------- --------------- -----------
Tax at U.S. statutory rates........................... 34.0% 34.0% 34.0% 34.0% (34.0)%
State income taxes, net of federal tax benefit........ 8.0 6.0 7.5 7.5 (3.1)
Nondeductible goodwill amortization................... 4.3 1.9 2.1 2.1 3.8
Dividends received deduction.......................... -- (1.0) (4.4) (4.4) (0.2)
Other................................................. 3.3 0.8 0.2 (0.1) 0.6
Nondeductible expense................................. 6.5 -- -- -- --
(Decrease) increase in valuation allowance............ (5.8) -- -- -- 4.2
--- --- --- --- -----
50.3% 41.7% 39.4% 39.1% (28.7)%
--- --- --- --- -----
--- --- --- --- -----
|
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
6. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax assets (liabilities) are as follows:
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
--------------- -------------- -----------------
(IN THOUSANDS)
Deferred tax assets:
Bad debts..................................................... $ 321 $ 481 $ 400
Other accrued expenses and reserves........................... 353 1,156 775
Book in excess of tax depreciation............................ 64 -- --
State tax operating losses.................................... -- -- 334
Tax credits................................................... -- -- 93
Valuation allowance........................................... -- -- (427)
Deferred tax liabilities:
Installment sales............................................. (168) (157) (152)
Tax in excess of book depreciation............................ -- (1,175) (85)
------ ------- ------
Net deferred taxes.............................................. $ 570 $ 305 $ 938
------ ------- ------
------ ------- ------
|
The Company paid income taxes of approximately $1,244,000, $1,700,000, $2,930,000, $2,194,000 and $1,726,000 for the years ended June 30, 1996, June 29, 1997 and June 28, 1998 and for the nine months ended March 29, 1998 and March 28, 1999, respectively.
7. SUPPLEMENTARY FINANCIAL INFORMATION
PROPERTY, PLANT AND EQUIPMENT
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
-------------- -------------- ---------------
(IN THOUSANDS)
Computer equipment.............................................. $ 5,948 $ 9,648 $ 14,447
Software development costs...................................... 828 5,997 6,623
Telecommunication equipment..................................... 3,547 3,854 4,207
Leasehold improvements.......................................... 2,497 3,715 6,554
Building and building improvements.............................. -- 3,463 3,848
Equipment....................................................... 1,015 1,917 2,266
Furniture and fixtures.......................................... 1,012 1,437 2,198
Land............................................................ -- 389 389
-------------- -------------- ---------------
14,847 30,420 40,532
Accumulated depreciation and amortization....................... 6,361 11,041 15,700
-------------- -------------- ---------------
$ 8,486 $ 19,379 $ 24,832
-------------- -------------- ---------------
-------------- -------------- ---------------
|
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
7. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED) INVESTMENTS
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
-------------- -------------- -----------------
(IN THOUSANDS)
Investments available-for-sale:
Federal and municipal government bonds........................ $ 4,581 $ 5,178 $ --
Equity securities............................................. 6 275 --
Corporate notes............................................... 559 -- --
Other investments:
Equity investment in AFS...................................... 918 918 918
Other......................................................... -- 46 69
------- ------- -----
6,064 6,417 987
Less short-term investments..................................... 3,210 5,034 --
------- ------- -----
$ 2,854 $ 1,383 $ 987
------- ------- -----
------- ------- -----
|
Maturities of investments classified as available-for-sale were as follows (in thousands):
JUNE 29, 1997 JUNE 28, 1998
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- --------- ----------- ---------
Due in one year or less............................................. $ 3,134 $ 3,210 $ 5,034 $ 5,034
Due after one year.................................................. 2,002 1,930 139 144
Equity securities not due at a specific date........................ 5 6 266 275
----------- --------- ----------- ---------
$ 5,141 $ 5,146 $ 5,439 $ 5,453
----------- --------- ----------- ---------
----------- --------- ----------- ---------
|
LICENSES, GOODWILL AND OTHER ASSETS
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
-------------- -------------- ---------------
(IN THOUSANDS)
Goodwill........................................................ $ 1,420 $ 23,259 $ 23,055
Investment in licenses.......................................... 4,927 4,927 4,927
Exclusive online marketing contract............................. -- -- 3,125
Deferred catalog costs.......................................... -- 669 1,772
Other assets.................................................... 999 1,429 1,451
------- -------------- ---------------
7,346 30,284 34,330
Accumulated amortization........................................ 1,183 2,012 3,227
------- -------------- ---------------
$ 6,163 $ 28,272 $ 31,103
------- -------------- ---------------
------- -------------- ---------------
|
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
7. SUPPLEMENTARY FINANCIAL INFORMATION (CONTINUED) STATEMENTS OF CASH FLOWS
Changes in operating working capital items, excluding the effects of acquisitions:
YEARS ENDED NINE MONTHS ENDED
------------------------------- ------------------------
JUNE 30, JUNE 29, JUNE 28, MARCH 29, MARCH 28,
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(IN THOUSANDS)
Receivables................................ $ (1,381) $ (1,475) $ (1,908) $ (1,033) $ (2,765)
Inventories................................ (158) 32 (373) (169) (3,089)
Prepaid and other.......................... (1,159) 838 732 (2,207) (292)
Accounts payable........................... 3,833 1,742 3,655 317 6,247
Accrued expenses........................... (131) 278 (2,010) 945 1,220
Recoverable income taxes................... -- -- -- -- (3,217)
Taxes payable.............................. (113) 1,132 (380) (1,082) (845)
--------- --------- --------- ----------- -----------
$ 891 $ 2,547 $ (284) $ (3,229) $ (2,741)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
|
Changes in operating nonworking capital items, excluding the effects of acquisitions:
YEARS ENDED NINE MONTHS ENDED
----------------------------------- -------------------------
JUNE 30, JUNE 29, JUNE 28, MARCH 29, MARCH 28,
1996 1997 1998 1998 1999
----------- ----------- --------- ------------ -----------
(IN THOUSANDS)
Other assets.......................................... $ (75) $ (24) $ (1,821) $ (984) $ (4,913)
Other liabilities..................................... 62 80 (43) (509) 941
--- --- --------- ------------ -----------
$ (13) $ 56 $ (1,864) $ (1,493) $ (3,972)
--- --- --------- ------------ -----------
--- --- --------- ------------ -----------
|
Interest paid amounted to approximately $3,360,000, $912,000, $879,000, $720,000 and $2,113,000 for the years ended June 30, 1996, June 29, 1997 and June 28, 1999 and for the nine months ended March 29, 1998 and March 28, 1999, respectively.
ACCRUED EXPENSES
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
-------------- -------------- ---------------
(IN THOUSANDS)
Payroll and payroll related items............................... $ 1,510 $ 1,877 $ 2,354
Credits and chargeback reserve.................................. 400 425 320
Sales and use taxes............................................. 289 61 409
Interest........................................................ -- 298 48
Other........................................................... 426 440 1,190
------- ------- -------
$ 2,625 $ 3,101 $ 4,321
------- ------- -------
------- ------- -------
|
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
8. PROFIT SHARING PLAN
The Company established a 401(k) Profit Sharing Plan ("401(k)") which covers substantially all eligible employees of the Company. All full-time employees of the Company and its subsidiaries who have attained the age of 21 are eligible to participate upon completion of one year of service. Participants may elect to make voluntary contributions to the 401(k) in amounts not exceeding federal guidelines. On an annual basis the Company, as determined by its Board of Directors, may make certain discretionary contributions. Employees are vested in the Company's contribution based upon years of service. The Company made contributions of $50,000, $101,000, $92,000, $63,000 and $54,000 for the years ended June 30, 1996, June 29, 1997 and June 28, 1999 and for the nine months ended March 29, 1998 and March 28, 1999, respectively.
9. STOCK OPTION PLAN
In January 1997, the Company's Board of Directors approved the Company's 1997 Stock Option Plan (the "Plan"). The Plan authorizes the granting to key employees, officers, directors and consultants of the Company options to purchase an aggregate of 598,544 shares of the Company's Class B common stock, $0.01 par value. The options may be either Incentive Stock Options or non-qualified stock options. The exercise price of an option shall be determined by the Company's Board of Directors or Compensation Committee of the Board at the time of grant, provided, however, that in the case of an Incentive Stock Option the exercise price may not be less than 100% of the fair market value of such stock at the time of the grant, or less than 110% of such fair market value in the case of options granted to a 10% owner of the Company's stock. The vesting and expiration periods of options issued under this Plan are determined by the Company's Board of Directors or Compensation Committee as set forth in the applicable option agreement, provided that the expiration date shall not be later than ten years from the date of grant.
During January 1999, the Company issued stock options to employees to purchase 20,000 shares of common stock at $20.00 per share, which was considered to be the fair value of the common stock at that time. Soon thereafter, the Company entered into discussions with an investor to purchase shares of common stock at $104.26 per share; accordingly, for accounting purposes, the Company used such per share value to record a deferred compensation charge of $1,680,000, of which $105,000 was amortized during the nine months ended March 28, 1999, associated with the option grants in January 1999.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
9. STOCK OPTION PLAN (CONTINUED) The following table summarizes activity in stock options:
YEARS ENDED
-------------------------------------------------- NINE MONTHS ENDED
JUNE 29, 1997 JUNE 28, 1998 MARCH 28, 1999
---------------------- -------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
--------- ----------- ------------- ----------- --------- -----------
Balance, beginning of year......................... -- $ -- 42,775 $ 12.99 52,550 $ 13.61
Grants............................................. 42,775 12.99 10,250 16.14 71,200 20.00
Forfeitures........................................ -- -- (475) 11.82 -- --
--------- ------------- ---------
Balance, end of year............................... 42,775 12.99 52,550 13.61 123,750 17.29
--------- ------------- ---------
--------- ------------- ---------
Weighted-average fair value of options issued
during the period................................ $ 2.23 $ 7.28 $ 9.02
|
The following table summarizes information about stock options outstanding at March 28, 1999:
WEIGHTED-
AVERAGE
REMAINING
OPTIONS OPTIONS CONTRACTUAL
EXERCISE PRICE OUTSTANDING EXERCISABLE LIFE
---------------------------------------------------- ------------ ------------ ------------
$12.99.............................................. 42,300 25,380 2.8 years
16.14.............................................. 10,250 2,563 8.8
20.00.............................................. 71,200 39,300 9.4
------------ ------------
123,750 67,243 7.1
------------ ------------
------------ ------------
|
At March 31, 1999, the Company has reserved approximately 871,000 shares of common stock for issuance under common stock options, warrants and conversion of Class C common stock.
FAIR VALUE DISCLOSURES
Pro forma information regarding net income (loss) is required by Statement
123, which also requires that the information be determined as if the Company
had accounted for its stock options under the fair value method of that
statement. The fair value of these options was estimated at the date of grant
using the minimum value option pricing model with the following assumptions:
risk free interest rate of 6%; no dividend yield and a weighted-average expected
life of the options of 5 years at date of grant. Because the determination of
fair value of all options granted after such time as the Company becomes a
public entity will include an expected volatility factor in addition to the
factors described above, the results presented below may not be indicative of
future periods.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
9. STOCK OPTION PLAN (CONTINUED) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma financial information is as follows:
YEARS ENDED NINE MONTHS ENDED
------------------------------ --------------------------------
JUNE 29, 1997 JUNE 28, 1998 MARCH 29, 1998 MARCH 28, 1999
-------------- -------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss) applicable to common
stockholders:
As reported................................. $ 2,925 $ 3,466 $ 1,190 $ (8,682)
Pro forma................................... 2,898 3,438 1,172 (9,095)
Basic earnings (loss) per share applicable to
common stockholders:
As reported................................. $0.66 $0.79 $0.27 $(1.97 )
Pro forma................................... 0.66 0.78 0.27 (2.07 )
Diluted earnings (loss) per share applicable
to common stockholders:
As reported................................. $0.63 $0.74 $0.25 $(1.97 )
Pro forma................................... 0.62 0.74 0.25 (2.07 )
|
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
10. BASIC AND DILUTED EARNINGS PER SHARE
The following sets forth the computation of basic and diluted earnings
(loss) per common share data:
YEARS ENDED NINE MONTHS ENDED
------------------------------------------------- ------------------------------------
JUNE 30, 1996 JUNE 29, 1997 JUNE 28, 1998 MARCH 29, 1998 MARCH 28, 1999
--------------- --------------- --------------- ----------------- -----------------
(IN THOUSANDS)
Numerator:
Net income (loss)........... $ 1,297 $ 4,387 $ 5,074 $ 2,396 $ (7,354)
Redeemable Class C common
stock dividends........... (1,029) (1,462) (1,608) (1,206) (1,328)
------- ------- ------- ------- -------
Net income (loss) applicable
to common stockholders.... $268 $ 2,925 $ 3,466 $ 1,190 $ (8,682 )
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Denominator:
Denominator for basic
earnings (loss) per share-
weighted average common
shares outstanding........ 4,705 4,414 4,412 4,414 4,400
Effect of dilutive securities:
Employee stock options...... -- 23 12 24 --
Warrants.................... 237 237 237 237 --
------- ------- ------- ------- -------
Dilutive potential common
shares.................... 237 260 249 261 --
------- ------- ------- ------- -------
Denominator for diluted
earnings (loss) per share-
weighted average common
shares outstanding and
assumed conversions....... 4,942 4,674 4,661 4,675 4,400
------- ------- ------- ------- -------
------- ------- ------- ------- -------
|
During the nine months ended March 28, 1999, options and warrants to purchase 342,000 shares of common stock (using the treasury stock method) were excluded from the diluted loss per share computation as their effect would be antidilutive. Additionally, for all periods presented, 35,000 shares of common stock to be issued upon the conversion of Class C common stock (See Note 4) was excluded from the diluted loss per share computation as its effect would be antidilutive.
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company currently leases office, store facilities, and equipment under various operating leases through fiscal 2009. As leases expire, it can be expected that in the normal course of business they will be renewed or replaced. Most lease agreements contain renewal options and rent escalation clauses and require the Company to pay real estate taxes, insurance, common area maintenance and operating expenses applicable to the leased properties. The Company has also entered into leases that are on a month-to-month basis.
The Company also leases certain computer, telecommunication and related equipment under capital leases, which are included in property and equipment with a capitalized cost of
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED) approximately $6,500,000, $7,037,000 and $10,124,000 at June 29, 1997, June 28, 1998 and March 28, 1999, respectively, and accumulated amortization of $3,500,000, $5,031,000 and $6,453,000 respectively. Under the terms of one of these leases, the Company is required to maintain an irrevocable standby letter of credit in the amount of approximately $785,000 which is renewable annually.
As of March 28, 1999, future minimum payments under noncancelable equipment lease obligations and operating leases with initial terms of one year or more consist of the following:
OBLIGATIONS
UNDER
EQUIPMENT OPERATING
LEASES LEASES
----------- -----------
(IN THOUSANDS)
2000...................................................................... $ 2,015 $ 4,848
2001...................................................................... 1,240 4,273
2002...................................................................... 935 4,107
2003...................................................................... 735 3,817
2004...................................................................... 95 3,457
Thereafter................................................................ 3 4,372
----------- -----------
Total minimum lease payments.............................................. 5,023 $ 24,874
-----------
-----------
Less: amounts representing interest....................................... (684)
-----------
Present value of net minimum lease payments............................... $ 4,339
-----------
-----------
|
The Company, through the ACE acquisition, subleases land and buildings (which are leased from third parties) to the Company's franchisees. Certain of the leases, other than land leases which have been classified as operating leases, are classified as capital leases and have initial lease terms of approximately 20 years (including option periods in some cases).
The following schedule, as of March 28, 1999, reflects the lease receipts due from franchisees (shown as Capitalized Investment in Leases) and capital lease payment obligations of the Company:
CAPITALIZED OBLIGATIONS
INVESTMENT IN UNDER CAPITAL
LEASES LEASES
------------- --------------
(IN THOUSANDS)
2000................................................................ $ 490 $ 409
2001................................................................ 454 401
2002................................................................ 394 359
2003................................................................ 280 245
2004................................................................ 185 177
Thereafter.......................................................... 202 202
------------- -------
Total minimum lease payments........................................ 2,005 1,793
Less interest....................................................... (476) (411)
------------- -------
Present value of net minimum lease payments......................... $ 1,529 $ 1,382
------------- -------
------------- -------
|
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED MARCH 29, 1998 IS UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED) At March 28, 1999, the aggregate future rental expense under long-term operating leases for land and buildings and corresponding sublease rental income under long-term operating subleases were as follows:
SUBLEASE SUBLEASE
INCOME EXPENSE
--------- ---------
(IN THOUSANDS)
2000......................................................................... $ 3,283 $ 3,216
2001......................................................................... 2,952 2,900
2002......................................................................... 2,451 2,411
2003......................................................................... 2,049 2,015
2004......................................................................... 1,781 1,749
Thereafter................................................................... 5,729 5,573
--------- ---------
$ 18,245 $ 17,864
--------- ---------
--------- ---------
|
In addition to the above, the Company has agreed to provide rent guarantees for leases entered into by certain franchisees with third party landlords. At March 28, 1999, the aggregate minimum rent due by franchisees guaranteed by the Company during the eight-year period ending in fiscal year 2006 was approximately $581,000.
Rent expense was approximately $5,000,0000, $5,800,000, $5,637,000, $4,508,000 and $5,543,000 for the years ended June 30, 1996, June 29, 1997 and June 28, 1998 and for the nine months ended March 29, 1998 and March 28, 1999.
The Company has commitments under exclusive online marketing agreements whereby the Company will pay a minimum of $11,500,000 over a four-year period commencing July 1, 1997. Certain online marketing costs are capitalized and amortized over the life of the agreement. The unamortized balance of such costs were approximately $0 and $3,125,000 at June 28, 1998 and March 28, 1999, respectively, and were included in other non-current assets.
LITIGATION
There are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity.
12. SUBSEQUENT EVENT
On May 20, 1999, the Company completed a private placement of a series of preferred stock, yielding net proceeds of $102.6 million. In connection with this private placement, all shares of Redeemable Class C common stock were redeemed at their redemption value and a portion reinvested in such preferred stock.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Plow & Hearth, Inc.:
We have audited the accompanying consolidated balance sheets of The Plow & Hearth, Inc. (the "Company") as of December 31, 1996 and 1997, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Plow & Hearth, Inc. as of December 31, 1996 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles.
KPMG LLP
March 9, 1998
THE PLOW & HEARTH, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
1996 1997
-------------- --------------
ASSETS (NOTE 2)
Current assets:
Cash and cash equivalents (note 7)............................................. $ 4,318,609 $ 3,686,460
Accounts receivable (note 7):
Trade........................................................................ 315,054 561,292
Other........................................................................ 143,588 201,194
Inventories.................................................................... 2,132,218 3,563,486
Deferred catalog costs......................................................... 858,390 723,537
Deferred income taxes (note 6)................................................. 89,954 194,216
Prepaid expenses and other current assets...................................... 25,260 63,122
-------------- --------------
Total current assets......................................................... 7,883,073 8,993,307
-------------- --------------
Property, plant and equipment (note 3):
Land and improvements.......................................................... 345,295 345,295
Building....................................................................... 2,626,979 2,626,979
Leasehold improvements......................................................... 113,872 117,920
Furniture, fixtures and equipment.............................................. 1,755,545 1,993,735
-------------- --------------
4,841,691 5,083,929
Less accumulated depreciation and amortization................................. 1,483,781 1,755,751
-------------- --------------
Net property, plant and equipment................................................ 3,357,910 3,328,178
-------------- --------------
Deferred income taxes (note 6)................................................... 17,694 3,634
Purchased software costs, net (note 1)........................................... 136,067 130,145
Intangibles, net (note 1)........................................................ -- 20,005
Other assets, net................................................................ 43,887 43,845
-------------- --------------
197,648 197,629
-------------- --------------
$ 11,438,631 $ 12,519,114
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and obligations under capital leases
(notes 2 and 3).............................................................. $ 602,706 $ 83,769
Accounts payable............................................................... 2,890,881 1,843,734
Accrued expenses............................................................... 852,010 1,214,156
Customer deposits.............................................................. 153,021 152,283
Income taxes payable........................................................... 817,321 1,307,424
-------------- --------------
Total current liabilities.................................................... 5,315,939 4,601,366
-------------- --------------
Long-term debt and obligations under capital leases, excluding current maturities
(notes 2 and 3)................................................................ 2,588,839 2,317,222
-------------- --------------
Minority interest (note 1)....................................................... 573,347 528,818
-------------- --------------
Stockholders' equity (notes 4 and 8):
Common stock, $.10 par value, 200,000 shares authorized; issued and outstanding
107,256 and 105,356 at December 31, 1996 and 1997, respectively.............. 10,726 10,536
Additional paid-in capital..................................................... 1,397,926 1,336,366
Retained earnings.............................................................. 1,551,854 3,724,806
-------------- --------------
Total stockholders' equity....................................................... 2,960,506 5,071,708
Commitments and contingencies (notes 1, 2, 3, 5 and 8)
-------------- --------------
$ 11,438,631 $ 12,519,114
-------------- --------------
-------------- --------------
|
See accompanying notes to consolidated financial statements.
THE PLOW & HEARTH, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED
------------------------------ THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED
1996 1997 MARCH 31,
-------------- -------------- 1998
--------------
(UNAUDITED)
Operating revenues:
Merchandise sales, net........................................ $ 29,045,513 $ 38,996,352 $ 4,901,994
Mailing list rental income.................................... 290,569 188,495 52,994
Membership fee income......................................... 231,711 13,056 --
Shipping income, net of shipping costs........................ 418,896 433,947 (38,278)
-------------- -------------- --------------
29,986,689 39,631,850 4,916,710
-------------- -------------- --------------
Operating costs and expenses:
Cost of goods sold............................................ 16,101,851 21,653,476 2,913,920
Catalog production and marketing costs........................ 7,864,827 9,539,107 1,134,658
Selling, general and administrative expenses.................. 3,759,736 4,619,167 5,017,158
-------------- -------------- --------------
27,726,414 35,811,750 9,065,736
-------------- -------------- --------------
Income from operations.......................................... 2,260,275 3,820,100 (4,149,026)
Other income (expense):
Interest expense.............................................. (325,108) (248,449) (38,967)
Interest income............................................... 24,490 101,041 43,261
Other, net.................................................... 90,940 (37,265) (77,311)
Minority interest............................................. (25,462) (25,471) (19,713)
-------------- -------------- --------------
(235,140) (210,144) (92,730)
-------------- -------------- --------------
Income before income taxes...................................... 2,025,135 3,609,956 (4,241,756)
Income tax expense (note 6)..................................... 767,941 1,437,004 (1,689,886)
-------------- -------------- --------------
Net income...................................................... $ 1,257,194 $ 2,172,952 $ (2,551,870)
-------------- -------------- --------------
-------------- -------------- --------------
|
See accompanying notes to consolidated financial statements.
THE PLOW & HEARTH, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- --------- ------------- ------------- --------------
Balances, December 31, 1995................ 107,006 $ 10,701 $ 1,394,851 $ 294,660 $ 1,700,212
Exercise of employee stock options ($22.50
per share) (note 4)...................... 810 81 18,144 -- 18,225
Common stock purchased ($32.50 per
share)................................... (560) (56) (18,144) -- (18,200)
Tax benefit of stock options exercised
(note 4)................................. -- -- 3,075 -- 3,075
Net income................................. -- -- -- 1,257,194 1,257,194
--------- --------- ------------- ------------- --------------
Balances, December 31, 1996................ 107,256 10,726 1,397,926 1,551,854 2,960,506
Common stock purchased ($32.50 per
share)................................... (1,900) (190) (61,560) -- (61,750)
Net income................................. -- -- -- 2,172,952 2,172,952
--------- --------- ------------- ------------- --------------
Balances, December 31, 1997................ 105,356 10,536 1,336,366 3,724,806 5,071,708
Employee stock options (unaudited)......... -- -- 3,945,826 -- 3,945,826
Net loss (unaudited)....................... -- -- -- (2,551,870) (2,551,870)
--------- --------- ------------- ------------- --------------
Balances, March 31, 1998 (unaudited)....... 105,356 $ 10,536 $ 5,282,192 $ 1,172,936 $ 6,465,664
--------- --------- ------------- ------------- --------------
--------- --------- ------------- ------------- --------------
|
See accompanying notes to consolidated financial statements.
THE PLOW & HEARTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
------------------------------ THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED
1996 1997 MARCH 31, 1998
-------------- -------------- ---------------
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................................................ $ 1,257,194 $ 2,172,952 $ (2,551,870)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Employee stock options................................................... -- -- 3,945,826
Depreciation and amortization............................................ 392,480 366,022 90,340
Minority interest........................................................ 25,462 25,471 19,713
Provision for deferred income taxes...................................... (53,161) (90,202) 106,075
Provision for inventory obsolescence..................................... (5,000) 47,000 36,000
(Increase) decrease in:
Accounts receivable.................................................... 245,342 (303,844) 375,872
Inventories............................................................ 119,881 (1,478,268) (145,412)
Deferred catalog costs................................................. (418,457) 134,853 (190,414)
Income taxes refundable................................................ 93,477 -- (1,589,137)
Prepaid expenses and other current assets.............................. (586) (37,862) (35,884)
Other assets........................................................... (7,702) 9,555 --
Increase (decrease) in:
Accounts payable....................................................... 335,387 (1,047,147) (156,517)
Accrued expenses....................................................... 297,258 362,146 (925,276)
Customer deposits...................................................... 46,269 (738) (33,830)
Income taxes payable................................................... 820,396 490,103 (1,307,424)
-------------- -------------- ---------------
Net cash provided by (used in) operating activities............................ 3,148,240 650,041 (2,361,938)
-------------- -------------- ---------------
Cash flows from investing activities:
Purchases of property, plant and equipment................................... (62,694) (242,238) (21,916)
Purchases of software........................................................ (49,312) (82,368) (692)
Purchase of intangible assets................................................ -- (21,058) (9,699)
-------------- -------------- ---------------
Net cash used in investing activities.......................................... (112,006) (345,664) (32,307)
-------------- -------------- ---------------
Cash flows from financing activities:
Borrowings under line of credit agreement.................................... 6,848,000 2,588,000 --
Payments under line of credit agreement...................................... (6,848,000) (2,588,000) --
Proceeds from issuance of long-term debt..................................... 420,000 2,400,000 --
Principal payments on long-term debt and obligations under
capital leases............................................................. (552,938) (3,190,554) (20,773)
Financing costs for long-term debt........................................... -- (14,222) --
Common stock options exercised............................................... 18,225 -- --
Purchase of common stock..................................................... (18,200) (61,750) --
Return of capital to limited partners........................................ (70,000) (70,000) (17,500)
-------------- -------------- ---------------
Net cash used in financing activities.......................................... (202,913) (936,526) (38,273)
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents........................... 2,833,321 (632,149) (2,432,518)
Cash and cash equivalents, beginning of period................................. 1,485,288 4,318,609 3,686,460
-------------- -------------- ---------------
Cash and cash equivalents, end of period....................................... $ 4,318,609 $ 3,686,460 $ 1,253,942
-------------- -------------- ---------------
-------------- -------------- ---------------
Supplemental cash flow information:
Income taxes paid (refunded) during the period............................... $ (92,771) $ 1,037,103 $ 1,100,600
Interest paid during the period.............................................. 324,949 242,166 924
Noncash investing and financing activities:
Capital lease obligations incurred for telephone equipment................... $ 3,375 $ -- $ --
Income tax benefit from exercise of stock options............................ 3,075 -- --
|
See accompanying notes to consolidated financial statements.
THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Plow & Hearth, Inc. ("Plow & Hearth") is a retail and catalog sales outlet, incorporated under the laws of the Commonwealth of Virginia on April 2, 1980.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and operations of The Plow & Hearth, Inc. and P&H, L.P. (the "Partnership") (collectively, the "Company"). The Partnership was organized to finance the acquisition of 39.549 acres of land (the "Property") and the construction of a 108,000-square foot distribution center/office facility (the "Facility"). The Facility is leased to Plow & Hearth for a 20-year term. The Partnership is owned by Plow & Hearth (15 percent general partner interest with an initial $50,000 contribution) and 28 limited partners (85 percent limited partnership interest with an aggregate of $700,000 in initial contributions). Due to the interrelationship of the investments, loan guarantees, collateral and control among Plow & Hearth, its stockholders and the Partnership, the accounts of the Partnership have been consolidated with those of Plow & Hearth and all significant intercompany transactions have been eliminated.
The Partnership agreement requires quarterly cash distributions to the partners equal to an annual rate of 10 percent of their initial cash investment. Total distributions to the partners amounted to $75,000 for the years ended December 31, 1996 and 1997, of which Plow & Hearth, as general partner, received $5,000.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the three months ended March 31, 1998 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations and cash flows for the three months ended March 31, 1998 have been made. Certain information and footnote disclosures normally included in fiancial statements prepared in accordance with generally accepted accounting principles have been condensed or eliminated. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for any future interim period.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents, which consist of commercial paper and an overnight repurchase agreement aggregating $5,317,926 and $7,841,971 at December 31, 1996 and 1997, respectively, are stated at cost which approximates fair value.
ACCOUNTS RECEIVABLE--OTHER
Accounts receivable--other consist of amounts due for rental of the Company's mailing list and miscellaneous receivables.
THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES
Inventories are stated at the lower of cost or market. The allowance to reduce inventories to the lower of cost or market was $40,000 and $87,000 at December 31, 1996 and 1997, respectively. Cost is determined using the first-in, first-out method.
DEFERRED CATALOG COSTS
The Company capitalizes the costs of producing and distributing its catalogs. These costs are amortized in direct proportion with actual sales from the corresponding catalog over a period not to exceed twenty-six weeks.
DEFERRED FINANCING COSTS
Financing costs are amortized over the life of the loan using the interest method and are included as a component of interest expense.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated by use of the straight-line and accelerated methods over the estimated useful lives of the related assets. Amortization of assets held under capital leases and leasehold improvements is calculated by use of the straight-line method over the shorter of the lease terms, including renewal options expected to be exercised, or estimated useful lives of the improvements. The useful lives of property, plant and equipment are as follows:
YEARS
---------
Building............................................................................. 39
Leasehold improvements............................................................... 15-20
Furniture, fixtures and equipment.................................................... 5-10
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PURCHASED SOFTWARE COSTS
The Company capitalizes costs for purchased software which is used internally in operating activities. These costs are amortized over a period of three years, the estimated useful life of the software. Amortization expense for the years ended December 31, 1996 and 1997 was $95,905 and $88,290, respectively. Purchased software costs consisted of the following at December 31, 1996 and 1997:
1996 1997
------------ ------------
Purchased software costs.......................................... $ 496,540 $ 578,908
Accumulated amortization.......................................... (360,473) (448,763)
------------ ------------
Purchased software costs, net..................................... $ 136,067 $ 130,145
------------ ------------
------------ ------------
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THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLES
Intangibles consisted of the following at December 31, 1996 and 1997:
1996 1997
---------- -----------
Customer mailing list............................................... $ 81,405 $ 102,463
Other............................................................... 2,069 2,069
---------- -----------
83,474 104,532
Accumulated amortization............................................ (83,474) (84,527)
---------- -----------
Intangibles, net.................................................... $ -- $ 20,005
---------- -----------
---------- -----------
|
Amortization expense for the years ended December 31, 1996 and 1997 was $8,466 and $1,053, respectively.
MEMBERSHIP FEE INCOME
The Company derives membership fee income from offering its customers membership in its "Buyers' Club." An annual membership fee of $10 per customer is recognized when received. Annual membership privileges entitle the customer to a 5 percent discount on all purchases during the membership year and various other special offers throughout the year. As a result of the Buyers' Club, the Company recorded net discounts of $351,942 and $76,610 for the years ended December 31, 1996 and 1997, respectively. This program was discontinued during 1997.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
No income taxes are payable by the partnership and none have been provided in the accompanying financial statements. The partners include the respective shares of the partnership's profits or losses in their individual tax returns.
HEALTH INSURANCE PLAN
The Company is partially self-insured for health claims up to an aggregate annual claim amount of $119,000 and $103,000 at December 31, 1996 and 1997, respectively. The Company's stop loss insurance covers aggregate annual claims costs in excess of this limit. Self-insurance accruals are provided based upon the liability for reported claims and an estimated liability for claims incurred
THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) but not reported. Total expense under the plan amounted to $90,902 and $76,500 for the years ended December 31, 1996 and 1997, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
MINORITY INTEREST
Minority interest represents the 85 percent ownership of the limited partners of the Partnership.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
(2) LINE OF CREDIT AND LONG-TERM DEBT
Plow & Hearth currently has a line of credit with Central Fidelity Bank. Under this agreement, Plow & Hearth has a revolving line of credit under which it can borrow up to a maximum of $2,500,000 at an interest rate of LIBOR plus 1.75 percent. The line of credit matures on June 30, 1998. The line of credit is collateralized by Plow & Hearth's accounts receivable, inventories, equipment and general intangibles. No amounts were outstanding under this line at December 31, 1996 or December 31, 1997.
Under the line of credit, Plow & Hearth must comply with certain restrictive covenants. The most restrictive financial covenants relate to the ratio of debt to tangible net worth, a fixed charge coverage ratio and a minimum equity balance. Plow & Hearth was in compliance with these covenants at December 31, 1997.
THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(2) LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED) Long-term debt, including obligations under capital leases, consisted of the following at December 31, 1996 and 1997:
1996 1997
------------- -------------
Construction term loan with an interest rate of 8.19% payable in equal monthly
installments amortized over a 20-year period, due and payable in full June 2014,
collateralized by a deed of trust and assignment of all leases.................... $ 2,370,553 $ 2,367,319
Term loan with an interest rate of 8.37%, paid in full during 1997.................. 350,634 --
11.00% subordinated notes payable to seven members of Plow & Hearth's board of
directors, paid in full during 1997............................................... 425,000 --
Obligations under capital leases (note 3)........................................... 45,358 33,672
------------- -------------
3,191,545 2,400,991
Less current maturities of long-term debt and obligations under capital leases...... 602,706 83,769
------------- -------------
Long-term debt and obligations under capital leases, excluding current maturities... $ 2,588,839 $ 2,317,222
------------- -------------
------------- -------------
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The construction term loan to the Partnership was used to finance the construction of the Facility and is collateralized by a first lien deed of trust on the Facility and an assignment of all leases with respect to the Facility including the lease with Plow & Hearth. The loan is also unconditionally and fully guaranteed by Plow & Hearth. The loan's financial covenants require the Partnership to meet a debt coverage ratio of at least 1.10 to 1.00. The Partnership was in compliance with this covenant at December 31, 1997.
As of December 31, 1997, long-term debt maturities, excluding amounts relating to capital leases, are as follows:
YEAR MATURITY
------------------------------------------------------------------------------- -------------
1998........................................................................... $ 70,831
1999........................................................................... 76,920
2000........................................................................... 83,532
2001........................................................................... 90,713
2002........................................................................... 98,511
Thereafter..................................................................... 1,946,812
-------------
$ 2,367,319
-------------
-------------
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THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(3) LEASES
The Company is obligated under various capital leases for certain telephone and duplicating equipment which expire in 2000. The cost and accumulated amortization of equipment held under capital leases at December 31, 1996 and 1997 were as follows:
1996 1997
---------- ---------
Equipment............................................................. $ 60,145 $ 60,145
Accumulated amortization.............................................. (30,195) (42,175)
---------- ---------
$ 29,950 $ 17,970
---------- ---------
---------- ---------
|
The Company also has several noncancellable operating leases for a retail store facility, outlet store facility and certain equipment. Total rental expense for operating leases amounted to $183,292 and $211,707 for the years ended December 31, 1996 and 1997, respectively.
Minimum future payments under capital leases and noncancellable operating leases at December 31, 1997 were as follows:
CAPITAL OPERATING
LEASES LEASES
--------- -------------
1998................................................................................... $ 15,782 $ 259,382
1999................................................................................... 15,782 269,716
2000................................................................................... 6,576 222,748
2001................................................................................... -- 160,886
2002................................................................................... -- 133,286
Thereafter............................................................................. -- 22,214
--------- -------------
Total minimum lease payments........................................................... 38,140 $ 1,068,232
-------------
-------------
Less amount representing interest and administrative costs............................. 4,468
---------
Present value of net minimum lease payments............................................ 33,672
Less current installments of obligations under capital leases.......................... 12,938
---------
Obligations under capital leases, excluding current installments....................... $ 20,734
---------
---------
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(4) COMMON STOCK AND COMMON STOCK OPTIONS
COMMON STOCK
The Company and its stockholders are parties to a buy-sell agreement which imposes certain restrictions on the transferability of the Company's outstanding stock. Under the agreement, most transfers of stock require the approval of stockholders representing at least two-thirds of the outstanding shares of the Company. Any stock offered for resale must first be offered, at the selling price, to the Company and the existing stockholders (see note 8).
THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(4) COMMON STOCK AND COMMON STOCK OPTIONS (CONTINUED) COMMON STOCK OPTIONS
The Company's stock option plan (the "Plan"), adopted on November 13, 1990, provides for the issuance of stock options at a price not less than the fair value of the shares on the date of grant. The options are exercisable for a period not to exceed ten years from the date an option is granted. Following is a summary of stock option activity for the years ended December 31, 1996 and 1997:
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
----------- ------------------
Outstanding at December 31, 1995.................................................. 32,128 $ 27.53
Granted in 1996................................................................... 810 32.50
Exercised in 1996................................................................. (810) 22.50
Forfeited in 1996................................................................. (810) 32.50
-----------
Outstanding at December 31, 1996.................................................. 31,318 27.66
Granted in 1997................................................................... --
Exercised in 1997................................................................. --
Forfeited in 1997................................................................. --
-----------
Outstanding at December 31, 1997 (exercise prices ranging from $22.50 to $32.50
per share)...................................................................... 31,318 27.66
-----------
-----------
|
Prior to October 21, 1997, the Plan included a vesting schedule based on
years of service. Effective October 21, 1997, the Company's Board of Directors
approved the immediate vesting of all
previously unvested options.
Options exercisable at December 31, 1996 and 1997 were 30,022 and 31,318, respectively.
Effective February 28, 1998, the Company adopted The Plow & Hearth, Inc. Amended and Restated Stock Option Plan (the "Amended Plan") to replace the existing November 13, 1990 Plan. The Company canceled the grant of the previously granted options and, simultaneously therewith, granted new options at the same price and for the same number of shares, to the optionholders in accordance with the Amended Plan. Accordingly, the Company recorded compensation expense during the Three Months Ended March 31, 1998 of $3,945,826 (Unaudited) representing the difference between the exercise price of the stock options and the fair value of the common stock on the date of grant. Under the Amended Plan, 31,318 shares of unissued common stock are reserved for the exercise of outstanding stock options and the maximum number of shares of common stock which may be issued and sold under the Amended Plan is 31,318 shares. The new options will expire ten years from the effective date of the Amended Plan and are immediately exercisable.
The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such, compensation expense would be recorded on the date of
THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(4) COMMON STOCK AND COMMON STOCK OPTIONS (CONTINUED) grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, ("SFAS 123") was issued in October 1995 and if fully adopted, changes the methods of recognition of cost on plans similar to those of the Company. Adoption of SFAS 123 is optional; however, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS 123 in 1996 and 1997 are presented below.
The per share weighted average fair value of stock options granted during 1996 was $8.76 on the date of grant using the minimal value option pricing model with the following weighted average assumptions: expected dividend yield 0%, risk-free interest rate of 6.48 percent and an expected life of 5 years.
Had the Company determined compensation cost based on the fair value at the grant date for its stock options granted during 1995 and 1996 under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
1996 1997
------------- -------------
Net income:
As reported................................................... $ 1,257,194 $ 2,217,928
Pro forma..................................................... 1,248,550 2,211,889
|
Pro forma net income reflects only options granted in 1995 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost for options granted prior to January 1, 1995 is not considered.
(5) 401(K) RETIREMENT PLAN
The 401(k) retirement plan covers substantially all employees who meet eligibility requirements and provides an opportunity for employees to make tax deferred contributions with the Company matching, at their discretion, 25 percent of the employees' contribution up to 3 percent of the employees' annual compensation. The Company incurred $11,910 of expense related to the 401(k) retirement plan for the year ended December 31, 1997. No Company contributions were made in 1996.
THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(6) INCOME TAXES
Income tax expense for the years ended December 31, 1996 and 1997 consists of the following:
1996 1997
----------- -------------
Current:
Federal............................................................................. $ 691,407 $ 1,286,847
State............................................................................... 129,695 240,359
----------- -------------
Total current......................................................................... 821,102 1,527,206
----------- -------------
Deferred:
Federal............................................................................. (44,759) (75,945)
State............................................................................... (8,402) (14,257)
----------- -------------
Total deferred........................................................................ (53,161) (90,202)
----------- -------------
Total income tax expense.............................................................. $ 767,941 $ 1,437,004
----------- -------------
----------- -------------
|
Income tax expense for the years ended December 31, 1996 and 1997 differed from amounts computed by applying the U.S. Federal income tax rate of 34 percent to income before income taxes as a result of the following:
1996 1997
----------- -------------
Computed "expected" income tax expense................................................ $ 688,546 $ 1,227,385
Increase (reduction) in income tax expense resulting from:
State income tax expense, net of effect of federal income taxes..................... 80,053 149,227
Nondeductible acquisition costs..................................................... -- 40,284
Other, net.......................................................................... (658) 20,108
----------- -------------
Total income tax expense.............................................................. $ 767,941 $ 1,437,004
----------- -------------
----------- -------------
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THE PLOW & HEARTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997 AND THREE MONTHS ENDED MARCH 31, 1998
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 IS UNAUDITED)
(6) INCOME TAXES (CONTINUED) The tax effects of temporary differences which comprise the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1997 are as follows:
1996 1997
----------- ------------
Deferred tax assets:
Depreciation......................................................................... $ 7,428 $ 9,397
Inventories.......................................................................... 76,705 137,208
Intangible assets.................................................................... 15,486 266
Allowances for returns............................................................... 82,305 151,183
Other................................................................................ 20,111 27,438
----------- ------------
Total gross deferred tax assets........................................................ 202,035 325,492
Less valuation allowance............................................................. -- --
----------- ------------
Net deferred tax assets................................................................ 202,035 325,492
----------- ------------
Deferred tax liabilities:
Deferred catalog costs............................................................... (89,167) (121,613)
Other................................................................................ (5,220) (6,029)
----------- ------------
Total gross deferred tax liabilities................................................... (94,387) (127,642)
----------- ------------
Net deferred tax asset................................................................. $ 107,648 $ 197,850
----------- ------------
----------- ------------
|
The Company has determined that a valuation allowance for the gross deferred tax assets is not necessary at December 31, 1996 and 1997, since substantially all deferred tax assets can be recognized during the carryback period available under current tax laws.
(7) CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentration of credit risk consist of cash equivalents and accounts receivable. The Company's cash equivalents consisted of commercial paper and an overnight repurchase agreement at December 31, 1996 and 1997. The Company's policy is not to hold collateral, and the amount of loss which could be incurred in the event the commercial paper or overnight repurchase agreement failed to perform is equal to the Company's investment in commercial paper and overnight repurchase agreement, less any depository insurance proceeds. Accounts receivable consist principally of trade accounts receivable resulting primarily from credit card sales to customers and receivables for the rental of the Company's mailing list. Concentrations of credit risk with respect to accounts receivable are limited due to the Company's large number of customers and their dispersion throughout geographic regions.
(8) SUBSEQUENT EVENT
On March 9, 1998, certain stockholders of Plow & Hearth executed a stock purchase agreement with 1-800-Flowers, Inc., providing for the purchase of 70 percent, on a fully diluted basis, of the outstanding common stock and common stock options of Plow & Hearth. The transaction is expected to close during April 1998.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 28, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1-800-
FLOWERS.COM, PRO FORMA
INC. AND THE PLOW & ADJUSTMENTS
SUBSIDIARIES HEARTH, INC. (NOTE 2) PRO FORMA
----------------- ------------ ------------ -----------
Net revenues............................................... $ 220,592 $ 37,155 $ -- $ 257,747
Cost of revenues........................................... 136,966 20,118 -- 157,084
----------------- ------------ ------------ -----------
Gross profit........................................... 83,626 17,037 -- 100,663
Operating expenses:
Marketing and sales...................................... 55,417 12,075 -- 67,492
Technology and development............................... 1,794 332 -- 2,126
General and administrative............................... 15,832 4,537 -- 20,369
Depreciation and amortization............................ 4,168 285 735 5,188
----------------- ------------ ------------ -----------
Total operating expenses............................. 77,229 17,229 735 95,175
----------------- ------------ ------------ -----------
Operating income (loss).................................... 6,415 (192) (735) 5,488
Other income (expense):
Interest income.......................................... 1,290 87 -- 1,377
Interest expense......................................... (1,177) (157) (900) (2,234)
Other, net............................................... 1,541 (490) -- 1,051
----------------- ------------ ------------ -----------
1,654 (560) (900) 194
----------------- ------------ ------------ -----------
Income (loss) before income taxes and minority interests... 8,069 (752) (1,635) 5,682
Provision for income taxes................................. 3,181 (291) (342) 2,548
----------------- ------------ ------------ -----------
Income (loss) before minority interests.................... 4,888 (461) (1,293) 3,134
Minority interests in operations of consolidated
subsidiaries............................................. 186 -- 144 330
----------------- ------------ ------------ -----------
Net income (loss).......................................... 5,074 (461) (1,149) 3,464
Redeemable Class C common stock dividends.................. (1,608) -- -- (1,608)
----------------- ------------ ------------ -----------
Net income (loss) applicable to common stockholders........ $ 3,466 $ (461) $ (1,149) $ 1,856
----------------- ------------ ------------ -----------
----------------- ------------ ------------ -----------
Net income (loss) per common share applicable to common
stockholders:
Basic.................................................... $ 0.79 $ 0.42
----------------- -----------
----------------- -----------
Diluted.................................................. $ 0.74 $ 0.40
----------------- -----------
----------------- -----------
Shares used in calculation of net income (loss) per common
share:
Basic.................................................... 4,412 4,412
----------------- -----------
----------------- -----------
Diluted.................................................. 4,661 4,661
----------------- -----------
----------------- -----------
|
SEE ACCOMPANYING NOTES.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 28, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1-800-
FLOWERS.COM, PRO FORMA
INC. AND THE PLOW & ADJUSTMENTS
SUBSIDIARIES HEARTH, INC. (NOTE 2) PRO FORMA
----------------- ------------ ------------ -----------
Net revenues............................................... $ 146,217 $ 37,155 $ -- $ 183,372
Cost of revenues........................................... 91,773 20,118 -- 111,891
----------------- ------------ ------------ -----------
Gross profit............................................. 54,444 17,037 -- 71,481
Operating expenses:
Marketing and sales...................................... 36,089 12,075 -- 50,164
Technology and development............................... 1,128 332 -- 1,460
General and administrative............................... 10,315 4,537 -- 14,852
Depreciation and amortization............................ 2,768 285 735 3,788
----------------- ------------ ------------ -----------
Total operating expenses............................. 52,300 17,229 735 70,264
----------------- ------------ ------------ -----------
Operating income (loss).................................... 2,144 (192) (735) 1,217
Other income (expense):
Interest income.......................................... 812 87 -- 899
Interest expense......................................... (720) (157) (900) (1,777)
Other, net............................................... 1,637 (490) -- 1,147
----------------- ------------ ------------ -----------
1,729 (560) (900) 269
----------------- ------------ ------------ -----------
Income (loss) before income taxes and minority interests... 3,873 (752) (1,635) 1,486
Provision (benefit) for income taxes....................... 1,515 (291) (342) 882
----------------- ------------ ------------ -----------
Income (loss) before minority interests.................... 2,358 (461) (1,293) 604
Minority interests in operations of consolidated
subsidiaries............................................. 38 -- 144 182
----------------- ------------ ------------ -----------
Net income (loss).......................................... 2,396 (461) (1,149) 786
Redeemable Class C common stock dividends.................. (1,206) -- -- (1,206)
----------------- ------------ ------------ -----------
Net income (loss) applicable to common stockholders........ $ 1,190 $ (461) $ (1,149) $ (420)
----------------- ------------ ------------ -----------
----------------- ------------ ------------ -----------
Net income (loss) per common share applicable to common
stockholders:
Basic.................................................... $ 0.27 $ (0.10)
----------------- -----------
----------------- -----------
Diluted.................................................. $ 0.25 $ (0.10)
----------------- -----------
----------------- -----------
Shares used in calculation of net income (loss) per common
share:
Basic.................................................... 4,414 4,414
----------------- -----------
----------------- -----------
Diluted.................................................. 4,675 4,414
----------------- -----------
----------------- -----------
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SEE ACCOMPANYING NOTES.
1-800-FLOWERS.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 28, 1998 AND
THE NINE MONTHS ENDED MARCH 29, 1998
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated statements of operations give effect to the acquisition by 1-800-FLOWERS.COM, Inc. and Subsidiaries ("Flowers") of The Plow & Hearth, Inc. ("P&H") as if it occurred on June 30, 1997. Such unaudited pro forma consolidated financial statements sets forth the historical results of operations of Flowers for the year ended June 28, 1998 and the nine months ended March 29, 1998, as applicable, and P&H for the nine months ended March 29, 1998. The operations of P&H for the three months ended June 28, 1998 are included in the operations of Flowers.
The unaudited pro forma statements of operations have been prepared by management and should be read in conjunction with the historical financial statements of Flowers and P&H. The statements do not purport to be indicative of the results of operations that might have occurred if the P&H acquisition was consummated on June 30, 1997, and do not purport to be indicative of future results.
Management believes additional synergies and operational improvements, not reflected in the accompanying unaudited pro forma consolidated statements of operations, will be realized by the combined companies. Such amounts cannot be reasonably quantified and, therefore, are not reflected in the unaudited pro forma consolidated statements of operations.
2. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflect the additional amortization required for a full year's amortization of the intangibles acquired, additional interest expenses incurred on the borrowings to fund the acquisition and the related tax effects.
UNDERWRITING
1-800-FLOWERS.COM and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Credit Suisse First Boston Corporation and Wit Capital Corporation are the representatives of the underwriters.
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------------- -----------
Goldman, Sachs & Co............................................................
Credit Suisse First Boston Corporation.........................................
Wit Capital Corporation........................................................
-----------
Total....................................................................
-----------
-----------
|
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional shares from 1-800-FLOWERS.COM to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by 1-800-FLOWERS.COM. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
PAID BY 1-800-FLOWERS.COM
NO EXERCISE FULL EXERCISE
------------ -------------
Per Share...... $ $
Total.......... $ $
|
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial offering price, the representatives may change the offering price and the other selling terms.
1-800-FLOWERS.COM and its directors, officers and stockholders have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. This agreement does not apply to any existing employee benefit plans. Please see "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.
At the request of 1-800-FLOWERS.COM, the underwriters have reserved at the initial public offering price up to shares of common stock for sale to certain directors, employees and associates of 1-800- FLOWERS.COM. There can be no assurance that any of the reserved shares will be purchased. The number of shares available for sale to the general public in this offering will be reduced by the number of reserved shares sold. Any reserved shares not so purchased will be offered to the general public on the same basis as the other shares offered hereby.
Prior to this offering, there has been no public market for the shares. The initial public
offering price will be negotiated among 1-800-FLOWERS.COM and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be 1-800-FLOWERS.COM's historical performance, estimates of the business potential and earnings prospects of 1-800-FLOWERS.COM, an assessment of 1-800-FLOWERS.COM's management and the consideration of the above factors in relation to market valuation of companies in related businesses.
A prospectus in electronic format is being made available on an Internet Web site maintained by Wit Capital Corporation. In addition, all dealers purchasing shares from Wit Capital in this offering have agreed to make a prospectus in electronic format available on Web sites maintained by each of these dealers. Other than the prospectus in electronic format, the information on such Web sites and any information contained on any other Web site maintained by Wit Capital Corporation or such dealers is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by 1-800-FLOWERS.COM or any underwriter in such capacity and should not be relied on by prospective investors.
Wit Capital, a member of the National Association of Securities Dealers, Inc., will participate in the offering as one of the underwriters. The National Association of Securities Dealers, Inc. approved the membership of Wit Capital on September 4, 1997. Since that time, Wit Capital has acted as an underwriter, e-Manager or selected dealer in over 65 public offerings. Except for its participation as a manager in this offering, Wit Capital has no relationship with 1-800-FLOWERS.COM, or any of its founders or significant stockholders.
1-800-FLOWERS.COM has applied to list the class A common stock on the Nasdaq National Market under the symbol "FLWS".
In connection with this offering, the underwriters may purchase and sell shares of class A common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the Underwriters of a greater number of shares than they are required to purchase in this offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the class A common stock. As a result, the price of the class A common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
1-800-FLOWERS.COM estimates that the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $ .
1-800-FLOWERS.COM has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary.................... 3
Risk Factors.......................... 8
Cautionary Note Regarding Forward-
Looking Statements.................. 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 35
Management............................ 47
Certain Transactions.................. 52
Principal Stockholders................ 54
Description of Capital Stock.......... 55
Shares Eligible for Future Sale....... 58
Legal Matters......................... 59
Experts............................... 60
Where you Can Find More Information... 60
Index to Financial Statements......... F-1
Underwriting.......................... U-1
|
THROUGH AND INCLUDING , 1999 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTION.
SHARES
1-800-FLOWERS.COM, INC.
CLASS A COMMON STOCK
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
WIT CAPITAL CORPORATION
REPRESENTATIVES OF THE UNDERWRITERS
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the issuance and distribution of the class A common stock being registered.
SEC registration fee............................................. $ 41,700
NASD filing fee.................................................. 15,500
NASDAQ listing fee............................................... *
Legal fees and expenses.......................................... *
Accountants' fees and expenses................................... *
Printing expenses................................................ *
Blue sky fees and expenses....................................... *
Transfer Agent and Registrar fees and expenses................... *
Miscellaneous.................................................... *
---------
Total...................................................... $ *
---------
---------
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* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, or DGCL, makes provision for the indemnification of officers and directors in terms sufficiently broad to indemnify officers and directors under certain circumstances from liabilities (including reimbursement for expenses incurred) arising under the Securities Act. Section 145 of the DGCL empowers a corporation to indemnify its directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers, provided that this provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. The DGCL provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of stockholders or otherwise.
The certificate of incorporation of 1-800-FLOWERS.COM provides for indemnification of our directors against, and absolution of, liability to 1-800-FLOWERS.COM and its stockholders to the fullest extent permitted by the DGCL. 1-800-FLOWERS.COM maintains directors' and officers' liability insurance covering certain liabilities that may be incurred by our directors and officers in connection with the performance of their duties.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information regarding the issuance of the Registrant's securities does not give effect to the recapitalization or subsequent split of its common stock. Pursuant to the Registrant's recapitalization, each share of class A common stock outstanding will be automatically converted into one share of new class B common stock and each share of class B common stock will be automatically converted into one share of new class B common stock. In May 1999, each share of class C common stock was converted into one share of class B common stock and cash. Pursuant
II-1
to the stock split, each share of common stock will be split into a to be determined number of shares. The Registrant has issued the following securities since May 1996:
1. On April 28, 1996, the Registrant issued 76,292 shares of class B common stock to James F. McCann as partial repayment for a debt owed by the Registrant to Mr. McCann.
2. On June 28, 1996, the Registrant issued 8,476.97 shares of class C common stock to James F. McCann as partial repayment for a debt owed by the Registrant to Mr. McCann.
3. From February 3, 1997 to January 18, 1999, the Registrant granted 123,750 options to purchase Class B common stock to 29 employees at exercise prices ranging from $13.00 to $20.00.
4. In May 1999, the Registrant issued 1,127,546 shares of preferred stock for an aggregate amount of $117.6 million. The preferred stock automatically converts into class A common stock upon the closing of the initial public offering.
The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationship with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
INDEX TO EXHIBITS
NUMBER DESCRIPTION
----------- -----------------------------------------------------------------------------
1.1(*) Form of Underwriting Agreement.
3.1(*) Third Amended and Restated Certificate of Incorporation.
3.2(*) Form of Amendment No. 1 to Third Amended and Restated Certificate of
Incorporation to be effective upon the initial public offering.
3.3 Amended and Restated By-laws.
3.4(*) Form of Amendment No. 1 to Amended and Restated By-laws to be effective upon
the initial public offering.
4.1(*) Specimen class A common stock certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the Certificate of
Incorporation and By-laws of the Registrant defining the rights of holders of
Common Stock of the Registrant.
4.3 Form of Warrant.
5.1(*) Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Lease, commencing on May 15, 1998, between 1600 Stewart Avenue, L.L.C and
800-FLOWERS, Inc.
10.2(*) Investment Agreement, dated as of January 16, 1995, among Chemical Venture
Capital Associates, Teleway, Inc. and James F. McCann.
|
II-2
NUMBER DESCRIPTION
----------- -----------------------------------------------------------------------------
10.3* Consent and Amendment No. 1 to Investment Agreement, dated as of May 20,
1999, among Chase Capital Partners, 1-800-FLOWERS.COM, Inc. and James F.
McCann.
10.4 Credit Agreement, dated as of March 19,1999, between 1-800-FLOWERS, Inc. and
The Chase Manhattan Bank.
10.5(+*) Interactive Marketing Agreement, dated as of May 1, 1997, between America
Online, Inc. and 800-FLOWERS, Inc.
10.6(+*) Interactive Marketing Agreement, dated as of January 1, 1998, between America
Online, Inc. and 800-FLOWERS, Inc.
10.7(+*) E-Commerce Merchant Agreement for The Plaza on MSN, with a term start date of
October 21, 1997, between The Microsoft Network, L.L.C. and 800-FLOWERS,
Inc., as amended.
10.8(+*) Sponsorship Agreement, dated as of May 1, 1998, between Excite, Inc. and
800-FLOWERS, Inc.
10.9 [Reserved]
10.10 1997 Stock Option Plan, as amended.
10.11 Stockholders' Agreement, dated as of April 3, 1998, among The Plow & Hearth,
Inc., 1-800-FLOWERS, Inc. and the Persons Set Forth on Schedule A thereto.
10.12(*) Amendment to Stockholders' Agreement, dated as of May 17, 1999, among The
Plow & Hearth, Inc., 1-800-FLOWERS.COM, Inc. and the Persons Set Forth on
Schedule A thereto.
10.13 Employment Agreement, effective as of January 4, 1999, between John W. Smolak
and 1-800-FLOWERS, Inc.
10.14 Employment Agreement, effective as of April 3, 1998, between Peter G. Rice
and 1-800-FLOWERS, Inc.
10.15 Employment Agreement, effective as of January 18, 1999, between Kerry W. Coin
and 1-800-FLOWERS, Inc.
10.16(*) Investors' Rights' Agreement, dated May 20, 1999, among 1-800-FLOWERS.COM,
Inc. James F. McCann, Christopher G. McCann and the Investors listed therein.
10.17(*) Stock Purchase Agreement, dated May 20, 1999, among 1-800-FLOWERS.COM, Inc.,
James F. McCann, Christopher G. McCann and the Investors listed therein.
21.1 Subsidiaries of the Registrant.
23.1(*) Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of KPMG LLP.
24.1 Powers of Attorney (included in the Signature Page).
27.1 Financial Data Schedule for the year ended June 28, 1998.
27.2 Financial Data Schedule for the nine months ended March 28, 1999.
|
(*) To be filed by amendment.
(+) Confidential treatment to be requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act.
II-3
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on this 20th day of May, 1999.
1-800-FLOWERS.COM, INC.
BY: /S/ JAMES F. MCCANN
-----------------------------------------
James F. McCann
CHIEF EXECUTIVE OFFICER
|
POWER OF ATTORNEY
We, the undersigned directors and/or officers of 1-800-FLOWERS.COM, Inc. (the "Company"), hereby severally constitute and appoint James F. McCann and John W. Smolak, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the registration statement on Form S-1 filed with the Securities and Exchange Commission, and any and all amendments to said registration statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated below:
Dated: May 20, 1999 /s/ JAMES F. MCCANN
-------------------------
James F. McCann
Chairman and Chief
Executive Officer
(Principal Executive
Officer)
Dated: May 20, 1999 /s/ JOHN W. SMOLAK
-------------------------
John W. Smolak
Senior Vice
President--Finance and
Administration (Principal
Financial and Accounting
Officer)
|
II-5
Dated: May 20, 1999 /s/ CHRISTOPHER G.
MCCANN
-------------------------
Christopher G. McCann
Director, Senior Vice
President
Dated: May 20, 1999 /s/ T. GUY MINETTI
-------------------------
T. Guy Minetti
Director
Dated: May 20, 1999 /s/ JEFFREY C. WALKER
-------------------------
Jeffrey C. Walker
Director
|
II-6
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of 1-800-FLOWERS.COM, Inc. and subsidiaries (the "Company") as of March 28, 1999, June 28, 1998 and June 29, 1997, and for the nine months ended March 28, 1999 and for each of the three years in the period ended June 28, 1998, and have issued our report thereon dated May 20, 1999 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Melville, New York
May 20, 1999
1-800-FLOWERS.COM, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
---------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS OTHER ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION OF PERIOD AND EXPENSES DESCRIBE DESCRIBE PERIOD
----------------------------------------- ----------- -------------- ----------------- ------------ -----------
Year ended June 28,1998:
Reserves and allowances deducted from
asset accounts:
Reserve for estimated doubtful
accounts--accounts receivable...... $ 509,000 $ 213,000 $ 62,000(c) $ -- $ 784,000
Reserve for estimated doubtful
accounts--notes receivable......... 423,000 170,000 -- -- 593,000
----------- -------------- -------- ------------ -----------
$ 932,000 $ 383,000 $ 62,000 $ -- $1,377,000
----------- -------------- -------- ------------ -----------
----------- -------------- -------- ------------ -----------
Year ended June 29,1997:
Reserves and allowances deducted from
asset accounts:
Reserve for estimated doubtful
accounts--accounts receivable...... $ 359,000 $ 269,000 $ -- $ (119,000)(b) $ 509,000
Reserve for estimated doubtful
accounts--notes receivable......... 185,000 284,000 -- (46,000)(b) 423,000
----------- -------------- -------- ------------ -----------
$ 544,000 $ 553,000 $ -- $ (165,000) $ 932,000
----------- -------------- -------- ------------ -----------
----------- -------------- -------- ------------ -----------
Year ended June 30, 1996:
Reserves and allowances deducted from
asset accounts:
Reserve for estimated doubtful
accounts--accounts receivable...... $ 262,000 $ 289,000 $ -- $ (192,000)(a) $ 359,000
Reserve for estimated doubtful
accounts--notes receivable......... 155,000 30,000 -- -- 185,000
Valuation allowance on deferred tax
assets............................. 150,000 -- -- (150,000)(b) --
----------- -------------- -------- ------------ -----------
$ 567,000 $ 319,000 $ -- $ (342,000) $ 544,000
----------- -------------- -------- ------------ -----------
----------- -------------- -------- ------------ -----------
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(a) Reduction in allowance
(b) Reduction in valuation allowance for deferred tax assets
(c) Increase in reserve
Exhibit 3.3
AMENDED AND RESTATED BY-LAWS
OF
1-800-FLOWERS.COM, INC.
ARTICLE I
CERTIFICATE OF INCORPORATION AND BYLAWS
Section 1. These By-Laws are subject to the Certificate of Incorporation of the Corporation, as amended and restated to date. In these By-Laws, references to law, the Certificate of Incorporation and By-Laws mean the law, the provisions of the Certificate of Incorporation and the By-Laws as from time to time in effect.
ARTICLE II
OFFICES
Section 1. The registered office of the Corporation in the State of Delaware shall be at 15 East North Street, in the city of Dover, State of Delaware 19901. The registered agent at such address shall be Incorporating Services, Ltd.
Section 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors shall be held at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote the directors to be elected at such meeting, and transact such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not fewer than ten (10) nor more than sixty (60) days before the date of the meeting.
Section 4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the chairman of the board or president and shall be called by the chairman of the board, the president or secretary at the request in writing of two-thirds of the Board of Directors.
Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not fewer than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the total number of votes attributable to all shares of capital stock of the Corporation outstanding and entitled to vote thereat (such total number, "Total Voting Power"), present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of voting power of the stock present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the Certificate of Incorporation, each stockholder may vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the Certificate of Incorporation, the Chairman of the Board may adjourn a meeting of stockholders from time to time, without notice other than announcement at the meeting. No notice of the time and place of an adjourned meeting need be given except as required by law.
Section 12.
A. Annual Meetings of Stockholders
1. Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) pursuant to the Corporation's notice of meeting (or any supplement thereto), (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 12, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 12.
2. For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 12, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to the first anniversary of the date of the
preceding year's annual meeting; provided, however, that if either the date of
the annual meeting is more than thirty (30) days before or more than seventy
(70) days after such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director it
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, the text of the proposal or business (including the text of
any resolutions proposed for consideration and in the event that such business
includes a proposal to amend the By-laws of the Corporation, the language of the
proposed amendment), the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner, (ii)
the class and number of shares of capital stock of the Corporation which are
owned beneficially and of record by such stockholder and such beneficial owner,
(iii) a representation that the stockholder is a holder of record of stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such business or nomination, and (iv) a
representation whether the stockholder or the beneficial owner, if any, intends
or is part of a group which intends (a) to deliver a proxy statement and/or form
of proxy to holders of at least the percentage of the Corporation's outstanding
capital stock required to approve or adopt the proposal or elect the nominee
and/or (b) otherwise to solicit proxies from stockholders in support of such
proposal or nomination. The Corporation may require any proposed nominee to
furnish such other information as it may reasonably require to determine the
eligibility of such proposed nominee to serve as a director of the Corporation.
3. Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 12 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 12 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive office of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.
B. Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time notice provided for in
this Section 12 is delivered to the Secretary of the Corporation, who is
entitled to vote at the meeting and upon such election, who complies with the
notice procedures set forth in this Section 12. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder entitled to vote in
such election of directors may nominate a person or persons (as the case may
be), for election to such position(s) as specified in the Corporation's notice
of meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 12 shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the one
hundred
twentieth (120) day prior to such special meeting and not later than the later of (x) the close of business of the ninetieth (90th) day prior to such special meeting or (y) the close of business of the tenth (10th) day following the day on which public announcement is first made of the date of such special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above.
C. General.
1. Only such persons who are nominated in accordance with the procedures set forth in this Section 12 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 12. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, the chairman of the meeting shall have the power and duty (a) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 12 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder's nominee or proposal in compliance with such stockholder's representation as required by clause (A)(2)(c)(iv) of this Section 12) and (b) if any proposed nomination or business was not made or proposed in compliance with this Section 12, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted.
2. For purposes of this Section 12, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 and 15(d) of the Exchange Act.
3. Notwithstanding the foregoing provisions of this Section
12, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth herein. Nothing in this Section 12 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors pursuant
to any applicable provisions of the Certificate of Incorporation.
Notwithstanding any other provision of law, the Certificate of Incorporation or these By-Laws, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of at least 66.67% of Total Voting Power shall be required to amend or repeal, or to adopt any provision inconsistent with, this Section 12.
ARTICLE IV
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article. The Board shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected and qualified.
The Board of Directors shall be classified in accordance with the provisions of
the Corporation's Certificate of Incorporation. Directors need not be
stockholders.
Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by 66.67% of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election at which such director's class is to be elected and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the Total Voting Power, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office.
Section 3. The business of the Corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware.
Section 5. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Members of the Board of Directors may participate in regular or special meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Such participation shall constitute presence in person.
Section 6. Special meetings of the Board may be called by the president or chairman of the board on seven (7) days' notice to each director by mail or forty-eight (48) hours notice to each director either personally or by telecopy; special meetings shall be called by the president or secretary or chairman of the board in like manner and on like notice on the written request of two directors unless the Board consists of only one director, in which case special
meetings shall be called by the chairman of the board or the president or secretary in like manner and on like notice on the written request of the sole director.
Section 7. At all meetings of the board, a majority of the directors fixed by Section 1 shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Unless otherwise restricted by the Certificate of Incorporation of these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.
COMMITTEES OF DIRECTORS
Section 9. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors.
Section 10. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 11. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 12. Any director or the entire Board of Directors may be removed only in accordance with the provisions of the Certificate of Incorporation.
ARTICLE V
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telecopy.
Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the Board of Directors and shall consist of a chief executive officer, chief financial officer, [president,] treasurer and a secretary. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board of Directors may also choose one or more vice-presidents, assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a chief executive officer, [a president,] a treasurer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board.
Section 4. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall be the chief executive officer of the Corporation and shall preside at all meetings of the stockholders and directors. The Chairman shall conduct general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board are carried into effect, subject, however, to the right of the directors to delegate any specific powers, except such as may be by statute exclusively conferred on the Chairman of the Board, to any other officer or officers of the Corporation. The Chairman shall have the general powers and duties of supervision and management usually vested in the office of Chairman of the Board of a corporation. Such individual shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some officer or agent of the Corporation.
THE VICE-PRESIDENTS
Section 7. In the absence of the chief executive officer or in the event of his inability or refusal to act, the vice-president, if any, (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the [president], and when so acting, shall have all the powers of and be subject to all the restrictions upon the [president]. The vice-presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 8. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. Such individual shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of Directors or [president], under whose supervision such individual shall be. Such individual shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature.
Section 9. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 10. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.
Section 11. The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation.
Section 12. If required by the Board of Directors, such individual shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.
Section 13. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the chairman or vice-chairman of the Board of Directors and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation.
If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions or such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such individual were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting (unless expressly disallowed by the Certificate of Incorporation), or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6. No contract or transaction between the Corporation and one or more of the directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because such director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his, her or their votes are counted for such purpose, if:
(1) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee of the Board of Directors, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE IX
AMENDMENTS
These By-Laws may be repealed, altered, amended or rescinded by the stockholders of the Corporation by vote of not less than 66.67% of the Total Voting Power. In addition, in accordance with the Certificate of Incorporation, the Board of Directors may repeal, alter, amend or rescind these By-Laws by vote of 66.67% of the Board of Directors.
Exhibit 4.3
FORM OF WARRANT
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT THEREFOR OR AN APPLICABLE EXEMPTION FROM REGISTRATION. ADDITIONALLY, THE SALE OR TRANSFER OF SUCH SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE INVESTMENT AGREEMENT, DATED AS OF JANUARY 16, 1995, AMONG CHEMICAL VENTURE CAPITAL ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP, TELEWAY, INC. AND A STOCKHOLDER OF TELEWAY, INC., AND NO SALE OR OTHER TRANSFER OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN MET. COPIES OF SUCH AGREEMENT ARE ON FILE AND AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICES OF TELEWAY, INC.
TELEWAY, INC.
Warrant for the Purchase of Shares
of Class B Common Stock
FOR VALUE RECEIVED and subject to the terms and conditions contained herein, Teleway, Inc. hereby certifies that Chemical Venture Capital Associates, a California limited partnership, and its permitted assigns, are entitled to purchase, subject to receipt of all required consents and approvals, from Teleway, Inc. at any time or from time to time during the Exercise Period (as defined below) any or all of the Warrant Shares (as defined below) for the Exercise Price (as defined below). The Exercise Price shall not be subject to adjustment, except as set forth in paragraph 3 hereof.
1. DEFINITIONS.
As used in this Warrant, the following terms have the respective meanings set forth below:
"Additional Shares of Class B Common Stock" shall mean any shares of Class B Common Stock issued by the Company on or after the date hereof, other than shares of Class B Common Stock issued pursuant to this Warrant.
"Aggregate Warrant Price" shall mean, with respect to the exercise of a portion or all of the Warrants, the Exercise Price multiplied by the number of Warrant Shares issuable upon such exercise.
"Appraised Value" shall mean, with respect to any Warrant Shares at a particular date, the fair saleable value of such Warrant Shares (determined without giving effect to any discount for (i) a minority interest, (ii) any lack of voting power or (iii) any lack of
liquidity of the Warrant Shares or to the fact that the Company may have no class of equity securities registered under the Securities and Exchange Act of 1934, as amended), agreed upon by the Holder and the Company or, in the absence of such agreement, determined by an independent investment banking firm of nationally recognized standing (the fees and expenses of which shall be paid by the Company) selected by the Holder and reasonably acceptable to the Company (or, if the Company and the Holder are unable to agree upon an investment banking firm, mutually selected by an investment banking firm selected by the Company and an investment banking firm selected by the Holder).
"Book Value" shall mean, at a particular date, the consolidated book value of the Company as determined in accordance with GAAP as determined by the Company's independent public accountants (the fees and expenses of which shall be paid by the Company) as of the last day of the quarter immediately preceding such date.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in New York City.
"Class B Common Stock" shall mean the Class B Common Stock, par value $.01 per share, of the Company and any capital stock into which such Class B Common Stock may thereafter be changed, and shall also include shares of common stock of any successor or acquiring corporation referred to in paragraph 3(d) received by or distributed to the holders of such capital stock in the circumstances contemplated by paragraph 3(d).
"Closing Date" shall mean the date upon which this Warrant is originally issued.
"Company" shall mean Teleway, Inc., a Delaware corporation, or any successor corporation by merger or consolidation or otherwise.
"Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Shares of Class B Common Stock, either immediately or upon the occurrence of a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Class B Common Stock on any date herein specified, the average of the daily market prices for 30 consecutive Business Days commencing 45 days before such date. The daily market price for each such Business Day shall be (i) the last sale price on such day on the principal stock exchange on which such Class B Common Stock is then listed or admitted to trading, (ii) if no sale takes place on such day on any such exchange, the average of the last reported closing bid and asked prices on such day as officially quoted on any such exchange or, if there is no such bid and asked prices on such day, on the next preceding date when such bid and asked prices occurred, (iii) if the Class B Common Stock is not then listed or admitted to trading on any stock exchange, the average of the last reported closing bid and asked prices on such day in the over-the-counter market, as furnished by the National Association of Securities Dealers Automatic quotation System or the National Quotation Bureau, Inc., (iv) if neither such corporation at the time is engaged in the business of reporting such prices, as furnished by any similar firm then engaged in
such business, or (v) if there is no such firm, as furnished by any member of the National Association of Securities Dealers selected by the Company. If there is no daily market price as described above, the "Current Market Price" shall mean the per share Book Value.
"CVCA" shall mean Chemical Venture Capital Associates, a California limited partnership, and any successor by merger or consolidation or otherwise.
"Exercise Date" shall mean the date on which the Holder exercises this Warrant, in whole or in part.
"Exercise Period" shall mean the period commencing on the Closing Date and ending at 5:00 p.m., New York City time, on the Termination Date.
"Exercise Price" shall mean a price for each Warrant Share equal to $.02, subject to adjustment hereafter pursuant only to the provisions of paragraph 3 of this Warrant.
"Fully Diluted Outstanding" shall mean, when used with reference to Class B Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Class B Common Stock Outstanding at such date and all shares of Class B Common Stock issuable pursuant to options, warrants or other rights to purchase or acquire, or securities convertible into, shares of Class B Common Stock, outstanding on such date (including any Warrant Shares issuable pursuant to this Warrant).
"GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect.
"Holder" shall mean CVCA or any transferee of this Warrant.
"Investment Agreement" has the meaning set forth in
Section 12.
"Outstanding" shall mean, when used with reference to Class B Common Stock, at any time as of which the number of shares thereof is to be determined, all issued shares of Class B Common Stock, except shares then owned or held by or for the account of the Company or any subsidiary of the Company, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Class B Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).
"Termination Date" shall mean the earlier of (i) January 16, 2005, and (ii) the date on which all of the Warrant Shares have been issued to the Holder pursuant to the terms of this Warrant.
"Warrant Shares" shall mean any of the shares of Class B Common Stock issuable upon exercise of this Warrant. The number of Warrant Shares shall initially be _____ shares of Class B Common Stock, subject to adjustment thereafter pursuant only to the provisions of paragraph 3 of this Warrant.
"Warrant Value Per Share" shall mean, with respect to that portion of this Warrant which is exercisable for one Warrant Share, the excess of (a) the Appraised Value of one Warrant Share issuable upon exercise thereof over (b) the Exercise Price.
2. EXERCISE OF WARRANT. This Warrant may be exercised, in whole at any time or in part from time to time, during the Exercise Period, by the Holder by the surrender of this Warrant (with the subscription duly executed) at the address set forth in paragraph 11(a) hereof, together with proper payment of the Exercise Price. Payment of the Exercise Price for the Warrant Shares to be issued shall be made by certified or official bank check payable to the order of the Company. In lieu of payment of all or part of the Aggregate Warrant Price with respect to all or part of the Warrant Shares, the Holder may pay the Exercise Price with respect to such Warrant Shares by surrendering to the Company that portion of this Warrant having an aggregate Warrant Value Per Share on the date of exercise equal to the Aggregate Warrant Price otherwise payable with respect thereto. If this Warrant is exercised in part, this Warrant must be exercised for a whole number of shares of the Class B Common Stock, and the Holder is entitled to receive a new Warrant covering the number of Warrant Shares in respect of which this Warrant has not been exercised. Upon such surrender of this Warrant, the Company will issue a certificate or certificates in the name of the Holder for the number of shares or the Class B Common Stock to which the Holder shall be entitled. The Company shall not be required to issue a fractional share of Class B Common Stock upon any exercise of this Warrant.
3. CERTAIN ADJUSTMENTS. The Exercise Price and the kind and number of shares of Class B Common Stock issuable upon exercise of this Warrant shall be subject to adjustment as set forth below in this paragraph 3. The Company shall give the registered Holder notice of any event described below which requires an adjustment pursuant to this paragraph 3 in accordance with the provisions of paragraph 4.
(A) ADJUSTMENT OF EXERCISE PRICE. From the Closing Date (and subject to such further adjustments, from time to time, pursuant to the other provisions of this paragraph 3), the Exercise Price shall be $.02 per Warrant Share.
(B) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time (other than pursuant to Section 6.6(d) of the Investment Agreement (as defined in Section 12 of this Warrant)) the Company shall:
(i) fix a record date for the purpose of determining the holders of its Class B Common Stock entitled to receive a dividend payable in, or other distribution of, Additional Shares of Class B Common Stock;
(ii) subdivide its outstanding shares of Class B Common Stock into a larger number of shares of Class B Common stock;
(iii) combine its outstanding shares of Class B Common Stock into a smaller number of shares of Class B Common Stock; or
(iv) issue any shares of its capital stock or other securities by reclassification of the Class B Common Stock (other than pursuant to paragraph 3(d) below);
then the Exercise Price shall be proportionately decreased in the case of such a dividend or distribution of Additional Shares of Class B Common Stock or such a subdivision, or proportionately increased in the case of such a combination, or the kind of capital stock or other securities of the Company which may be purchased shall be adjusted in the case of such a reclassification of the Class B Common Stock, each on the record date for such dividend or distribution or effective date of such subdivision, combination or reclassification, as the case may be, such that the Holder shall be entitled to receive, upon exercise of this Warrant, the aggregate number and kind of shares of Class B Common Stock which, if the Warrant had been fully exercised immediately prior to such date, it would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification.
(C) CERTAIN OTHER DIVIDENDS AND DISTRIBUTIONS. If at any time the Company shall fix a record date for the purpose of determining the holders of its Class B Common Stock entitled to receive any dividend or other distribution (including any such distribution made in connection with a consolidation or merger, but excluding any distribution referred to in subparagraph (b) above) of:
(i) any evidences of indebtedness, any shares of its capital stock (including Convertible Securities but excluding Class B Common Stock) or any other securities or property of any nature whatsoever; or
(ii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of its stock (including Convertible Securities) or any other of its securities or its property of any nature whatsoever (other than normal cash dividends or cash distributions permitted under applicable law);
then the Exercise Price shall be adjusted to equal the Exercise Price in effect prior to such distribution or dividend multiplied by a fraction, (1) the numerator of which shall be (A) the Current Market Price per share of the Class B Common Stock on such record date minus (B) the amount allocable to one share of Class B Common Stock of the fair value (as determined in good faith by the Board of Directors of the Company and supported by an opinion from an investment banking firm of nationally recognized standing approved by the Holder, which approval shall not be unreasonably withheld) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (2) the denominator of which shall be such Current Market Price per share of Class B Common Stock. Such adjustments shall be made whenever such a record date is fixed. A reclassification of the Class B Common Stock (other than a change in par value, or from par value to no par
value or from no par value to par value) into shares of Class B Common Stock and shares of any other class of stock shall be deemed a distribution by the Company to the holders of its Class B Common Stock of such shares of such other class of stock within the meaning of this subparagraph (c) and, if the outstanding shares of Class B Common Stock shall be changed into a larger or smaller number of shares of Class B Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstandinq shares of class B Common Stock within the meaning of subparagraph (b).
(D) CONSOLIDATION OR MERGER. In the case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Holder an agreement that the Holder shall have the right thereafter upon payment of the Exercise Price in effect immediately prior to such action to purchase upon exercise of the warrant the kind and amount of shares and other securities and property that it would have owned or have been entitled to receive after the happening of such consolidation, merger, sale or conveyance had such warrant been exercised immediately prior to such action. In no event shall the Holder be entitled to receive upon exercise of the Warrant shares of the surviving corporation unless each other holder of Class B Common Stock of the Company shall also receive shares of such surviving corporation in such merger, consolidation, sale or conveyance. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this paragraph 3. The provisions of this subparagraph (d) shall similarly apply to successive consolidations, mergers, sales or conveyances.
(E) ISSUANCE OF SHARES, WARRANTS OR OTHER RIGHTS. Except for the issuance (i) upon exercise of employee stock options of shares of Class B Common Stock in amounts not in excess of the number of such shares referred to in section 7.3(a) of the Investment Agreement or as permitted by Section 6.6(d), (ii) to CVCA pursuant to the exercise of rights set forth, in Section 7.3 of the Investment Agreement and (iii) pursuant to Section 7.9(b)(i) of the Investment Agreement, if at any time the Company shall issue or sell to any Person any Additional Shares of Class B Common Stock, or warrants or other similar rights to subscribe for or purchase any Additional Shares of Class B Common Stock or Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable (but excluding any distributions in subparagraphs (b) or (c) above), and the price per share of such Class B Common Stock or for which Class B Common Stock is issuable upon the exercise of such warrants or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Current Market Price in effect immediately prior to the time of such issue or sale, then the Exercise Price shall be adjusted to equal the Exercise Price multiplied by a fraction (i) the numerator of which shall be equal to the sum of (A) the number of shares of Class B Common Stock Outstanding immediately prior to the issuance of such Additional Shares of Class B Common Stock and (B) the number of shares of Additional Shares of Class B Common Stock which the aggregate consideration received for the total number of Additional Shares of Class B Common Stock issued would purchase at the Current Market Price and (ii) the denominator of which shall be the number of shares
of Class B Common Stock Outstanding after the issuance of such
Additional Shares of Class B Common Stock. In the case of the
issuance or sale of warrants or other rights or Convertible
Securities, such adjustment shall be made on the basis that
(i) the maximum number of Additional Shares of Class B Common
Stock issuable pursuant to all such warrants or other similar
rights or necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been
issued and outstanding, (ii) the price per share for such
Additional Shares of Class B Common Stock shall be deemed to
be the lowest possible price per share in any range of prices
per share at which such Additional Shares of Class B Common
Stock are available to such holders, and (iii) the Company
shall be deemed to have received all of the consideration
payable therefor, if any, as of the date of the actual
issuance of such warrants or other similar rights. No further
adjustments of the Exercise Price shall be made upon the
actual issue of such Class B Common Stock upon exercise of
such warrants or other similar rights or upon the actual issue
of such Class B Common Stock upon such conversion or exchange
of such Convertible Securities. For the purposes of this
subparagraph (e), the date as of which the Current Market
Price of Class B Common Stock shall be computed shall be the
earliest of (i) the date on which the Company shall enter into
a firm contract for the issuance of such warrants or other
similar rights or (ii) the date of actual issuance of such
warrants or other similar rights. Such adjustments shall be
made upon the date of the issuance of sale of such warrants or
other similar rights.
(F) ISSUANCE OF CONVERTIBLE SECURITIES. Except for the
issuance of employee stock options for shares of Class B
Common Stock in amounts not in excess of the number of such
shares referred to in Sections 7.3(a) and 6.6(d) of the
Investment Agreement and for issuances of warrants pursuant to
Section 7.3 or 7 9(b)(i) of the Investment Agreement, if at
any time the Company shall issue or sell to any Person any
Convertible Securities (other than securities distributed in a
transaction described in subparagraphs (c) and (e) above),
whether or not the rights to exchange or convert thereunder
are immediately exercisable, and the price per share for which
Class B Common Stock is issuable upon such conversion or
exchange shall be less than the Current Market Price in effect
immediately prior to the time of such issue or sale, then the
Exercise Price shall be adjusted as provided in subparagraph
(e) above on the basis that (i) the maximum number of
Additional Shares of Class B Common Stock necessary to effect
the conversion or exchange of all such Convertible Securities
shall be deemed to have been issued and outstanding, (ii) the
price per share of such Additional Shares of Class B Common
Stock shall be deemed to be the lowest possible price in any
range of prices at which such Additional Shares of Class B
Common Stock are available to such holders, and (iii) the
Company shall be deemed to have received all of the
consideration payable therefor, if any, as of the date of
actual issuance of such Convertible Securities. No adjustment
of the Exercise Price shall be made under this subparagraph
(f) upon the issuance of any Convertible Securities which are
issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance
of such warrants or other rights pursuant to subparagraph (e)
above. No further adjustments of the Exercise Price shall be
made upon the actual issue of such Class B Common Stock upon
conversion or exchange of such Convertible Securities and, if
any issue or sale of such Convertible Securities is made upon
exercise of any warrant or other right to subscribe for or to
purchase any such
Convertible Securities for which adjustments of the Exercise Price have been or are to be made pursuant to other provisions of this paragraph 3, no further adjustments of the Exercise Price shall be made by reason of such issue or sale. For the purposes of this subparagraph (f), the date as of which the Exercise Price of Class B Common Stock shall be computed shall be the earliest of (i) the date on which the Company shall enter into a firm contract for the issuance of such Convertible Securities or (ii) the date of actual issuance of such Convertible Securities. Such adjustments shall be made upon each issuance of Convertible Securities and shall become effective immediately after such issuance.
(G) SUPERSEDING ADJUSTMENT. If, at any time after any adjustment to the Exercise Price shall nave been made pursuant to subparagraphs (d), (e) or (f) above as the result of any issuance of warrants, rights or Convertible Securities, and either
(i) such warrants or rights, or the right of conversion or exchange in any other Convertible Securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised; or
(ii) the consideration per share for which shares of Class B Common Stock are issuable pursuant to such warrants or rights, or the terms of such other Convertible Securities, shall be increased solely by virtue of provisions therein contained for an automatic increase in such consideration per share upon the occurrence of a specified date or event;
then such previous adjustment shall be rescinded and annulled and the Additional Shares of Class B Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other Convertible Securities on the Exercise Price on the basis of
(iii) treating the number of Additional shares of Class B Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor; and
(iv) treating any such warrants or rights or any such other Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Class B Common Stock or other property are issuable under such warrants or rights or other Convertible Securities.
(H) ADUSTMENT OF NUMBER OF WARRANT SHARES. Upon each adjustment of the Exercise Price, as the case may be, pursuant to subparagraph (b), (c), (e), (f) or (g)
of this paragraph 3, this Warrant shall be deemed to evidence the right to purchase, at the adjusted Exercise Price, that number of shares of Class B Common Stock obtained by multiplying the number of shares of Class B Common Stock covered by the Warrant immediately prior to such adjustment by the Exercise Price in effect prior to such adjustment and dividing the product so obtained by the Exercise Price in effect after such adjustment.
(I) WHEN ADJUSTMENTS TO BE MADE. No adjustment in the Exercise Price shall be required by this paragraph 3 if such adjustment either by itself or with other adjustments not previously made would require an increase or decrease of less than 1% in such price. Any adjustment representing a change of less than such minimum amount which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this paragraph 3 and not previously made, would result in a minimum adjustment. Notwithstanding the foregoing, any adjustment carried forward shall be made no later than ten Business Days prior to the Termination Date. All calculations under this subparagraph (i) shall be made to the nearest cent. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.
(J) FRACTIONAL INTERESTS. In computing adjustments under this paragraph 3, fractional interests in Class B Common Stock shall be taken into account to the nearest whole share.
(K) WHEN ADJUSTMENTS NOT REQUIRED. If the Company shall fix a record date for the purpose of determining the holders of its Class B Common Stock entitled to receive a dividend or distribution and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.
(L) CERTAIN LIMITATIONS. Subject to the provisions of paragraph 6, there shall be no adjustment of the Exercise Price hereunder to the extent that such adjustment would cause the Exercise Price to be less than the par value per share of the Class B Common Stock, which par value shall not at any time while this Warrant is outstanding exceed $.01.
4. NOTICES OF ADJUSTMENTS. Whenever the Exercise Price or the number of Warrant Shares shall be adjusted pursuant to paragraph 3, the Company shall forthwith deliver to the Holder a certificate prepared by the Company, setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which the Board of Directors of the Company determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights), specifying the number of Warrant Shares then issuable hereunder, the Exercise Price after giving effect to such adjustment and (if such adjustment was made pursuant to paragraph 3(b)) describing the number and kind of any other shares of stock for which the Warrant is exercisable. In the
event that the Holder shall disagree with any such adjustment or with the terms of any new agreement to be entered into pursuant to paragraph 3(d), it shall notify the Company thereof and any disagreement shall be resolved by an investment banking firm of nationally recognized standing mutually agreeable to the Company and the Holder, or if the Company and the Holder are unable to agree upon an investment banking firm, an investment banking firm selected by an investment banking firm chosen by the Company and an investment banking firm chosen by the Holder.
5. RESERVATION OF WARRANT SHARES. The Company agrees that, upon commencement of the Exercise Period and prior to the expiration of this Warrant, the Company will at all times have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of the Class B Common Stock and other securities and properties as from time to time shall be receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer and free and clear of all preemptive rights.
6. FULLY PAID STOCK; TAXES. The shares of Class B Common Stock represented by each and every certificate for Warrant Shares delivered on the exercise of this Warrant shall, at the time of such delivery, be validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights, and the Company will take all such actions as nay be necessary to assure that the par value or stated value, if any, per share of the Class B Common Stock is at all times equal to or less than the then Exercise Price (after giving effect to all adjustments thereto notwithstanding the provisions of paragraph 3(1)). The Company further covenants and agrees that it will pay, when due and payable, any and all federal and state stamp, original issue or similar taxes which may be payable in respect of the issuance of any Warrant Shares or certificate therefor.
7. TRANSFERABILITY. This warrant is not transferable or assignable by the Holder (other than to a majority-owned subsidiary or the Holder). Any such permitted transfer or assignment may only be effected in accordance with applicable securities laws or pursuant to exemptions therefrom. The Company may treat the registered holder of this Warrant as it appears on the Company's books at any time as the Holder for all purposes.
8. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity or bond reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of the like date, tenor and denomination.
9. HOLDERS RIGHTS AS A STOCKHOLDER. This Warrant shall not confer upon the Holder the right to vote or to consent to or receive notice as a stockholder of the Company, as such.
10. SURRENDER. The Holder may at any time surrender all or a portion of this Warrant for cancellation by transmitting same to the Company at its address set forth elsewhere herein accompanied by a written notice setting forth the Holders intentions to surrender the
Warrant (or such portion) for cancellation and upon such transmittal by the Holder, this Warrant (or such portion) shall become null and void and of no further force and effect.
11. NOTICES. Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
(a) the Company at 1600 Stewart Avenue, Westbury, New York 11590, Attention: James F. McCann or Glenn Reed; or
(b) the Holder at , Attention: .
or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three Business Pays after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, approval, declaration, delivery or other communication to the person designated above to receive a copy shall in no way adversely affect the effectiveness of such notice, demand, request, approval, declaration, delivery or other communication.
12. INVESTMENT AGREEMENT. The Holder, the Company and certain stockholders of the Company have entered into an Investment Agreement, dated as of January 16, 1995 (as amended, supplemented or otherwise modified from time to time, the "Investment Agreement"), which includes certain provisions relating to this warrant and the Warrant Shares.
13. MISCELLANEOUS.
(a) REMEDIES. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. Accordingly, it is agreed that the Holder shall be entitled to an injunction, restraining order or other equitable relief to prevent breaches of this Warrant and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction in the United States or any state thereof, Such remedies shall be cumulative and non-exclusive and shall be in addition to any other rights and remedies the parties may have under this Warrant.
(b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of this Warrant enter into any agreement with respect to its securities which is inconsistent with the rights granted to The Holder in this Warrant or otherwise conflicts with the provisions hereof. The rights granted to the Holder hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any such agreements.
(c) SUCCESSORS AND ASSIGNS. Subject to the provisions of paragraph 7 hereof, this Warrant shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Warrant Shares.
(d) SEVERABILITY. In the event that any one Or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.
(e) AMENDMENTS AND WAIVERS. The provisions of this Warrant, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of the Holder.
(f) ENTIRE AGREEMENT. The provisions of this Warrant are intended by the parties as a final expression of their agreement and are intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, agreements, warranties, or undertakings, other than those set forth or referred to herein, including with respect to the registration rights granted by the Company with respect to the Warrant Shares.
(g) HEADINGS. The headings of this Warrant have been inserted as a matter of convenience and shall not affect the construction hereof.
(h) APPLICABLE LAW. This Warrant shall be governed by and construed in accordance with the laws of the State Of New York. Each party hereto agrees to submit to the non-exclusive jurisdiction of the courts of the City of New York in the State of New York in any action or proceeding arising out of or relating to this Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its President thereunto duly authorized.
DATED:
TELEWAY, INC.
Title:
ACCEPTED BY:
CHEMICAL VENTURE CAPITAL ASSOCIATES,
A CALIFORNIA LIMITED PARTNERSHIP
SUBSCRIPTION
The undersigned, ________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase shares of the Class B Common Stock of, TELEWAY, INC., covered by said Warrant, and makes payment therefor in full at the price per share provided by said warrant.
Dated: _________________, 199_ ________________________________________
(Signature)
ASSIGNMENT
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto the foregoing Warrant and all rights evidenced thereby and does irrevocably constitute and appoint , attorney, to transfer said Warrant of the books of TELEWAY, INC.
Dated: _________________, 199_ ________________________________________
(Signature)
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, hereby assigns and transfers unto the right to purchase shares of the Class B Common Stock of TELEWAY, INC. by the foregoing Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint , attorney, to transfer said warrant on the books of TELEWAY, INC.
Dated: _________________, 199_ ________________________________________
(Signature)
EXHIBIT 10.1
1600 STEWART AVENUE, L.L.C.
Landlord,
and
800-FLOWERS, INC.
Tenant,
LEASE
Premises known as Suites 408, 500 and 700
in the Building known as
1600 Stewart Avenue
Westbury, New York 11590
LEASE dated this ______ day of May, 1998, between 1600 STEWART
AVENUE, L.L.C., a Delaware limited liability company ("Landlord"), having its
offices at c/o Oaktree Capital Management, LLC, 550 South Hope Street, 22nd
Floor, Los Angeles, California 90071, Attn: Michael A. Halperin, and
800-FLOWERS, INC. ("Tenant"), having its offices at 1600 Stewart Avenue, Suite
700, Westbury, New York 11590.
WITNESSETH:
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
Basic Lease Provisions and Definitions
1.01. Term: The term of this lease shall commence on May 15, 1998
(the "Commencement Date" or "Rent Commencement Date") and shall end on May 31,
2005, or sooner, pursuant to the other terms, covenants and conditions of this
lease.
A "Lease Year" shall comprise a period of twelve consecutive months,
except the first Lease Year shall commence on May 15, 1998 and shall end on May
31, 1999. Each succeeding Lease Year shall end on the anniversary date of the
last day of the first Lease Year.
Fixed Rent: Commencing on May 15, 1998, and thereafter on the first
day of each and every month hereof, Tenant shall pay in equal monthly
installments, without notice, demand, offset or abatement, except as
specifically set forth herein, to the Landlord at the address of the Landlord
hereinabove set forth or at such other place as LANDLORD may designate, a Base
Annual Fixed Rent of Eighteen and 90/100 ($18.90) Dollars per rentable square
foot for the first lease year, which aggregate amount shall be increased by Four
(4%) per cent on the first day of each Lease Year during the term of this lease
("Fixed Rent"), as follows:
1. For the first Lease Year, the fixed annual rent is
$1,340,558.10, which is payable in equal monthly installments of $111, 713.18.
2. For the second Lease Year, the fixed annual rent is
$1,394,180.42, which is payable in equal monthly installments of $116,181.71.
3. For the third Lease Year, the fixed annual rent is $1,
449,947.64, which is payable in equal monthly installments of $120,828.97.
4. For the fourth Lease Year, the fixed annual rent is
$1,507,945.56, payable in equal monthly installments of $125,662.13.
5. For the fifth Lease Year, the fixed annual rent is
$1,568,263.38, payable in equal monthly installments of $130,688.62.
6. For the sixth Lease Year, the fixed annual rent is
$1,630,993.98, payable in equal monthly installments of $135,916.16.
7. For the seventh Lease Year, the fixed annual rent is
$1,696,233.68, payable in equal monthly installments of $141,352.81.
The Fixed Rent as set forth in sub paragraphs (1) through (7)
immediately above does not include increases of Additional Rent, as hereinafter
defined, including, but not limited to, pro-rata increases in taxes, insurance
and ground lease payments as provided hereinafter.
In the event the Rent Commencement Date shall be a day other than
the first day of the month, then the fractional rent, if any, from the Rent
Commencement Date to the first day of the following month shall be paid by
Tenant to Landlord within five (5) days after the Rent Commencement Date. Tenant
has deposited with Landlord upon the signing of this lease the rent in for the
period May 15, 1998 through June 30, 1998, in the amount of $92,580.93, which
sum represents the rent provided for in this lease for said period less a credit
for the rent pre-paid under the prior lease, in the amount of $60,294.09.
Notwithstanding, the provisions of this Section 1.01, provided
Tenant is not in default hereunder, beyond any applicable cure period, Tenant
shall receive a rent credit, in the total amount of $565,709.30, in nine (9)
equal monthly installments of $62,856.59 (which amount is a credit of one-half
of the Fixed Rent due during the period July 1, 1998 through March 31, 1999 plus
an additional credit, in the amount of $63,000.00, spread over the nine (9)
month period).
Landlord and Tenant agree that as of the Commencement Date, Tenant
will not be in possession of 6,220 square feet on the seventh floor.
Accordingly, the Fixed Rent attributable to that portion of the Demised
Premises, in the amount of $9,796.50 per month, shall be abated until such time
as such space is delivered to Tenant. Tenant agrees that Fixed Rent for the
portion of the Demised Premises delivered to Tenant after the Commencement Date
shall become due as of the date of delivery of possession of such premises to
Tenant in a vacant, broom clean condition, free of all fixtures and furnishings,
and shall be paid by Tenant to Landlord within five (5) days after demand
therefore. Any amount so paid by Tenant in excess of the actual rent due shall
be credited against the next due rent payment(s).
Parking Spaces: Landlord agrees that the parking area as set forth
on Exhibit B containing approximately 264 parking spaces, shall be designated
for the exclusive use of Tenant (the "Designated Parking Area"). In addition,
Tenant shall receive twenty (20) reserved parking spaces outside of the
Designated Parking Area. Tenant and its employees shall use the Designated
Parking Area exclusively. Tenant's employees may not use the unreserved spaces
in the parking lot adjoining the Building, however its customers, invitees and
other visitors may use the visitors parking in common with the other tenants of
the Building. Landlord shall have no obligation to insure exclusive use of the
Designated Parking Area or reserved parking spaces by Tenant. Tenant shall have
the right, at Tenant's sole cost and expense, to mark the Designated Parking
Area and otherwise enforce Tenant's exclusive right to use the Designated
Parking Area. Landlord agrees to cooperate with Tenant in regard to such
enforcement, including, but not limited to Tenant's right to post signs and to
have illegally parked cars towed from the Designated Parking Area. Should Tenant
desire to do so, it may arrange for off-site parking for its employees during
all holiday periods and peak seasonal sales periods whereupon Landlord shall
provide any necessary and reasonable on-site assistance.
Permitted Use: Tenant shall use the space on the fourth, fifth and
seventh floors for General Offices and for no other purpose. General Offices
shall include, but is not limited to, telemarketing, professional training and
product development. In addition, Landlord grants to Tenant a license to use a
portion of the lobby area of the Building for the retail sale and display of
flowers, plants, gifts and related items.
Real Estate Tax Base: The General Taxes for the tax year commencing
January 1, 1998 and ending December 31, 1998; and the School Taxes for the
period commencing July 1, 1998 and ending June 30, 1999.
Rentable Area of Demised Premises: Agreed upon by Landlord and
Tenant to contain 70,929 rentable square feet in a building of 213,690 rentable
square feet. However, in the event the final approved plans differ from the
foregoing, the Fixed Rent shall be adjusted accordingly.
Security Deposit: None.
Tenant's Proportionate Share: 33.19%
1.01 (b) Definitions. As used herein, the following terms shall have
the meanings set forth below:
Addresses for Notices:
LANDLORD: TENANT: 1600 Stewart Avenue, L.L.C. 800-Flowers, Inc. c/o Oaktree Capital 1600 Stewart Ave. Management, LLC Westbury, New York 11590 c/o Oaktree Capital Attn: Brian McGee Management, LLC 550 South Hope Street, 22nd Floor Los Angeles, California 90071 |
Attn: Michael A. Halperin
with a copy to: with a copy to:
1600 Stewart Avenue, L.L.C. Gallagher, Walker & Bianco
450 Lexington Avenue 98 Willis Avenue
Suite 1600 Mineola, New York 11501
New York, New York 10017 Attn: Gerard M. Gallagher,
Attn: Marc Porosoff, Esq. Esq.
|
Address for Payments: All payments under this Lease shall be payable
and delivered to:
1600 Stewart Avenue, L.L.C.
CB Commercial Real Estate Group, Inc.
1600 Stewart Avenue, Suite 210
Westbury, New York 11590
or to such other persons or address that Landlord or a Court of competent
jurisdiction may designate in writing from time to time.
Broker: Island Realty Service Group, Inc.
Building: The office building known as and by street address 1600
Stewart Avenue, Westbury, New York (the "Building").
Landlord: Only the owner at the time in question of the Building or
a lease of the Building, so that in the event of any transfer of title to the
Building or of Landlord's interest in a lease of the Building, the transferor
shall be and hereby is relieved and freed of all obligations of Landlord under
this Lease accruing after such transfer, and it shall be deemed without further
agreement that such transferee has assumed and agreed to perform and observe all
obligations of Landlord herein during the period it is the holder of Landlord's
interest under this Lease.
Landlord's Agents: The agents, contractors, members, partners,
shareholders, officers, directors, fiduciaries and employees of Landlord.
Managing Agent: CB Commercial Real Estate Group Inc., 200 Garden
City Plaza, Garden City, New York 11530, or such other party as Landlord may
hereafter designate by notice to Tenant.
Property: All of the land and improvements thereon, known as and by
the street number 1600 Stewart Avenue, Westbury, New York 11590.
Repair: The term "repair" shall be deemed to include restoration and
replacement as may be necessary to achieve, and maintain good working order and
condition.
Tenant's Agents: The agents, contractors, members, partners,
shareholders, officers, directors, fiduciaries and employees of Tenant.
Tenant's Property: The furniture and furnishings of Tenant and the
following which are furnished and installed by or for Tenant without expense to
Landlord and without any allowance or credit to Tenant; movable partitions,
chandeliers and other hanging, standing or projecting special lighting fixtures,
special cabinet work, other business and trade fixtures, business machines,
business equipment and communications equipment, whether or not attached to or
built into the Demised Premises and which can be removed without permanent
structural damage to, or permanent defacement of, the Building.
ARTICLE 2
Demise, Term and Rent
2.01. Demise. Landlord hereby leases to Tenant, and Tenant hereby
hires from Landlord, upon and subject to the terms, covenants, provisions and
conditions of this Lease, the Demised Premises. For the purposes of this Lease,
the "Demised Premises" is the suites designated as number 408 on the fourth
floor of the Building containing 6,335 rentable square feet and the entire fifth
and seventh floors of the Building, each containing 32,297 rentable square feet.
2.02. Term. The term of this Lease (herein called the "Term") shall
commence on May 15, 1998 and shall end at midnight on May 31, 2005 (herein
called the "Expiration Date"), or on such earlier date upon which the Term shall
expire or be canceled or terminate pursuant to any of the conditions or
covenants of this Lease or pursuant to law.
2.03. Rent. The rents reserved under this Lease, which shall be
payable throughout the Term commencing with the Rent Commencement Date, shall
consist of (a) the Fixed Rent set forth in Article 1 hereof, less any applicable
rent credit, which shall be payable in equal monthly installments in advance on
the first day of each and every calendar month during the Term (except that
Tenant shall pay, upon the execution and delivery of this Lease by Tenant, the
first installment of Fixed Rent becoming due under this Lease), and (b)
additional rent (herein called "Additional Rent") consisting of all other sums
of money as shall become due from and payable by Tenant to Landlord hereunder
for non-payment for which Landlord shall have the same remedies as for a default
in the payment of Fixed Rent, all to be paid in lawful money of the United
States to Landlord at the Address for Payments set forth in Article 1 hereof, or
to such other person and/or at such other place as Landlord may designate by
notice to Tenant. (Fixed Rent and Additional Rent are herein sometimes
collectively called "Rent").
2.04. No Setoff. Tenant shall pay Fixed Rent and Additional Rent
promptly when due without notice or demand therefor and without any abatement,
deduction or setoff for any reason whatsoever, except as may be expressly
provided in this Lease.
ARTICLE 3
Preparation of Premises
3.01. Landlord's and Tenant's Work. Except as expressly provided to
the contrary in this Lease, Tenant is hiring the Demised Premises "as-is" on the
date hereof, except for reasonable wear and tear.
In consideration thereof, Tenant shall receive a budget of $15.00
per usable square foot of the Demises Premises. Tenant shall install doors,
vents, demising walls and install any and all other improvements required to
conform the Demised Premises to municipal code and/or deemed desirable by
Tenant. Tenant shall, at its sole cost and expense, obtain a space plan,
specifications and any other materials necessary for "bid" of the improvements.
Tenant shall have the right to bring in a contractor of Tenant's selection,
subject to Landlord's
reasonable approval, however, Landlord shall have fourteen (14) days from the
date of receipt of the bid from Tenant's contractor, to match the bid of
Tenant's contractor and assume the obligation to complete the work.
Notwithstanding the foregoing, Tenant shall have the right to select a
contractor for installation of Tenant's phone and computer wiring within the
Demised Premises provided same does not effect the Building's systems.
All amounts due to Tenant hereunder shall be paid to Tenant by
Landlord within thirty (30) days after Tenant delivers proof that the work has
been completed together with a release of lien from the contractor and/or
supplier for whose work/materials the Tenant is receiving payment from Landlord.
ARTICLE 4
Use
4.01. Tenant's Business. Tenant shall use and occupy the Demised
Premises for the Permitted Use set forth in Article 1 hereof, and for no other
purpose.
4.02. Permits. If any governmental license or permit, other than a
Certificate of Occupancy, shall be required for the proper and lawful conduct of
Tenant's business in the Demised Premises, or any part thereof, Tenant, at its
expense, shall duly procure and thereafter maintain such license or permit and
submit the same to inspection of Landlord. Tenant shall at all times comply with
the terms and conditions of each such license or permit.
4.03. Restrictions. Tenant shall not at any time use or occupy, or
suffer or permit anyone to use or occupy, the Demised Premises, or do or permit
anything to be done in the Demised Premises, in any manner (a) which violates
the Certificate of Occupancy for the Demised Premises or for the Building; (b)
which causes or is liable to cause injury to the Building or any equipment,
facilities or systems therein; (c) which constitutes a violation of the laws and
requirements of any public authorities or the requirements of insurance bodies;
(d) which impairs or tends to impair the character, reputation or appearance of
the Building as a first-class office building; (e) which impairs or tends to
impair the proper and economic maintenance, operation and repair of the Building
and/or its equipment, facilities or systems; (f) which annoys or inconveniences
other tenants or occupants of the Building; or (g) which increases pedestrian
traffic in and out of the Demised Premises or the Building above a reasonable
level.
ARTICLE 5
Subordination
5.01. This lease is subject and subordinate in all respects to all
ground leases and/or underlying leases, to mortgages of record regardless of the
holder, and to all future first mortgages from an Institutional Lender, (which
term shall mean a savings bank, bank or trust company (whether for its own
account or as a fiduciary), savings and loan association, pension trust,
insurance company or educational institution, organized or existing under the
laws of the United States or any state in the United States) including a trust
indenture which is a first lien
and is executed in connection with an industrial revenue financing, which may
now or hereafter be placed on or affect such leases and/or the real property of
which the Demised Premises form a part, or any part or parts of such real
property, and/or Landlord's interest or estate therein, and to each advance made
and/or hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor (collectively, the "superior mortgages"). This Article
5.01 shall be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant shall execute and
deliver promptly any certificate that Landlord and/or any mortgagee and/or the
lessor under any ground or underlying lease and/or their respective successors
in interest may request.
5.02. Without limitation of any of the provisions of this lease, in
the event that any holder of any of the superior mortgages or its assigns shall
succeed to the interest of Landlord in foreclosure or by deed in lieu of
foreclosure or of any successor-Landlord and/or shall have become lessee under a
new ground or underlying lease, then, at the option of such holder, this lease
shall nevertheless continue in full force and effect and Tenant shall and does
hereby agree to attorn to such holder or its assigns and to recognize such
holder or its respective assigns as its Landlord. However, provided the holder
honors all the terms of this lease, Tenant acknowledges said holder shall not:
(i) be liable for any previous act or omission of Landlord unrelated
to the terms of this lease;
(ii) be subject to any offset at law or in equity, not expressly
provided for in this lease, that shall have theretofore accrued to the Tenant
against the Landlord hereunder; or
(iii) be bound by any previous modification of said lease not
expressly provided for herein, or by any previous prepayment of more than one
month's Fixed Rent or any additional rent then due, unless such modification or
prepayment shall have been expressly approved in writing by such holder through,
or by reason of which, such holder shall have succeeded to the rights of the
Landlord hereunder;
5.03. Tenant shall, at any time and from time to time upon not less
than thirty (30) days prior notice by Landlord, execute, acknowledge and deliver
to Landlord a statement in writing certifying that this lease is unmodified and
in full force and effect (or if there have been modifications, that the same is
in full force and effect as modified and stating the modification) and the dates
to which the rent, additional rent and other charges have been paid in advance,
if any, and stating whether or not to the best knowledge of the signer of such
certificate Landlord is in default in performance of any covenant, agreement,
term, provision or condition contained in this lease, and if so, specifying each
such default of which the signer may have knowledge, it being intended that any
such statement delivered pursuant hereto may be relied upon by any prospective
purchaser or lessee of said real property or any interest or estate therein or
any prospective assignee of any mortgage thereof. If, in connection with
obtaining financing for the Building and the land allocated to it, a banking,
insurance or other recognized institutional lender shall request reasonable
modifications in this lease as condition to such financing, Tenant will not
unreasonably withhold, delay, or defer its consent thereof, provided that such
modifications
do not increase the obligations of Tenant hereunder or adversely affect the
leasehold interest hereby created.
5.04. The Tenant covenants and agrees that if by reason of a default
under any underlying lease or installment sales contract executed in connection
with industrial revenue financing (including an underlying lease through which
the Landlord derives its leasehold estate in the premises), such underlying
lease or installment sales contract and the leasehold estate of the Landlord in
the premises demised hereby is terminated, providing notice has been given to
the Tenant and leasehold mortgagee, the Tenant will attorn after receipt of
notice to the then holder of the reversionary interest in the premises demised
by this lease or to anyone who shall succeed to the interest of the Landlord or
to the lessee of a new underlying lease entered into pursuant to provisions of
such underlying lease, and will recognize such holder and/or such lessee as the
Tenant's landlord under this lease. The Tenant agrees to execute and deliver, at
any time and from time to time, upon the request of the Landlord or of the
lessor under any such underlying lease, any instrument which may be necessary or
appropriate to evidence such attornment.
5.05. "Nondisturbance, Subordination and Attornment Agreement", as
used in this Article, shall mean a provision in any instrument or a duly
executed and acknowledged separate instrument, in form suitable for recording,
providing that for so long as Tenant continues to pay the Fixed Rent and any
Additional Rent in accordance with this Lease, and otherwise performs and
complies with the terms and provisions of this Lease, and so long as no Events
of Default, as defined in Article 21 herein exist on Tenant's part hereunder,
and provided that Tenant attorns to the party executing such Nondisturbance,
Subordination and Attornment Agreement, that such mortgagee will not name or
join Tenant as a party defendant in any suit or proceeding for the dispossess of
the Tenant herein, or for the foreclosure of such mortgage, and that this Lease
and Tenant's possession of the Demised Premises and all of the Tenant's rights
hereunder, including Tenant's right to renew this Lease, shall not be disturbed
or affected. Same shall be delivered by such mortgagee on its standard form.
5.06. Landlord agrees that it shall cause the holder of any
leasehold mortgage to execute and deliver to Tenant a Nondisturbance,
Subordination and Attornment Agreement.
ARTICLE 6
Assignment and Subletting
6.01. Tenant, for itself, its successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet the Demised Premises or any part thereof or license or permit the
Demised Premises or any part thereof to be used by others, without prior written
consent of the Landlord in each instance, which consent shall not be
unreasonably withheld, provided that:
(1) Tenant shall promptly notify Landlord in writing of such
assignment or sublease.
(2) Tenant shall not under any circumstances solicit a
sublease or assignment from any of the other tenants in the Building.
(3) Subtenant or assignee does not diminish the quality of the
Building as a first class office building in the Mitchel Field/Garden
City/Westbury vicinity.
(4) Subtenant or assignee shall expressly undertake and agree
in writing to be bound by all covenants, terms and conditions of this Lease, and
the rules and regulations issued thereunder.
(5) That Tenant is not in default hereunder beyond any
applicable cure periods.
Upon Tenant's due compliance with the aforesaid provisions of this
Article 6, Landlord agrees not to unreasonably withhold its consent to an
assignment or subletting, provided that the Tenant is not then in an uncured
default under this Lease and that the proposed assignee or undertenant is
financially responsible, as determined by Landlord, and further provided that
such assignee or undertenant shall execute and deliver to Landlord an assumption
agreement wherein it agrees to perform all the obligations of the Tenant under
this Lease in form appropriate for recording.
6.02. No assignment of this Lease or underletting of the Demised
Premises shall be permitted if it releases or discharges the Tenant or Tenant's
guarantor hereunder, 800 Gift House, Inc., as successor to McCann Companies,
Inc., from any of its obligations to be performed under this Lease.
6.03. Notwithstanding anything to the contrary contained herein,
Tenant may assign this Lease or sublet all or part of the Demised Premises to
any subsidiary or affiliate or any successor by merger or consolidation provided
the assignee or subtenant fully assumes all of the Tenant `s obligations
hereunder, and Tenant's guarantor hereunder, 800 Gift House, Inc., remains fully
obligated jointly and severally under such sublease or assignment. Said
assignment or subletting shall be subject to the following additional
requirements:
(1) Tenant shall promptly notify Landlord in writing of any
such assignment or subletting.
(2) The subtenant or assignee shall not diminish the quality
of the Building as a first class office building in the Mitchel Field/Garden
City/Westbury vicinity.
6.04. Tenant Remains Liable. Each assignment or subletting pursuant
to this Article shall be subject to all of the covenants, agreements, terms,
provisions and conditions contained in this Lease. Notwithstanding any such
assignment subletting and/or acceptance of Rent by Landlord from any subtenant,
Tenant shall and will remain fully liable for the payment of Fixed Rent and
Additional Rent due and to become due hereunder and for the performance of all
the covenants, agreements, terms, provisions and conditions contained in this
Lease on the part of Tenant to be performed and all acts and omissions of any
assignee, licensee or subtenant or anyone claiming under or through any assignee
or subtenant which shall be in violation of any of the obligations of this
Lease, shall be deemed to be a violation by Tenant. Tenant further
agrees that notwithstanding any such assignment or subletting, no other and
further assignment of this Lease or subletting of the Demised Premises or any
part thereof by Tenant or any person claiming through or under Tenant shall or
will be made except upon compliance with and subject to the provisions of this
Article.
6.05. In the event that Tenant shall assign this lease and shall
receive any consideration therefore, one-half of such consideration shall be
paid to the Landlord as additional rent. In the even Tenant shall sublet any of
the space demised hereunder and the rent and/or additional rent reserved under
any such sublease shall be in excess of the rent provided for hereunder, Tenant
shall pay to the Landlord, as additional rent, as and when same is collected,
one-half the difference between the rent and additional rent reserved herein and
the rent and additional rent reserved in such sublease. Notwithstanding the
foregoing, it is agreed and understood that this provision shall not apply to
any assignment or sublet to an affiliate of Tenant.
6.06. Joint and Several Liability. The joint and several liability
hereunder of Tenant herein named, or any immediate or remote successor in
interest of said Tenant, as assignor, with each assignee subsequent to it for
the obligations of Tenant hereunder in each instance provided for in this
Article shall not be discharged, released or impaired in any respect by any
agreement or stipulation made between Landlord or any grantee or assignee by way
of mortgage, or otherwise, of Landlord and any such assignee, extending the time
of, or modifying, any of the obligations of this Lease, or by any waiver or
failure of Landlord to enforce any of the obligations of this Lease, or of the
same as affected by any such agreement or stipulation, but shall remain in full
force and effect, and Tenant herein named and its successors in interest
preceding such assignment shall continue liable hereunder until the expiration
of the Term. To charge Tenant herein named and its successors in interest
preceding any such assignment no demand shall be required, nor shall there be
required any notice of any default with respect to any of the obligations of
this Lease, or of the same as affected by such agreement or stipulation, if any,
said Tenant and each of its said successors in interest hereby expressly waiving
any such demand or notice, except that if Tenant herein named or any such
successor in interest, at or about the time of making its assignment, or
thereafter, gives written notice to Landlord expressly referring to this Section
and demanding notice of default, Landlord shall give said Tenant or such
successor in interest the same or equivalent notice of default and opportunity
to cure as the Tenant in possession shall be entitled to receive under this
Lease.
ARTICLE 7
Estoppel Certificate; Memorandum
7.01. Delivery of Certificate. Tenant shall, without charge at any
time and from time to time, within ten (10) days after request by Landlord,
certify by written instrument duly acknowledged and delivered to any proposed or
actual mortgagee, assignee of any mortgagee or purchaser, or any other person,
firm or corporation specified by Landlord:
(a) This Lease is unmodified and in full force and effect (or,
if there has been any modification, that the same is in full force
and effect as modified and stating the modification);
(b) Whether or not there are then existing any set-offs, or
defenses against the enforcement of any of the agreements, terms,
covenants or conditions hereof upon the part of Tenant to be
performed or complied with (and, if so specifying the same); and
(c) The dates, if any, to which the Rent has been paid in
advance.
7.02. Memorandum of Lease. Either party hereto, at the request of
the other party, shall promptly execute, acknowledge and deliver a memorandum in
form satisfactory to the requesting party with respect to this Lease, or any
amendment of or other agreement supplementary to this Lease, sufficient for
recording. It is agreed and understood that Tenant shall not have the right to
record such memorandum without the prior written consent of Landlord.
ARTICLE 8
Requirements of Law
8.01. Compliance. Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
governmental authorities having jurisdiction and all orders, rules and
regulations of the New York Board of Fire Underwriters or any similar body which
shall impose any violation, order or duty (collectively, "Regulations") upon
Landlord or Tenant with respect to the Demised Premises or the use or occupancy
thereof, except that nothing herein shall require Tenant to make structural
repairs or alterations unless the need for such structural repairs or
alterations arises by reason of (i) the manner of conduct of Tenant's business
or operation of its installations, equipment or other property therein, (ii) any
cause or condition created by or at the instance of Tenant or (iii) the breach
of any of Tenant's obligations hereunder. Tenant may, after securing Landlord to
Landlord's satisfaction against all damages, interest, penalties and expenses,
including, but not limited to, attorney's fees, by cash deposit or by surety
bond in an amount and in a company satisfactory to Landlord, contest and appeal
any such Regulations provided same is done with all reasonable promptness and
provided such appeal shall not subject Landlord to prosecution for a criminal
offense or constitute a default under any lease or mortgage under which Landlord
may be obligated, or which may encumber the Demised Premises, the Building or
the Property or cause the Demised Premises, the Building or the Property to be
condemned or vacated.
8.02. Prohibitions. Tenant shall not do or permit any act or thing
to be done in or to the Demised Premises which is contrary to law, or which will
invalidate or be in conflict with public liability, fire or other policies of
insurance at any time carried by or for the benefit of Landlord with respect to
the Demised Premises or the Building or which shall or might subject Landlord to
any liability or responsibility to any person or for property damage, nor shall
Tenant keep anything in the Demised Premises except as now or hereafter
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Organization or other authority having jurisdiction, and then only in
such manner and such quantity so as not to increase the rate for fire insurance
applicable to the Building, nor use the Demised Premises in a wrongful manner
which will increase the insurance rate for the Building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy. If
by reason of Tenant's failure to
comply with the provisions of this Article the fire insurance rate shall be
higher than it otherwise would be, then Tenant shall reimburse Landlord, as
Additional Rent hereunder, for that portion of all fire insurance premiums
thereafter paid by Landlord which shall have been charged because of such
failure by Tenant, and shall make such reimbursement upon the first day of the
month following receipt of notice by Tenant together with sufficient proof of
the increased premium and of such outlay by Landlord.
8.03. Insurance Rates. In any action or proceeding wherein Landlord
and Tenant are parties, a schedule or "makeup" of rates for the Building or
Demised Premises issued by the New York Fire Insurance Exchange, or other body
making fire insurance rates applicable to the Building or the Demised Premises,
shall be conclusive evidence of the facts therein stated and of the several
items and charges in the fire insurance rate then applicable.
ARTICLE 9
Property Loss and Indemnification
9.01. Limitation of Liability. Neither Landlord nor Landlord's
Agents shall be liable for any damage to property of Tenant or of others
entrusted to employees of the Building, nor for loss of or damage to any
property of Tenant by theft or otherwise, nor for injury or damage to persons or
property resulting from any cause of whatsoever nature, unless caused by or due
to the negligence of Landlord or Landlord's Agents, nor shall Landlord or
Landlord's Agents be liable for any such damage caused by other tenants or
persons in, upon or about the Building or caused by operations or construction
of any private, public or quasi-public work, unless such other tenants or
persons or operations or construction was under the control and direct
supervision of Landlord.
9.02. (a) Tenant's Indemnification. Tenant shall indemnify and hold
harmless Landlord and Landlord's Agents from and against any and all claims
arising from or in connection with (a) the conduct or management of the Demised
Premises or of any business therein, or any work or thing whatsoever done, or
any condition created (other than by Landlord) in the Demised Premises during
the Term or during the period of time, if any, prior to the Commencement Date
that Tenant may have been given access to the Demised Premises; (b) any act,
omission or negligence of Tenant, Tenant's Agents, invitees or any subtenants or
licensees or their partners, officers, agents, employees or contractors; (c) any
accident, injury or damage whatsoever (unless caused solely by the negligence of
Landlord or its agents) occurring in, at or upon the Demised Premises; and (d)
any breach or default by Tenant in the full and prompt payment and performance
of Tenant's obligations under this Lease; together with all costs, expenses and
liabilities incurred in or in connection with each such claim or action or
proceeding brought thereon, including, without limitation, all reasonable
attorneys' fees and expenses. In case any action or proceeding be brought
against Landlord or Landlord's Agents by reason of any such claim, Tenant, upon
notice from Landlord, shall resist and defend such action or proceeding (by
counsel reasonably satisfactory to Landlord).
(b) Landlord's Indemnification. Landlord shall indemnify and hold
harmless Tenant from and against any and all claims arising from or in
connection with the Demised Premises during the Term caused by (i) the
negligence or willful malfeasance of Landlord or
Landlord's agents or its partners, officers, agents, employees or contractors
and (ii) any breach or default by Landlord in the full and prompt performance of
Landlord's obligations under this Lease; together with all reasonable costs,
expenses and liabilities incurred in or in connection with each such claim or
action or proceeding brought thereon, including, without limitation, all
reasonable attorneys' fees and expenses. In case any action or proceeding be
brought against Tenant by reason of any such claim, Landlord, upon notice from
Tenant, shall resist and defend such action or proceeding.
ARTICLE 10
Destruction - Fire and Other Casualty
10.01. Repairs. If the Demised Premises shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Landlord and this
Lease shall continue in full force and effect except as hereinafter set forth.
If the Demised Premises are rendered partially unusable by fire or other
casualty, the damage thereto shall be repaired by Landlord with reasonable
dispatch after collection of the insurance proceeds attributable to such damage,
subject to delays due to causes beyond Landlord's control. All Fixed Rent and
Additional Rent attributable to the portion of the Demised Premises, according
to the proportionate part of the Demised Premises which is unusable, shall be
fully abated until such repairs shall be substantially completed. All Fixed Rent
and Additional Rent for the usable portion of the Demised Premises, as
apportioned, shall be due and payable to Landlord from the day following the
casualty until the repairs are substantially completed and Tenant is able to use
the entire Demised Premises. Landlord, however, shall have no obligation to
repair any damage to Tenant's Property or Tenant's Work or any other property or
effects of Tenant. If the Demised Premises are totally damaged or rendered
wholly unusable by fire or other casualty then the Fixed Rent shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the Demised Premises shall have been repaired and restored
by Landlord, subject to Landlord's right to elect not to restore the same as
hereinafter provided.
10.02. Termination. If the Demised Premises are rendered wholly
unusable (whether or not the Demised Premises are damaged in whole or in part)
or if the Building shall be so damaged that Landlord shall decide to demolish it
or not to rebuild it, then, in either of such events, Landlord may elect to
terminate this Lease by written notice to Tenant given within one hundred twenty
(120) days after such fire or casualty. Such notice shall specify a date for the
expiration of this Lease, and upon the date specified the Term shall expire as
fully and completely as if such date were the date set forth above for the
termination of this Lease and Tenant shall forthwith quit, surrender and vacate
the Demised Premises, without prejudice however, to Landlord's rights and
remedies against Tenant under the Lease provisions in effect prior to such
termination, and any Rent owing shall be paid up to the date of termination and
any payments of Rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Landlord shall serve
a termination notice as provided for herein, Landlord shall make repairs and
restoration as herein set forth with reasonable dispatch after collection of the
insurance proceeds as provided in Section 10.01.
10.03. Tenant's Property. Tenant acknowledges that Landlord will not
carry insurance on Tenant's Property or on Tenant's business records or other
property of Tenant or
Tenant's Agents, and Tenant agrees that Landlord will not be obligated to repair
any damage thereto or to replace the same.
10.04. Waiver. Tenant hereby waives the provisions of Section 227 of
the Real Property Law (and any successor law of like import) and agrees that the
provisions of this Article shall control in lieu thereof.
ARTICLE 11
Insurance
11.01. Tenant shall not violate, or permit the violation of any
condition imposed by the fire insurance policy then issued for the building of
which the Demised Premises forms a part, and shall not do, or permit anything to
be done, or keep or permit anything to be kept in the Demised Premises,
excluding business equipment maintained in the normal course of Tenant's
business which is employed for office use only, which would increase the fire or
other casualty insurance rate on the building or the property therein over the
rate which would otherwise then be in effect or which would result in insurance
companies of good standing refusing to insure the building or any of such
property in amounts and at normal rates reasonably satisfactory to Landlord.
However, Tenant shall not be subject to liability or obligation under this
section provided Tenant's use of the Demised Premises is in accordance with
Article 1 herein and the terms of this Lease which govern Tenant's occupancy.
11.02. Tenant shall obtain and keep in full force and effect during
the Term at its own cost and expense, public liability insurance, to afford
protection in the amount of $2,000,000.00 for injury or death to any one person,
$5,000,000.00 for injury or death arising out of any one occurrence, and
$2,000,000.00 for damage to property, protecting the Landlord and the Tenant as
insureds against any and all claims for personal injury, death or property
damage occurring in, on, adjacent, or connected with the Demised Premises and
any part thereof. Said insurance is to be written by insurance companies
admitted to do business in the State of New York which shall be reasonably
satisfactory to the Landlord. The original insurance policies or appropriate
certificates shall be deposited with Landlord together with any renewals,
replacements or endorsements to the end that said insurance shall be in full
force and effect for the benefit of the Landlord during the term. In the event
Tenant shall fail to procure and place such insurance, the Landlord may, but
shall not be obligated to, procure and place same, in which event the amount of
the premium paid shall be paid by Tenant to Landlord, within thirty (30) days of
written demand therefor.
11.03. Tenant shall include in its fire insurance policies for its
contents, furniture, furnishings, fixtures and other property removable by
Tenant under the provisions of this lease and in its business interruption
policy, appropriate clauses pursuant to which the insurance carriers (i) waive
all rights of subrogation against Landlord with respect to losses payable under
such policies and/or (ii) agree that such policies shall not be invalidated
should the insured waive in writing prior to a loss any or all right of recovery
against any party for losses covered by such policies. If Tenant, at any time,
is unable to obtain such inclusion of either of the clauses described in the
preceding sentence, Tenant shall have Landlord named in such policies as one of
the additional insured. Should any additional premium be exacted for including
the clauses or
naming, Tenant shall be released from the obligation hereby imposed unless
Landlord shall agree to pay such additional premium within ten (10) days after
receipt of written notice from Tenant that such additional premium is requested.
If Landlord shall be named as an insured, Landlord shall promptly endorse to
order of Tenant, without recourse, any check, draft, or order for payment of
money representing the proceeds of any such policy or representing any other
payment growing out of or connected with said policy, and Landlord does
irrevocably waive any and all rights in and to such proceeds and payments.
Tenant hereby waives any and all right of recovery which it might otherwise have
against Landlord, its agents and employees, for loss or damage to Tenant's
contents, furniture, furnishings, fixtures and other property removable by
Tenant under the provisions of this Lease to the extent that the same is covered
by Tenant's insurance, notwithstanding that such damage may result from the
negligence or fault of Landlord, its agents or employees. Tenant agrees to
advise Landlord promptly as to the coverage or language of clauses included in
its insurance policies pursuant to this Article 11. Tenant so agrees to notify
Landlord promptly of any cancellation or change of the terms of any such policy
which would affect such clauses or naming.
11.04. Each of the parties hereto and their successors or assigns
waives any and all rights of action for negligence against the other party
hereto which may hereafter arise for damages to the premises or to property
therein resulting from any fire or other casualty of the kind covered by
standard fire insurance policies with extended coverage, regardless of whether
or not or in what amounts, such insurance is now or hereafter carried by the
parties hereto, or either of them. Both parties agree to use their best efforts
to obtain and maintain a waiver of subrogation from their respective carriers.
The waiver of subrogation or permission shall extend to Landlord's agents and
its and their employees, but only if and to the extent that such waiver or
permission can be obtained without additional charge (unless such party shall
pay such charge).
11.05. When the Fire or Casualty insurance procured by Landlord now
in effect for the Building shall be renewed by Landlord and if there shall be an
increase of the premium costs of such insurance over the premium costs paid for
the year 1998, Tenant shall pay 33.19% of any such insurance cost increase over
the premium cost paid for the year 1998. Any monies required to be paid by
Tenant to Landlord pursuant to this Article shall be made within twenty (20)
days after Landlord has rendered to the Tenant a statement setting forth a
computation of the sums owed for such insurance increases, which amounts shall
constitute Additional Rent and be collectable as such by Landlord.
ARTICLE 12
Condemnation
12.01. Total Taking. If all or substantially all of the Building
shall be lawfully condemned or taken in any manner for any public or
quasi-public use, this Lease shall cease and terminate as of the date of the
vesting of title in the condemnor.
12.02. Partial Taking. If less than all of the Building shall be so
condemned or taken, but if such taking shall substantially affect the Demised
Premises or the means of access thereto, or if such condemnation or taking shall
be of a substantial part of the Demised Premises, then Landlord shall have the
right to terminate this Lease and the term and estate hereby granted
by the delivery of written notice to Tenant within thirty (30) days following
the date of actual vesting of title in the condemnor. Such termination shall
take effect as of the date of actual vesting of title in the condemnor or thirty
(30) days after the giving of such notice of termination, whichever is later. If
Landlord shall not so elect to terminate, this Lease shall be and remain
unaffected by such condemnation or taking, except that, effective as of the date
of the vesting of title in the condemnor, Fixed Rent shall be reduced in the
proportion which the area of the part of the Demised Premises so condemned or
taken bears to the total area of the Demised Premises prior to such condemnation
or taking.
12.03. Award. In the event of the termination of this Lease in
accordance with this Article, Rent shall be prorated and paid to the effective
date of the termination. Tenant, whether or not this Lease be canceled pursuant
to this Article, shall not be entitled to claim or receive any part of any award
of compensation which may be issued or rendered in any such condemnation
proceeding or as a result of such condemnation or taking, and shall not be
entitled to claim or receive any damages against Landlord, whether the same be
for the value of the unexpired term of this Lease or otherwise.
ARTICLE 13
Repairs
13.01. Tenant's Repairs. Tenant shall take good care of the Demised
Premises and the fixtures and appurtenances therein and Tenant at Tenant's sole
cost and expense shall be responsible for all non-structural repairs thereto,
except as provided for herein, as and when needed to preserve them in good
working order and condition, reasonable wear and tear, obsolescence and damage
from the elements, fire or other casualty excepted. Landlord shall be
responsible for maintaining the building standard air conditioning units at its
sole cost and expense, however, Tenant shall be responsible for the maintenance
of the supplemental air conditioning units that service Tenant's computer rooms
or as otherwise installed by Tenant. Should Tenant fail to perform its repairs,
as required, Landlord may, at Landlord's option, elect to perform any such
repairs on Tenant's behalf and at Tenant's expense in which event the charge
therefor shall be payable by Tenant to Landlord as Additional Rent within ten
(10) days after demand therefor. Notwithstanding the foregoing, all damage or
injury to the Demised Premises or to any other part of the Building, or to its
fixtures, equipment and appurtenances, whether requiring structural or
nonstructural repairs, caused by or resulting from the following shall be
repaired promptly by Tenant at its sole cost and expense (or at Landlord's
option may be performed by Landlord at Tenant's sole cost and expense which
shall be payable in accordance with the preceding sentence):
(a) the performance or existence of Tenant's Work or
Alterations;
(b) the installation, use or operation of Tenant's Property
in the Demised Premises;
(c) the moving of Tenant's Property in or out of the
Building; or
(d) the act, omission, misuse or neglect of Tenant, Tenant's
Agents or any subtenant.
All the aforesaid repairs shall be of quality or class equal to the original
work or construction. If Tenant fails after ten (10) days' notice to proceed
with due diligence to make repairs required to be made by it, the same may be
made by Landlord at the expense of Tenant, and the expenses thereof incurred by
Landlord shall be collectible as Additional Rent after rendition of a bill or
statement therefor. Tenant shall give Landlord prompt notice of any defective
condition in any plumbing, heating system or electrical lines located in,
servicing or passing through the Demised Premises and following such notice,
Landlord shall remedy the condition with due diligence but at the expense of
Tenant if repairs are necessitated by damage or injury attributable to Tenant or
Tenant's Agents. It is agreed and understood that Landlord shall be responsible
for repairs to the plumbing components which are part of the Building's systems
(including the toilet fixtures and sink drains and shut-off valves).
13.02. Abatement. Except as specifically provided herein, neither
(i) the making by Landlord, Tenant or others of any decorations, repairs,
alterations, additions or improvements in or to the Building or the Demised
Premises, nor (ii) the failure of Landlord or others to make any such
decorations, repairs, alterations, additions or improvements, nor (iii) any
damage to the Demised Premises or to the property of Tenant, nor any injury to
any persons, caused by other tenants or persons in the Building, or by
operations in the construction of any private, public or quasi-public work, or
by any other cause, nor (iv) any latent defect in the Building or in the Demised
Premises, nor (v) any temporary or permanent closing, darkening or bricking up
of windows of the Demised Premises for any reason whatsoever including, but not
limited to, Landlord's own acts, nor (vi) any inconvenience or annoyance to
Tenant or injury to or interruption of Tenant's business by reason of any of the
events or occurrences referred to in the foregoing subdivisions (i) through (v),
shall constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of Rent, or relieve Tenant from
any of its obligations under this Lease, or impose any liability upon Landlord,
or Landlord's Agents or any Superior Lessor or Superior Mortgagee other than
such liability as may be imposed upon Landlord by law for Landlord's gross
negligence or the gross negligence of Landlord's Agents in the operation or
maintenance of the Building or for the breach by Landlord of any express
covenant of this Lease on Landlord's part to be performed.
The provisions of this Article with respect to the making of repairs
shall not apply in the case of fire or other casualty which are dealt with in
Article 10.
ARTICLE 14
Utilities and Services
14.01. Electricity. Landlord shall furnish at Tenant's expense
electric current to Tenant in the Demised Premises in accordance with the
Building electric design. Tenant shall be responsible for the installation,
cost, operation and maintenance of such additional fixtures or systems and
business equipment and machines as Tenant shall deem necessary and which
Landlord may permit in writing in accordance with the provisions of this Lease
to accommodate any total lighting and power electrical load in the Demised
Premises occasioned by Tenant's use
thereof in excess of four (4) watts per square foot of rentable area. Landlord
agrees to re-program the computer controlling the HVAC and lighting for the
Demised Premises, without cost to Tenant up to four (4) times per year (any
additional re-programming requested by Tenant shall be at Tenant's sole cost and
expense), upon not less than seven (7) business days' prior notice.
Landlord shall provide, at Landlord's sole cost and expense,
load/shed priority from the existing generator in the Building to the Demised
Premises. Landlord agrees that the existing generator shall be capable of
supplying a minimum of 48 hours complete back-up electrical power for Tenant's
business operations. Landlord agrees that it will attempt to form a tenant
committee to oversee the proper inspection and maintenance of all disaster
recovery equipment on or before January 1, 1999. Landlord agrees that Tenant
shall have the right to designate one representative to such committee. Landlord
further agrees that the disaster recovery equipment shall be fully tested a
minimum of four (4) times per year.
14.02. Electricity Charges. Tenant shall pay all charges for
electric service to the Demised Premises for air conditioning, lighting and
power, as billed to Tenant by the utility company servicing the Building, in
accordance with Tenant's usage as stated on the separate electric meter
installed by Landlord for the Demised Premises, at Landlord's sole cost and
expense. Notwithstanding the foregoing, Tenant may elect to have the Demised
Premises submetered and to purchase electricity at a lower rate through Landlord
as follows: Charges for electric service are recorded by Landlord from the 16th
day of the month to the 15th day of the following month and shall be included on
the Landlord's rent bill and due and payable by the Tenant on the 1st day of the
following month.
At no time shall Tenant's use of electric current exceed the
capacity of the feeders to the Building or the risers or wiring installation. In
order to ensure that such capacity is not exceeded and to avert possible adverse
effect upon the electric service in the Building, Tenant agrees not to connect
any additional electrical equipment, fixtures, machinery or appliances of any
type to the Building electric distribution system, other than lamps,
typewriters, word processing equipment, desktop computers and other small office
machines which consume comparable amounts of electricity, without Landlord's
prior written consent, which consent shall not be unreasonably withheld. Any
additional risers, feeders, or other equipment proper or necessary to supply
Tenant's electrical requirements, upon written request of Tenant, will be
installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's
sole judgment, the same are necessary and will not cause permanent damage or
injury to the Building or the Demised Premises, or cause or create a dangerous
or hazardous condition or entail excessive or unreasonable alterations, repair
or expense or interfere with or disturb other tenants or occupants.
14.03. Building Services. (a) Provided that Tenant is not in default
hereunder beyond applicable cure periods, Landlord agrees to furnish or cause to
be furnished on a twenty-four (24) hour basis, seven (7) days per week, 365 days
per year, the following utilities and services, subject to the conditions and
standards set forth below and elsewhere herein:
(i) Landlord shall, subject to interruptions beyond Landlord's
control and other provisions hereunder, furnish the Demised Premises with water
for drinking and lavatory purposes only.
(ii) Tenant shall provide, at Tenant's sole cost and expense, all
janitorial services to the Demised Premises. Landlord shall provide janitorial
services to the common areas of the Building, in accordance with the cleaning
specifications set forth on Exhibit D hereto Tenant shall pay to Landlord the
cost of removal of any of Tenant's refuse and rubbish to the extent that the
same exceeds the refuse and rubbish as has been in the past attendant to
Tenant's use of the Demised Premises as offices.
(iii) Landlord shall replace, as necessary, the fluorescent tubes in
the standard lighting fixtures installed by Landlord. Tenant agrees to reimburse
Landlord upon demand for the cost of such fluorescent tubes and the labor and
overhead for their installation.
(iv) Landlord shall furnish lighting for the lobby, not less than
one working elevator and lighting for Tenant's parking area.
(b) Tenant agrees to cooperate fully at all times with Landlord and
to abide by all regulations and requirements which Landlord may prescribe for
the use of the above utilities and services of which Tenant has actual notice.
Any failure to pay any costs as described above shall constitute a breach of the
obligation to pay Rent under this Lease and shall entitle Landlord to the rights
herein granted for such breach.
14.04. Landlord shall not be liable for, and Tenant shall not be
entitled to, any abatement or reduction of Rent by reason of Landlord's failure
to furnish any of the foregoing services, or any failure or defect in the
character or supply of any utility provided to the Demised Premises, nor shall
any such failure, stoppage or interruption of any such utility or service be
construed either as an eviction of Tenant, or relieve Tenant from the obligation
to perform any covenant or agreement. However, in the event of any failure or
interruption thereof, Landlord shall use reasonable diligence to have service
resumed promptly.
14.05. Air Conditioning and Heating. Landlord shall have full and
unrestricted access to all air-conditioning and heating equipment, and to all
other utility installations servicing the Building and the Demised Premises.
Landlord reserves the right temporarily to interrupt, curtail, stop or suspend
air-conditioning and heating service, and all other utility, or other services,
because of any cause beyond Landlord's reasonable control, including, without
limitation, Landlord's inability to obtain, or difficulty or delay in obtaining,
labor or materials necessary therefor, or in order to comply with governmental
restrictions in connection therewith. No diminution or abatement of Fixed Rent,
Additional Rent, or other compensation shall or will be claimed by Tenant,
except as specifically provided herein, nor shall this Lease or any of the
obligations of Tenant hereunder be affected or reduced by reason of such
interruptions, stoppages or curtailments, the causes of which are hereinabove
enumerated, nor shall the same give rise to a claim in Tenant's favor that such
failure constitutes actual or constructive, total or partial eviction from the
Demised Premises, except as specifically provided herein.
14.06. Notwithstanding the foregoing, in the event the heating,
ventilation, air conditioning, and/or electrical systems solely within the
Demised Premises, which are non-building systems and non-structural in nature,
shall cease operating in its/their entirety for a continuous and uninterrupted
period of five (5) business days, then Tenant shall have the right to an
abatement of Fixed Rent and/or Additional Rent for the period covered by such
lack of
services, provided that any such lack of service is attributable to act(s)
within the Landlord's control. Nothing herein shall preclude Tenant from
prosecuting or maintaining legal proceedings against Landlord as provided by
law; the prevailing party in such litigation shall be entitled to reasonable
attorney's fees.
14.07. In the event (i) Landlord shall default in its obligation to
make repairs in the Demised Premises in accordance with this Article 14, and
(ii) Tenant shall notify Landlord and Landlord's mortgagee, if any, of the
existence of such default which notice shall specifically state that "unless
Landlord shall fail to commence to cure such default within twenty (20) days
after the date of this notice, then Tenant may take action to cure such default
under Section 14.06 of the Lease" (the "Self-Help Notice") and (iii) Landlord
either shall (x) fail to commence to cure such default within twenty (20) days
after the giving of said notice or shall fail thereafter to prosecute to
completion with reasonable diligence the work necessary to cure such default or
(y) fail to notify Tenant within twenty (20) days after the giving of said
notice that Landlord is unable to commence to cure such default because of
inability to obtain materials or strikes or other labor disputes, fire or other
casualty (or reasonable delays in adjustment of insurance), accidents, orders or
regulations of any Federal, State, County or Municipal authority, or by any
other cause beyond Landlord's reasonable control, whether or not such cause
shall be similar in nature to those hereinbefore enumerated, then, but only in
such events and subject to the provisions set forth in the following provisions
of this section, Tenant may take action to cure such default. In the event
Tenant cures any default in accordance with the foregoing provisions of this
section, any reasonable expenditures made by Tenant to cure such default shall
be repaid by Landlord to Tenant within twenty (20) days demand by Tenant to
Landlord. In the event of any dispute between Landlord and Tenant as to whether
or not Landlord was in default, such dispute shall be determined by applicable
legal proceedings.
14.08. Notwithstanding anything herein to the contrary, Landlord
reserves the right from time to time to make reasonable modifications to the
above provisions for utilities and services. Any such changes shall not
materially interfere with Tenant's use and enjoyment of the Demised Premises or
result in material increased costs for Tenant.
ARTICLE 15
Alterations
15.01. Requirements. Tenant may from time to time, at its expense,
make such alterations (herein called "Alterations") in and to the Demised
Premises, excluding structural changes, as Tenant may reasonably consider
necessary for the conduct of its business in the Demised Premises, provided and
upon condition that:
(a) the outside appearance of the Building shall not be
affected;
(b) the Alterations are to the interior of the Demised
Premises and no part of the Building outside of the Demised Premises
shall be affected;
(c) the proper functioning of the mechanical, electrical,
sanitary and other service systems of the Building shall not be
adversely affected and the usage of such systems by Tenant shall not
be increased;
(d) before proceeding with any structural Alteration or any
Alteration costing in excess of $25,000.00 per year, in the
aggregate, to complete, Tenant shall submit to Landlord for
Landlord's approval plans and specifications for the work to be
done, and Tenant shall not proceed with such work until it obtains
Landlord's approval;
(e) Tenant shall pay to Landlord upon demand the reasonable
cost and expense of Landlord in (i) reviewing said plans and
specifications and (ii) inspecting the Alterations to determine
whether the same are being performed in accordance with the approved
plans and specifications and all laws and requirements of public
authorities, including, without limitation, the fees of any
architect or engineer employed by Landlord for such purpose,
however, it is agreed and understood that this provision shall not
apply to cosmetic alterations or alterations wholly within the
Demised Premises which do not effect the Buildings's structure or
its mechanical systems;
(f) before proceeding with any Alteration in excess of
$100,000 (exclusive of Tenant's initial installations which shall
not be subject to this provision) Tenant shall obtain and deliver to
Landlord either (i) a performance bond and a labor and materials
payment bond (issued by a corporate surety licensed to do business
in New York), each in an amount equal to one hundred twenty five
(125%) percent of the cost of the Alteration as estimated by a
reputable contractor designated by Landlord and in form satisfactory
to Landlord, or (ii) such other security as shall be satisfactory to
Landlord;
(g) Tenant shall fully and promptly comply with and observe
the rules and regulations of Landlord then in force with respect to
the making of Alterations; and
(h) with respect to Alteration or improvement work costing
more than $25,000, in the aggregate, Tenant agrees to pay to
Landlord or Landlord's managing agent, as Additional Rent, promptly
upon being billed therefor, a sum equal to the actual, commercially
reasonable costs incurred by Landlord for indirect costs, field
supervision and coordination in connection with such work, which are
in excess of Landlord's day to day costs for operating the Building.
Tenant agrees that any review or approval by Landlord of any plans
and/or specifications with respect to any Alteration and any inspection thereof
are solely for Landlord's benefit, and without any representation or warranty
whatsoever to Tenant with respect to the adequacy, correctness or efficiency
thereof or otherwise.
15.02. Permit. Tenant, at its expense, shall obtain all necessary
governmental permits and certificates for the commencement and prosecution of
Alterations and for final
approval thereof upon completion, and shall cause Alterations to be performed in
a good and workmanlike manner, using new materials and equipment at least equal
in class to the better of (i) the original installations of the Building, or
(ii) the then standards for the Building established by Landlord. Alterations
effecting the Building's structure and/or its mechanical systems shall be
performed by contractors first approved by Landlord provided, however, that any
Alterations in or to the mechanical, electrical, sanitary, heating, ventilating,
air-conditioning or other systems of the Building shall be performed only by
licensed contractors(s) selected from a list of approved contractors maintained
by Landlord (Landlord agrees that each contractor on said list shall have rates
and charges which are commercially reasonable and in accordance with prevailing
rates and charges in the Mitchel Field/Garden City/Westbury vicinity) which list
(which Landlord may modify from time to time) shall be furnished to Tenant on
request. Alterations shall be performed in such manner as not to unreasonably
interfere with or delay and as not to impose any additional expense upon
Landlord in the maintenance, repair or operation of the Building; and if any
such additional expense shall be incurred by Landlord as a result of Tenant's
performance of any Alterations, Tenant shall pay such additional expense upon
demand, as provided in Article 15. Throughout the performance of Alterations,
Tenant, at its expense, shall carry, or cause to be carried, workmen's
compensation insurance in statutory limits and general liability insurance, with
completed operation endorsement, for any occurrence in or about the Building,
under which Landlord and such other persons and entities as may be designated by
Landlord shall be named an insured, in such limits as Landlord may reasonably
require, with insurers reasonably satisfactory to Landlord. Tenant shall furnish
Landlord with reasonably satisfactory evidence that such insurance is in effect
at or before the commencement of Alterations and, on request, at reasonable
intervals thereafter during the continuance of Alterations. If any Alterations
shall involve the removal of any fixtures, equipment or other property in the
Demised Premises which are not Tenant's Property, such fixtures, equipment or
other property shall be promptly replaced at Tenant's expense with new fixtures,
equipment or other property of like utility and at least equal value unless
Landlord shall otherwise expressly consent.
15.03. Violations. Tenant, at its expense, and with diligence and
dispatch, shall procure the cancellation or discharge of all notices of
violation arising from or otherwise connected with Alterations, or any other
work, labor, services or materials done for or supplied to Tenant, or any person
claiming through or under Tenant, which shall be issued by public authority
having or asserting jurisdiction. Tenant shall defend, indemnify and save
harmless Landlord from and against any and all mechanics' and other liens and
encumbrances filed in connection with Alterations, or any other work, labor,
services or materials done for or supplied to Tenant, or any person claiming
through or under Tenant, including without limitation, security interests in any
materials, fixtures or articles so installed in and constituting part of the
Demised Premises and against all costs, expenses and liabilities incurred in
connection with any such lien or encumbrances or any action or proceeding
brought thereon. Tenant, at its expense, shall procure the satisfaction or
discharge of record of all such liens and encumbrances within thirty (30) days
after the filing thereof. Notice is hereby given that Landlord shall not be
liable for any work performed or to be performed at the Demised Premises for
Tenant or for any subtenant, or for any materials furnished or to be furnished
at the Demised Premises for Tenant or any subtenant, upon credit, and that no
mechanic's or other lien for such work or materials shall attach to or affect
the estate or interest of Landlord in and to the Demised Premises.
15.04. Labor Strife. Tenant shall not, at any time prior to or
during the Term, directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Demised Premises, whether in connection
with any Alterations or otherwise, if such employment will interfere or cause
any conflict with other contractors, mechanics, or laborers engaged in the
construction, maintenance or operation of the Building by Landlord, Tenant or
others. In the event of any such interference or conflict, Tenant, upon demand
of Landlord, shall cause all contractors, mechanics or laborers causing such
interference or conflict to leave the Building immediately.
ARTICLE 16
Escalations - Taxes, Etc.
16.01. Definitions. As used in this Article 16 the following
definitions shall apply:
(a) "Tax Year" shall mean each period of twelve months
commencing January 1st in which occurs any part of the Term or such
other period of twelve months occurring during the Term as hereafter
may be adopted as the fiscal year for real estate tax purposes by
the Town taxing authority having jurisdiction over the Property.
(b) "Real Estate Taxes" shall mean the taxes and assessments
(including special or extraordinary assessments) imposed upon the
Property, including without limitation any School, State, County, or
Town Tax. If, due to a future change in the method of taxation, any
franchise, income, profit or other tax, however designated, shall be
levied against Landlord in substitution, in whole or in part, for or
in lieu of any tax which would otherwise constitute a Real Estate
Tax, such franchise, income, profit or other tax shall be deemed to
be a Real Estate Tax for the purposes hereof and shall be deemed to
be included in the term "Real Estate Taxes".
(c) "Real Estate Tax Base" shall be as set forth in Section
1.01.
(d) "Ground Lease Base Rent" shall mean the rental paid under
the Ground Lease for the Building in 1997/1998.
(e) "Escalation Statement" shall mean a statement in writing
signed by Landlord or Landlord's agent setting forth the amount
payable by Tenant for a specified Tax Year or Operating or Lease
Year (as the case may be) pursuant to this Article 16.
16.02. Escalation. If the Real Estate Taxes or rental under the
Ground Lease for any subsequent year shall be greater than the Real Estate Tax
Base and/or the Ground Lease Base Rent, then Tenant shall pay to Landlord as
Additional Rent an amount equal to Tenant's Proportionate Share of such excess
(herein called the "Excess Payment"). Notwithstanding the foregoing, Tenant
shall not be required to pay any Excess Payments attributable to increases in
the Ground Lease Base Rent until the year 2003.
16.03. Tax Payments. (a) Tenant's Excess Payment for each Lease Year
shall be due and payable in twelve (12) equal installments, in advance, on the
first day of each month during each Lease Year, based upon the Escalation
Statement furnished prior to the commencement of such Lease Year, until such
time as a new Escalation Statement for a subsequent Lease Year shall become
effective. If an Escalation Statement is furnished to Tenant after the
commencement of a Lease Year in respect of which such Escalation Statement is
rendered, Tenant shall, within 15 days thereafter, pay to Landlord an amount
equal to the amount of any underpayment of Tenant's Excess Payment with respect
to such Lease Year and, in the event of an overpayment, Landlord shall permit
Tenant to credit against subsequent payments under this Article 16 the amount of
Tenant's overpayment. If there shall be any increase in Taxes and/or Ground
Lease Rent for any Lease Year, whether during or after such Lease Year, Landlord
shall furnish a revised Escalation Statement for such Lease Year, and Tenant's
Excess Payment for such Lease Year shall be adjusted and paid substantially in
the same manner as provided in the preceding sentence. If during the term of
this Lease, Real Estate Taxes are required to be paid (either to the appropriate
taxing authorities or as tax escrow payments to a superior mortgagee) in full or
in monthly, quarterly, or other installments, on any other date or dates than as
presently required, then at Landlord's option, Tenant's Excess Payments for
taxes shall be correspondingly accelerated or revised so that said Tenant's
Excess Payments for taxes are due at least 30 days prior to the date payments
are due to the taxing authorities or the superior mortgagee. The benefit of any
discount for any early payment or prepayment of Taxes shall accrue solely to the
benefit of Landlord and such discount shall not be subtracted from Taxes.
(b) If the real estate tax fiscal year of the relevant taxing
authorities shall be changed during the term of this Lease, any Taxes for such
fiscal year, a part of which is included within a particular Tax Year and a part
of which is not so included, shall be apportioned on the basis of the number of
days in such fiscal year included in the particular Tax Year for the purpose of
making the computations under this Section 16.03.
16.04. Survival. Payments shall be made pursuant to this Article 16
notwithstanding the fact that an Escalation Statement is furnished to Tenant
after the Expiration Date.
16.05. Tax Refunds. Reductions.
(a) If Landlord shall receive a refund of Real Estate Taxes
for any Tax Year, Landlord shall either pay to Tenant, or permit Tenant to
credit against subsequent payments under this Article, Tenant's Proportionate
Share of the net refund (after deducting from such total refund the costs and
expenses, including, but not limited to, appraisal, accounting and legal fees of
obtaining the same); provided, however, such payment or credit to Tenant shall
in no event reduce Tenant's proportionate share of the Real Estate Taxes to less
than the amount of the Real Estate Taxes for the Base Year. Tenant acknowledges
and agrees, that Tenant shall not be entitled to receive any credit or refund
that would reduce Tenant's proportionate share of Real Estate Taxes to below the
amount of the Real Estate Taxes for the Base Year, except as specifically
provided in sub-paragraph (c) below.
(b) In case the Real Estate Taxes for any Tax Year or part
thereof shall be reduced before Tenant shall have paid Tenant's Proportionate
Share of any excess thereof in
respect of such Tax Year pursuant to Section 16.03(a) hereof, the
Real Estate Taxes for such Tax Year shall be deemed to include any expenses,
including counsel fees, incurred by Landlord in connection with obtaining such
reduction.
(c) Upon receipt by Landlord of proof, as documented from the
appropriate taxing authority, that the property taxes for the Building have been
reduced and/or a tax incentive has been granted solely as a result of Tenant's
business and continued occupancy in the Town of Hempstead and Nassau County,
Landlord shall either pay to Tenant, or permit Tenant to credit against
subsequent payments under this Lease, the full amount of such reduction, refund
and/or tax incentive.
16.06. Tax Proration. If a Tax Year ends after the Expiration Date
or other termination of this Lease, the Tax Payment therefor shall be prorated
to correspond to that portion of such Tax Year occurring within the Term.
ARTICLE 17
Environmental
17.01. Tenant shall not (either with or without negligence) cause or
permit the escape, disposal or release of any biologically or chemically active
or other hazardous substance from or in the Demised Premises during the Term or
while Tenant is in possession thereof or from or on the Property if caused by
Tenant or Tenant's employees, agents, contractors, licensees, visitors or
invitees; provided, however, that Landlord, its agents, employees or contractors
are not the cause thereof. Tenant shall not allow the storage or use of such
substances in any manner not permitted by law or by the highest standards
prevailing in the industry for the storage and use of such substances, nor allow
to be brought onto the Property any such substances except for the use in the
ordinary course of Tenant's business, and then only after such written notice is
given to Landlord of Tenant's intent to bring such substance, which shall be
specifically identified, onto the Property. Without limitation, hazardous
substances shall include those described in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., any applicable state or local laws and the regulations adopted
under these acts. In addition, Tenant shall execute affidavits, representations
and the like from time to time at Landlord's request concerning Tenant's best
knowledge and belief regarding the presence of hazardous substances on the
Demised Premises.
ARTICLE 18
Signs
18.01. (a) If Tenant shall cause or permit any sign or other object
to be placed on or affixed to any part of the Building not within the Demised
Premises without Landlord's written permission, Landlord shall have the right,
in addition to any other rights or remedies, without notice or liability to
Tenant, to remove and dispose of any such sign or other object and to make any
repairs necessitated by such removal, all at Tenant's sole cost and expense, and
Landlord's cost and expense in performing such removal and repair shall be
deemed Additional Rent payable with the next installment of Fixed Rent due
hereunder.
(b) Tenant shall at all times during the Term of this Lease
obtain, at its own cost and expense, all necessary permits and shall pay during
the Term of this Lease all fees relating thereto. Copies of said permits shall
be furnished to Landlord from time to time as they are issued and/or reviewed.
All such signs shall always be installed and maintained in full compliance with
all local ordinance, rules and regulations of any governmental agency having
jurisdiction thereover. Such signs shall be maintained and kept in good repair
and in good and safe condition by the Tenant at its own cost and expense. At the
expiration of the Term of this Lease, Tenant shall remove such signs installed
by it and Tenant shall repair any damage to the Demised Premises or the Property
that may result from either the installation or from the removal of the signs.
In all accident and liability insurance policies required to be maintained and
furnished by Tenant in accordance with any of the provisions of this Lease, the
Tenant agrees that in addition to any other requirement of this Lease with
respect thereto there shall also be included therein with respect to the
coverage of hazards, for which such insurance is to be provided for the benefit,
of the Landlord, full coverage to the extent of the limits thereof for all
hazards arising out of the installation and maintenance of all of Tenant's
signs.
(c) Landlord will include Tenant's name(s) on the Building
directory, provided the number of lines requested is not proportionately greater
than Tenant's Proportionate Share of the total number of lines available on the
Directory.
(d) No signs or lettering of any nature may be put on or in
any window nor on the exterior of the Building or elsewhere within the Demised
Premises such as will be visible from the street or the atrium of the Building.
No sign or lettering in the public corridors or on the doors are permitted
except Landlord's standard name plaque and except for name of tenant and its
related entities only as set forth on signs of similar size and style as
presently existing elsewhere on the interior of the Building. Tenant may only
maintain said signs on the specific floors of the Building wherein it leases
space; Tenant is strictly prohibited from maintaining signs on specific floors
of the Building where it does not lease space. In addition, Tenant shall have
the right to install its trade name/logo in each elevator of the Building
adjacent to the fifth and seventh floor buttons, subject to Landlord's prior
reasonable approval.
(e) Notwithstanding anything contained herein to the contrary,
provided Tenant is not in default beyond applicable cure periods, Tenant shall
have the right to retain the two (2) signs on or alongside each of the uppermost
east and west sides of the Building, which display the Tenant's name. In
addition, Landlord agrees that Tenant shall have the right to install, at
Tenant's sole cost and expense, two (2) additional signs on or alongside each of
the uppermost north and south sides of the Building which are substantially the
same as the signs which are presently maintained on the east and west sides of
the Building, provided Tenant complies with subparagraph (b) above. Landlord
shall contribute to the cost of the foregoing signs and/or the replacement,
upgrading and maintenance of the existing signs, to a maximum of $60,000.00,
upon submission to Landlord of bona fide paid bills for same which are received
by Landlord on or before May 31, 1999. Landlord agrees that Tenant's right to
maintain signs alongside each of the uppermost sides of the Building shall be
exclusive so long as Tenant leases and occupies not less than two (2) full
floors in the Building. Tenant agrees that Landlord shall have the right to
install monument or building eyebrow signage identifying other tenants or the
name/address of the Building, provided that any such tenant eyebrow signage
shall be installed below the second floor windows and shall only be installed
for/by a tenant leasing in
excess of 10,000 square feet in the Building and which tenant possesses: i)
national or regional (i.e. operating in five or more states) stature, and/or ii)
sales in excess of $250 million per year.
ARTICLE 19
Limitation of Landlord's Liability
19.01. Tenant shall look solely to the estate and interest of
Landlord in the Building for the satisfaction of Tenant's remedies for the
collection of any judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default or breach by Landlord with respect
to any of the terms, covenants and conditions of this Lease to be observed or
performed by Landlord, and no other property or assets of Landlord or any of the
partners, shareholders, members, fiduciaries or other principals of Landlord
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to either this Lease,
the relationship of Landlord and Tenant hereunder or Tenant's use and occupancy
of the Demised Premises.
ARTICLE 20
Broker
20.01. Landlord and Tenant covenant, warrant and represent to each
other that they have not had discussions or negotiations with any broker
concerning the leasing of space in the Building or concerning this Lease other
than Island Realty Service Group, Inc. Landlord and Tenant agree to indemnify,
defend and hold each other harmless from and against any claim for a brokerage
commission or other compensation arising out of any discussions or negotiations
had by Landlord and/or Tenant with any other broker. Landlord shall be
responsible for payment of the brokerage commission due to Island Realty Service
Group, Inc.
ARTICLE 21
Default -- Conditions of Limitation
21.01. Default. Upon the occurrence, at any time prior to or during
the Demised Term, of any one or more of the following events an "Event of
Default" shall occur:
(i) If Tenant shall default in the payment when due of any
installment of Fixed Basic Annual Rent or in the payment when due of any
Additional Rent, and such default shall continue for a period of ten (10) days
after notice by Landlord to Tenant of such default; or
(ii) If Tenant shall default in the observance or performance of any
material term, material covenant or material condition of this Lease on Tenant's
part to be observed or performed (other than the covenants for the payment of
Fixed Basic Annual Rent and Additional Rent) and Tenant shall fail to cure such
default within fifteen (15) days after notice by Landlord to Tenant of such
default or if such default is of such a nature that it cannot be completely
remedied within said fifteen day period and Tenant shall not commence within
said fifteen days, or shall not thereafter diligently prosecute to completion,
all reasonable steps necessary to remedy such default; or
(iii) If Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall be adjudicated a bankrupt or becomes insolvent, or shall
file any petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy act or any other present or future
applicable federal, state or other statute of law, or shall make an assignment
for the benefit of creditors or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of Tenant or of all or any
part of Tenant's property; or
(iv) If, within sixty (60) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or otherwise
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or any other present or future applicable federal, state or other statute of
law, such proceedings shall not have been dismissed, or if, within sixty (60)
days after the appointment of any trustee, receiver or liquidator of Tenant, or
of all or any part of Tenant's property, without the consent or acquiescence of
Tenant, such appointment shall not have been vacated or otherwise discharged, or
if any execution or attachment shall be issued against Tenant or any of Tenant's
property pursuant to which the Demised Premises shall be taken or occupied or
attempted to be taken or occupied; or
(v) Notwithstanding anything to the contrary, if Tenant shall
default in the observance or performance of any material term, material covenant
or material condition on Tenant's part to be observed or performed under any
other lease with Landlord of space in the Building and such default shall
continue beyond any grace period set forth in such other lease for the remedying
of such default; or
(vi) If the Demised Premises shall become deserted or abandoned
unless Tenant continues to pay all Basic Annual Rent and Additional Rent as same
becomes due and subject to any applicable grace periods and Tenant properly
maintains security; or
(vii) If Tenant's interest in this Lease shall devolve upon or pass
to any person, whether by operation of law or otherwise, except as expressly
permitted under Article 6, then, upon the occurrence, at any time prior to or
during the Demised Term, of any one or more of such Events of Default, Landlord,
at any time thereafter, at Landlord's option, may give to Tenant thirty (30)
days notice of termination of this lease and, in the event such notice is given
and Tenant fails to cure within such thirty (30) day period, then this Lease and
the Demised Term shall come to an end and expire (whether or not said term shall
have commenced) upon the expiration of said thirty (30) days with the same
effect as if the date of expiration of said thirty (30) days were the Expiration
Date. Notwithstanding anything to the contrary herein, Tenant shall remain
liable for damages as provided in Article 23.
If, at any time (i) Tenant shall be comprised of two (2) or more
persons, or (ii) Tenant's obligations under this lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
lease shall have been assigned, the word "Tenant", as used in subsection (iii)
and (iv) of Section 21.01, shall be deemed to mean any one or more of the
persons primarily or secondarily liable for Tenant's obligations under this
lease. Any monies received by Landlord from or on behalf of Tenant during the
pendency of any proceeding of the types referred to in said subsections (iii)
and (iv) shall be deemed paid as compensation for the
use and occupation of the Demised Premises and the acceptance of any such
compensation by Landlord shall not be deemed an acceptance of rent or a waiver
on the part of Landlord of any rights under the within Lease.
ARTICLE 22
Re-Entry by Landlord
22.01. Summary Dispossess. If Tenant shall default in the payment of
any Fixed Rent or Additional Rent and such default shall continue for fifteen
(15) days or if this Lease shall terminate as provided in Article 21, Landlord
or Landlord's agents and employees may immediately or at any time thereafter
re-enter the Demised Premises in accordance with applicable laws, or any part
thereof, either by summary dispossess proceedings or by any suitable action or
proceeding at law, without being liable to indictment, prosecution or damages
therefor, and may repossess the same, and may remove any person therefrom, to
the end that Landlord may have, hold and enjoy the Demised Premises. The word
"re-enter", as used herein, is not restricted to its technical meaning. If this
Lease is terminated under the provisions of Article 21, or if Landlord shall
re-enter the Demised Premises under the provisions of this Article, or in the
event of the termination of this Lease, or of re-entry, by or under any summary
dispossess or other proceeding or action or any provisions of law by reason of
default hereunder on the part of Tenant, Tenant shall thereupon pay to Landlord
the Fixed Rent and Additional Rent payable up to the time of such termination of
this Lease, or of such recovery of possession of the Demised Premises by
Landlord, as the case may be, and shall also pay to Landlord damages as provided
in Article 23.
22.02. Waivers. Tenant, on its own behalf and on behalf of all
persons claiming through or under Tenant, including creditors, does hereby waive
any and all rights and privileges so far as is permitted by law which Tenant and
all such persons might otherwise have under any present or future law (a) to the
service of any notice of intention to re-enter or to institute legal proceedings
to that end, (b) to redeem the Demised Premises, (c) to re-enter or repossess
the Demised Premises, or (d) to restore the operation of this Lease, after
Tenant shall have been dispossessed by a judgment or by warrant of any court or
judge, or after any re-entry by Landlord, or after any expiration or termination
of this Lease and the Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
Lease.
22.03. Injunctive Relief. In the event of a breach or threatened
breach by Tenant of any of its obligations under this Lease, Landlord shall also
have the right of injunction. The special remedies to which Landlord may resort
hereunder are cumulative and are not intended to be exclusive of any other
remedies to which Landlord may lawfully be entitled at any time and Landlord may
invoke any remedy allowed at law or in equity as if specific remedies were not
provided for herein.
22.04. Retention of Monies. If this Lease shall terminate under the
provisions of Article 21, or if Landlord shall re-enter the Demised Premises
under the provisions of this Article, or in the event of the termination of this
Lease, or of re-entry, by or under any summary dispossess or other proceeding or
action or any provisions of law by reason of default hereunder
on the part of Tenant, Landlord shall be entitled to retain all monies, if any,
paid by Tenant to Landlord, whether as advance rent, security or otherwise, but
such monies shall be credited by Landlord against any Fixed Rent or Additional
Rent due from Tenant at the time of such termination or re-entry or, at
Landlord's option, against any damages payable by Tenant under Article 23 or
pursuant to law. Notwithstanding anything contained herein to the contrary,
Landlord agrees the balance of the Security Deposit, if any, remaining after
satisfaction of all amounts due to Landlord from Tenant, shall be refunded to
Tenant within sixty (60) days after Landlord completes it final accounting.
ARTICLE 23
Damages
23.01. Acceleration, Reletting. If this Lease is terminated under
the provisions of Article 21, or if Landlord shall re-enter the Demised Premises
under the provisions of Article 22, or in the event of the termination of this
Lease, or of re-entry, by or under any summary dispossess or other proceeding or
action or any provision of law by reason of default hereunder on the part of
Tenant, Tenant shall pay to Landlord as damages, at the election of Landlord,
either:
(a) a sum which at the time of such termination of this Lease
or at the time of any such re-entry by Landlord, as the case may be,
represents the then value of the excess, if any, of (i) the
aggregate amount of the Fixed Rent and the Additional Rent under
Articles 2 and 16 which would have been payable by Tenant
(conclusively presuming the Additional Rent under Article 16 to be
the same as was payable for the prior year, or if less than 365 days
have then elapsed since the Commencement Date, the partial year
immediately preceding such termination or re-entry) for the period
commencing with such earlier termination of this Lease or the date
of any such re-entry, as the case may be, and ending with the date
contemplated as the Expiration Date hereof if this Lease had not so
terminated or if Landlord had not so re-entered the Demised
Premises, over (ii) the aggregate rental value of the Demised
Premises for the same period, or
(b) sums equal to the Fixed Rent and the Additional Rent which
would have been payable by Tenant had this Lease not so terminated,
or had Landlord not so re-entered the Demised Premises, payable upon
the due dates therefor specified herein following such termination
or such re-entry and until the date contemplated as the Expiration
Date hereof if this Lease had not so terminated or if Landlord had
not so reentered the Demised Premises; provided, however, that if
Landlord shall relet the Demised Premises during said period,
Landlord shall credit Tenant with the net rents received by Landlord
from such reletting, such net rents to be determined by first
deducting from the gross rents as and when received by Landlord from
such reletting the expenses incurred or paid by Landlord in
terminating this Lease or in re-entering the Demised Premises and in
securing possession thereof, as well as the expenses of reletting,
including, without limitation, altering and preparing the Demised
Premises for new tenants, brokers' commissions, legal fees, and all
other expenses properly chargeable
against the Demised Premises and the rental therefrom, it being
understood that any such reletting may be for a period shorter or
longer than the remaining Term, but in no event shall Tenant be
entitled to receive any excess of such net rents over the sums
payable by Tenant to Landlord hereunder nor shall Tenant be entitled
in any suit for the collection of damages pursuant to this
subdivision to a credit in respect of any net rents from reletting,
except to the extent that such net rents are actually received by
Landlord. If the Demised Premises or any part thereof shall be relet
in combination with other space, then proper apportionment on a
square foot basis shall be made of the rent received from such
reletting and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord for
the unexpired portion of the Term, or any part thereof, before presentation of
proof of such damages to any court, commission or tribunal, the amount of rent
reserved upon such reletting shall, prima facie, be the fair and reasonable
rental value for the Demised Premises, or part thereof, so relet during the term
of the reletting. Landlord shall not be liable in any way whatsoever for its
failure or refusal to relet the Demised Premises or any part thereof, or if the
Demised Premises or any part thereof are relet, for its failure to collect rent,
and Tenant's liability for damages or otherwise under this Lease shall not be
released or otherwise affected thereby.
23.02. Successive Suits, etc. Suit or suits for the recovery of such
damages, or any installments thereof, may be brought by Landlord from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the Term of this Lease would have
expired if it had not been so terminated under the provisions of Article 21, or
under any provision of law, or had Landlord not re-entered the Demised Premises.
Nothing herein contained shall be construed to limit or preclude recovery by
Landlord against Tenant of any sums or damages to which, in addition to the
damages particularly provided above, Landlord may lawfully be entitled by reason
of any default hereunder on the part of Tenant. Nothing herein contained shall
be construed to limit or prejudice the right of Landlord to prove for and obtain
as damages by reason of the termination of this Lease or re-entry on the Demised
Premises for the default of Tenant under this Lease an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, such damages are to be proved whether or not
such amount be greater, equal to, or less than any of the sums referred to in
Section 23.01.
23.03. Condition of Premises. In addition, if this Lease is
terminated under the provisions of Article 21, or if Landlord shall re-enter the
Demised Premises under the provisions of Article 22, Tenant agrees that:
(a) the Demised Premises then shall be in the same condition
as that in which Tenant has agreed to surrender the same to Landlord at the
expiration of the Term hereof;
(b) Tenant shall have performed prior to any such termination
any covenant of Tenant contained in this Lease for the making of any alteration
or for restoring or rebuilding the Demised Premises or the Building, or any part
thereof; and
(c) for the breach of any covenant of Tenant set forth above
in this Section 23.03, Landlord shall be entitled immediately, without notice or
other action by Landlord, to recover, and Tenant shall pay, as and for
liquidated damages therefor, the cost of performing such covenant (as estimated
by an independent contractor selected by Landlord).
23.04. Interest. In addition to any other remedies Landlord may have
under this Lease, and without reducing or adversely affecting any of Landlord's
rights and remedies under Article 21, if any Fixed Rent, Additional Rent or
damages payable hereunder by Tenant to Landlord is not paid within five (5) days
after its due date and/or demand therefor, the same shall bear interest at the
rate of one and one-half percent (1 1/2%) per month or the maximum rate
permitted by law, whichever is less, from the due date thereof until paid, and
the amount of such interest shall be Additional Rent hereunder.
23.05. In addition to any other remedies Landlord may have under
this Lease, and without reducing or adversely affecting any of Landlord's rights
and remedies under Article 21, in the event Tenant both vacates the Demised
Premises and there is a default in the payment of Rent hereunder, or in the
event Landlord obtains possession of the Demised Premises or terminates the
Lease by reason of a default by Tenant hereunder other than vacation of the
Demised Premises, Tenant shall pay to Landlord, as Additional Rent hereunder,
the amount of the unamortized cost of leasehold improvements made by the
Landlord amortized over the balance of the term of this lease.
ARTICLE 24
Surrender
24.01. Condition of Premises. (a) On the last day of the Term or
upon any earlier termination of this Lease, or upon any re-entry by Landlord
upon the Demised Premises, Tenant shall, at its own expense, quit and surrender
the Demised Premises to Landlord broom clean, in good order, condition and
repair, except for ordinary wear and tear and such damage or destruction as
Landlord is required to repair or restore under the Lease. Tenant shall remove
from the Demised Premises all of Tenant's Property and all personal property and
personal effects of all persons claiming through or under Tenant, and shall pay
the cost of repairing all damage to the Building and the Demised Premises
occasioned by such removal.
(b) All alterations, installations, additions and improvements made
and installed by Tenant, or at Tenant's expense, upon or in the Demised Premises
which are of a permanent nature and which cannot be removed without damage to
the Demised Premises or Building shall become and be the property of Landlord,
and shall remain upon and be surrendered with the Demised Premises as a part
thereof at the end of the Term of this Lease, except that Landlord shall
have-the right and privilege at any time up to twenty (20) days prior to the
expiration of the Term of the Lease to serve notice upon Tenant that any of such
alterations, installations, additions and improvements shall be removed and, in
the event of service of such notice, Tenant will, at Tenant's own cost and
expense, remove the same in accordance with such request, and restore the
Demised Premises to its original condition, ordinary wear and tear and casualty
excepted.
24.02. Sunday, Holidays. If the date of termination of this Lease
shall fall on a Sunday or a Holiday, then Tenant's obligations under Section
24.01 shall be performed on or prior to the Saturday or business day immediately
preceding such Sunday or Holiday.
24.03. Tenant's Property. Any Tenant's Property or other personal
property (other than money, securities, documents, or other valuables) which
shall remain in the Demised Premises after termination of this Lease shall be
deemed to have been abandoned and either may be retained by Landlord as its
property or may be disposed of in such manner as Landlord may see fit. If such
Tenant's Property or other personal property or any part thereof shall be sold,
Landlord may receive and retain the proceeds of such sale and apply the same, at
its option, against the expenses of the sale, cost of moving and storage, any
arrears of Fixed Rent or Additional Rent and damages to which Landlord may be
entitled hereunder or pursuant to law. Any excess proceeds shall be the property
of Landlord. Any expense incurred by Landlord in removing or disposing of such
Tenant's Property or other personal property shall be reimbursed to Landlord by
Tenant on demand.
24.04. Indemnification. If the Demised Premises are not surrendered
upon the termination of this Lease, Tenant shall indemnify Landlord against
loss, liability claims, damage, cost and expense (including, without limitation,
reasonable attorneys' fees), resulting from delay by Tenant in so surrendering
the Demised Premises as provided in Section 24.01, including any claims made by
any succeeding tenant founded on such delay.
24.05. Last Month. If, during the last month of the Term, Tenant
shall have removed all or substantially all of Tenant's Property from the
Demised Premises, Landlord may immediately enter and alter, renovate and
redecorate the Demised Premises, without elimination, diminution or abatement of
Rent, or incurring liability to Tenant for any compensation, and such acts shall
have no effect upon this Lease.
24.06. Survival. Landlord and Tenant's obligations under this
Article shall survive the termination of this Lease.
ARTICLE 25
Access to Demised Premises
25.01. Landlord's Rights. Landlord and Landlord's Agents shall have
the following rights in and about the Demised Premises: (i) to enter the Demised
Premises at all reasonable times, upon not less than twenty-four (24) hours
notice to Tenant, except in emergency situations, to examine the Demised
Premises or for any of the purposes set forth in this Article or for the purpose
of performing any obligation of Landlord under this Lease or exercising any
right or remedy reserved to Landlord in this Lease, and if Tenant or Tenant's
Agents shall not be personally present or shall not open and permit an entry
into the Demised Premises at any time when such entry shall be necessary for an
emergency, to use a master key or to forcibly enter the Demised premises; (ii)
to erect, install, use and maintain pipes, ducts and conduits in and through the
Demised Premises; (iii) to exhibit the Demised Premises to prospective tenants
during the last twelve (12) months of the Term or any Renewal Term or to
mortgagees and/or prospective purchasers of the Building at all other times;
(iv) to make such
decorations, repairs, alterations, improvements or additions, or to perform such
maintenance, including, but not limited to, the maintenance of all heating,
air-conditioning, elevator, plumbing, electrical and other mechanical
facilities, as Landlord may deem necessary or desirable; (v) to take all
materials into and upon the Demised Premises that may be required in connection
with any such decorations, repairs, alterations, improvements, additions or
maintenance; and (vi) to install on the inside of the windows a film or other
similar substance to reduce the usage of energy in the Building.
25.02. Portions Reserved. All parts (except surfaces facing the
interior of the Demised Premises) of all walls, windows and doors bounding the
Demised Premises (including exterior Building walls, core corridor walls, doors
and entrances), all balconies, terraces and roofs adjacent to the Demised
Premises, all space in or adjacent to the Demised Premises used for shafts,
stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating,
air-conditioning, plumbing and other mechanical facilities, service closets and
other Building facilities (other than the electric closet serving the Demised
Premises which shall be deemed a part thereof), and the use thereof, as well as
access thereto through the Demised Premises for the purposes of operation,
maintenance, alteration and repair, are hereby reserved to Landlord. Landlord
also reserves the right at any time to change the arrangement or location of
entrances, passageways, doors, doorways, corridors, stairs, toilets and other
public parts of the Building, provided any such change does not permanently and
unreasonably obstruct Tenant's access to Demised Premises. Nothing contained in
this Article shall impose any obligation upon Landlord with respect to the
operation, maintenance, alteration or repair of the Demised Premises or the
Building.
25.03. Third Party Access. Landlord and Landlord's Agents shall have
the right to permit access to the Demised Premises, whether or not Tenant shall
be present, to any receiver, trustee, assignee for the benefit of creditors,
sheriff, marshall or court officer entitled to, or reasonably purporting to be
entitled to, such access for the purpose of taking possession of, or removing
any property of Tenant or any other occupant of the Demised Premises, or for any
other lawful purpose, or by any representative of the fire, police, building,
sanitation or other department of the Town, Village, County, City, State or
Federal Governments. Neither anything contained in this Section, nor any action
taken by Landlord under this Section, shall be deemed to constitute recognition
by Landlord that any person other than Tenant has any right or interest in this
Lease or the Demised Premises.
25.04. No Eviction. The exercise by Landlord or Landlord's Agents of
any right reserved to Landlord in this Article shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of Rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord, or Landlord's Agents, or upon any
Superior Lessor or Superior Mortgagee by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise.
ARTICLE 26
Waivers
26.01. Order of Payment. If Tenant is in arrears in payment of Fixed
Rent or Additional Rent, Tenant waives Tenant's right, if any, to designate the
items to which any payments made by Tenant are to be credited, and Tenant agrees
that Landlord may apply any payments made by Tenant to such items as Landlord
sees fit, irrespective of and notwithstanding any designation or request by
Tenant as to the items to which any such payments shall be credited.
26.02. Counterclaims Defenses and Offsets. Subject to the provisions
of Articles "10", "12", "13" and "14" of this Lease, it is hereby expressly
covenanted and agreed by and between the parties hereto that the Tenant shall
not be entitled to any abatement of Rent, or rental value, or diminution of Rent
in any action between the parties hereto, or in any summary proceedings for the
nonpayment of Rent, or in any other actions or proceedings by reason of any
breach of the Landlord of any covenant contained in this Lease on its part to be
performed, and that in any action by the Landlord against Tenant either for Rent
or Additional Rent, or in any summary proceedings for nonpayment of rent, or in
any other action or proceedings instituted by Landlord against Tenant, the
Tenant shall not have the right of set-off, recoupment or counterclaim for any
damages which the Tenant may have sustained by reason of the Landlord's failure
to perform any of the terms, covenants and conditions contained in this Lease on
its part to be performed, or for any other cause. The Tenant shall be relegated
to an independent action for damages and such independent action shall not at
any time be brought or consolidated with any action or proceeding instituted by
the Landlord. In addition to the foregoing, in any such action or summary
proceeding brought by the Landlord against the Tenant for the collection of Rent
or for the nonpayment of Rent, the Tenant does hereby waive and agree not to
introduce any defense or counterclaim which the Tenant now has or hereafter may
have, except the defense of payment. The Tenant, however, shall have the right
to litigate any such claim in some independent action therefor, including the
right to seek any equitable remedy which a court of competent jurisdiction is
willing to grant to Tenant, and such independent action shall at no time be
joined or consolidated with any such action or summary proceeding for nonpayment
of Rent. This provision shall not apply in the event of total or partial
destruction of the major portion of the Demised Premises.
26.03. Trial by Jury. Landlord and Tenant hereby waive trial by jury
in any action, proceeding or counterclaim brought by either against the other or
any matter whatsoever arising out of or in any way connected with this Lease,
the relationship of Landlord and Tenant and Tenant's use or occupancy of the
Demised Premises.
ARTICLE 27
No Surrender, etc.
27.01. Delivery of Keys, etc. No act or thing done by Landlord or
Landlord's Agents during the Term shall constitute a valid acceptance of a
surrender of the Demised Premises or any remaining portion of the Term except a
written instrument accepting such
surrender, executed by Landlord. No employee of Landlord or the Managing Agent
shall have any authority to accept the keys of the Demised Premises prior to the
termination of this Lease, and the delivery of such keys to any such employee
shall not operate as a termination of this Lease or a surrender of the Demised
Premises; however, if Tenant desires to have Landlord sublet the Demised
Premises for Tenant's account, Landlord, or Landlord's Agents are authorized to
receive said keys for such purposes without releasing Tenant from any liability
for loss of, or damage to, any of Tenant's Property or other effects in
connection with such subletting. The failure of Landlord to seek redress for
breach or violation of, or to insist upon the strict performance of, any term,
covenant or condition of this Lease on Tenant's part to be observed or performed
shall not prevent a subsequent act or omission which would have originally
constituted a breach or violation of such term, covenant or condition from
having all the force and effect of an original breach or violation. The receipt
by Landlord of Rent with knowledge of the breach or violation by Tenant of any
term, covenant or condition of this Lease on Tenant's part to be observed or
performed shall not be deemed a waiver of such breach or violation. Landlord's
failure to enforce any Rules or Regulations against Tenant or against any other
occupant of the Building shall not be deemed a waiver of any such Rules or
Regulations. No provision of this Lease shall be deemed to have been waived by
Landlord unless such waiver shall be set forth in a written instrument executed
by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the aggregate of all Fixed Rent and Additional Rent then due, no endorsement or
statement on any check and no letter accompanying any check or other Rent
payment in any such lesser amount and no acceptance of any such check or other
such payment by Landlord shall constitute an accord and satisfaction, and
Landlord may accept any such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or to pursue any other legal remedy.
ARTICLE 28
Curing Tenant's Defaults
28.01. Right to Cure. If Tenant shall default in the performance of
any of Tenant's obligations under this Lease, Landlord, without thereby waiving
such default, may (but shall not be obligated to) perform the same for the
account and at the expense of Tenant, without notice in a case of emergency, and
in any other case only if such default continues after the expiration of fifteen
(15) days from the date Landlord gives Tenant notice of the default.
28.02. Reimbursement. Bills for any expenses incurred by Landlord in
connection with any such performance by it for the account of Tenant, and bills
for all costs, expenses and disbursements of every kind and nature whatsoever,
including reasonable counsel fees, involved in collecting or endeavoring to
collect the Fixed Rent or Additional Rent or any part thereof or enforcing or
endeavoring to enforce any rights against Tenant or Tenant's obligations
hereunder, under or in connection with this Lease or pursuant to law, including
any such cost, expense and disbursement involved in instituting and prosecuting
summary proceedings or in recovering possession of the Demised Premises after
default by Tenant or upon the expiration or sooner termination of this Lease,
and interest on all sums advanced by Landlord under this Article at the rate of
one and one-half percent (1 1/2%) per month or the maximum rate permitted by
law, whichever is less, may be sent by Landlord to Tenant monthly, or
immediately, at Landlord's option, and such amounts shall be due and payable in
accordance with the terms of such bills as Additional Rent.
ARTICLE 29
Notices
29.01. Any notice, statement, request, demand, consent, approval or
other communication required or permitted to be given, rendered or made by
either party to the other, pursuant to this Lease or pursuant to any applicable
law or requirement of public authority, shall be in writing (whether or not so
stated elsewhere in this Lease) and shall be deemed to have been properly given,
rendered or made only if (i) sent by registered or certified mail, return
receipt requested, posted in a United States post office station or letter box
in the continental United States, (ii) sent by overnight carrier, or (iii)
delivered by hand with receipt for delivery; addressed to the other party at the
Addresses for Notices set forth in Article 1 hereof (except that after the
Commencement Date, Tenant's address, unless Tenant shall give notice to the
contrary, shall be the Building), and shall be deemed to have been given,
rendered or made (i) on the day so mailed, unless outside of the State of New
York, in which case it shall be deemed to have been given, rendered or made on
the third business day after the day so mailed, (ii) on the day after being sent
by overnight carrier, or (iii) on the day of delivery by hand. Either party may,
by notice as aforesaid, designate a different address or addresses for notices,
statements, demands, consents, approvals or other communications intended for
it.
ARTICLE 30
OMITTED
ARTICLE 31
OMITTED
ARTICLE 32
No Representations -- Entire Agreement
32.01. Tenant expressly acknowledges and agrees that Landlord has
not made and is not making, and Tenant, in executing and delivering this Lease,
is not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease or in
any other written agreement which may be made between the parties concurrently
with the execution and delivery of this Lease and shall expressly refer to this
Lease. All understandings and agreements heretofore had between the parties are
merged in this Lease and any other written agreement(s) made concurrently
herewith, which alone fully and completely express the agreement of the parties
and which are entered into after full investigation, neither party relying upon
any statement or representation not embodied in this Lease or any other written
agreement(s) made concurrently herewith.
ARTICLE 33
Changes and Modifications
33.01. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such agreement is in writing, refers expressly to this Lease
and is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of the abandonment is
sought.
If any Superior Mortgagee shall require any modification of this
Lease, Tenant shall, at Landlord's request, promptly execute and deliver to
Landlord such instrument effecting such modification as Landlord shall require,
provided that such modification does not adversely affect in any material
respect any of the Tenant's rights under this Lease.
ARTICLE 34
Successors and Assigns
34.01. Except as otherwise expressly provided in this Lease, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto with the same effect as if mentioned in each instance where a
party is named or referred to; provided, however, that (a) no violation of the
provisions of Article 6 shall operate to vest any rights in any successor or
assignee of Tenant and (b) the provisions of this Article shall not be construed
as modifying the conditions of limitation contained in Article 21.
ARTICLE 35
Inability to Perform
35.01. The obligations of Tenant hereunder shall be in no way
affected, impaired or excused, nor shall Landlord have any liability whatsoever
to Tenant, because (a) Landlord is unable to fulfill, or is delayed in
fulfilling; any of its obligations under this Lease by reason of strike, other
labor trouble, governmental preemption or priorities or other controls in
connection with a national or other public emergency or shortages of fuel,
supplies or labor resulting therefrom, or any other cause, whether similar or
dissimilar, beyond Landlord's reasonable control; or (b) of any failure or
defect in the supply, quantity or character of electricity or water furnished to
the Demised Premises by reason of any requirement, act or omission of the public
utility or others serving the Building with electric energy, steam, oil, gas or
water, or for any other reason whether similar or dissimilar, beyond Landlord's
reasonable control.
ARTICLE 36
Rules and Regulations
36.01. Tenant and its employees and agents shall faithfully observe
and strictly comply with the Rules and Regulations annexed hereto and made a
part hereof as Exhibit C, and such reasonable changes therein (whether by
modification, elimination or addition) as Landlord
hereafter may make and communicate in writing to Tenant which do not
unreasonably affect the conduct of the permitted use of the Demised Premises.
Tenant's right to dispute the reasonableness of any changes in the Rules and
Regulations shall be deemed waived unless asserted by notice to Landlord within
thirty (30) days after the date upon which Landlord shall have given notice to
Tenant of the adoption of any such changes, in which case such dispute shall be
determined by arbitration pursuant to Article 30. In case of any conflict or
inconsistency between the provisions of this Lease and any Rules and Regulations
as originally promulgated or as changed, the provisions of this Lease shall
control. Landlord shall have no duty or obligation to enforce any Rule or
Regulation, or any term, covenant or condition of any other lease, against any
other tenant or occupant of the Building, and Landlord shall have no liability
to Tenant for any violation of the same by any other tenant or occupant of the
Building.
ARTICLE 37
Consents
37.01. Express Provision. The provisions of this Article shall apply
only in cases where either party hereto shall have specifically agreed not to
unreasonably withhold its consent or approval as provided in this Lease, or
where this Lease expressly provides that a judgment, opinion, requirement, act,
sum of money or time limit be reasonable.
37.02. If Tenant shall request Landlord's consent and Landlord shall
fail or refuse to give such consent, Tenant shall not be entitled to any damages
for any withholding by Landlord of its consent, it being intended that Tenant's
sole remedy shall be an action for specific performance or injunction, and that
such remedy shall be available only in those cases where Landlord has expressly
agreed in writing not to unreasonably withhold its consent or where as a matter
of law Landlord may not unreasonably withhold its consent.
ARTICLE 38
OMITTED
ARTICLE 39
Quiet Enjoyment
39.01. If and so long as Tenant pays the Fixed Rent and Additional
Rent and performs and observes all the terms, covenants and conditions hereof on
the part of Tenant to be performed and observed, Tenant shall quietly enjoy the
Demised Premises during the Term without hindrance or molestation by any one
claiming by, through or under Landlord, subject, however, to the terms of this
Lease.
ARTICLE 40
OMITTED
ARTICLE 41
Late Charge
41.01. In the event that any payment of Fixed Rent or Additional
Rent required to be made by Tenant under this Lease shall be overdue, a one time
late charge of six hundred and no/100 ($600.00) dollars may be charged by
Landlord for each such overdue payment, for the purpose of defraying the
expenses incurred in handling delinquent payments It is understood that the late
charge payable under this Article is in addition to the payment of interest on
overdue payments pursuant to Section 23.04.
ARTICLE 42
Miscellaneous
42.01. Governing Law. Irrespective of the place of execution or
performance, thin Lease shall be governed by and construed in accordance with
the laws of the State of New York.
42.02. Severability. If any provision of this Lease or the
application thereof to any person or circumstances shall, for any reason and to
any extent, be invalid or unenforceable, the remainder of this Lease and the
application of that provision to other persons or circumstances shall not be
affected but rather shall be enforced to the extent permitted by law.
42.03. Captions. The table of contents, captions, headings and
titles in this Lease are solely for convenience of reference and shall not
affect its interpretation.
42.04. Tenant's Covenants. Each covenant, agreement, obligation or
other provision of this Lease on Tenant's part to be performed shall be deemed
and construed as a separate and independent covenant of Tenant, not dependent on
any other provisions of this Lease.
42.05. Gender. All terms and words used in this Lease, regardless of
the number of gender in which they are used, shall be deemed to include any
other number and any other gender as the context may require.
42.06. Tenant's Occupancy of Other Space. Tenant shall not occupy
any space in the Building (by assignment, sublease or otherwise) other than the
Demised premises, except with the prior written consent of Landlord in each
instance.
42.07. Excavation. If an excavation shall be made upon land adjacent
to or under the Building, or shall be authorized to be made, Tenant shall afford
to the person causing or authorized to cause such excavation' license to enter
the Demised Premises for the purpose of performing such work as said person
shall deem necessary or desirable to preserve and protect the Building from
injury or damage and to support the same by proper foundations, without any
claim for damages or liability against Landlord and without reducing or
otherwise affecting Tenant's obligations under this Lease.
42.08. Construction. This Lease shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Lease to be drafted.
42.09. Notice of Accident. Tenant shall give notice to Landlord,
promptly after Tenant learns thereof, of (a) any accident in or about the
Demised Premises or the Building for which Landlord might be liable, (b) any
fire in the Demised Premises, (c) all damage to or defects in the Demised
Premises including fixtures, equipment and appurtenances thereof for the repair
of which Landlord might be responsible and (d) all damage to or defects in any
parts or appurtenances of the air-conditioning, elevator, plumbing, electrical,
sanitary, mechanical or other service or utility systems located in or passing
through the Demised Premises.
42.10. Window Cleaning. Neither Tenant or Tenant's Agents or
employees will require, permit, suffer or allow the cleaning of any window in
the Demised Premises from the outside (within the meaning of Section 202 of the
New York Labor Law) except in compliance with all applicable Regulations.
42.11. No Offer to Lease. This Lease is not to be construed as an
offer to lease and shall not in any way bind Landlord until such time as
Landlord shall have executed this Lease and made delivery thereof to Tenant.
42.12. Name of Building. Landlord may adopt any name for the
Building, and Landlord reserves the right to change the name and/or address of
the Building at any time.
ARTICLE 43
Common Areas and Parking
43.01. Landlord shall provide and shall make available from time to
time within the boundaries of the Property such parking facilities, driveways,
entrances and exits thereto, landscape and planted areas, and other improvements
and facilities, as Landlord shall at any time and from time to time deem
appropriate (all the foregoing being collectively referred to in this Lease as
"Common Areas"). Tenant and its officers, employees, agents, customers and
invitees shall have a nonexclusive right, in common with Landlord and all others
to whom Landlord has granted or may hereafter grant rights, to use the Common
Areas. The Common Areas shall at all times be subject to the exclusive control
and management of Landlord, and Landlord shall have the right from time to time
to establish, modify and enforce reasonable rules and regulations with respect
to the Common Areas, and Tenant agrees, after notice thereof, to abide by such
rules and regulations and to cause its officers, employees, agents, customers
and invitees to conform thereto. Landlord shall construct, operate, manage,
equip, repair, landscape, and maintain the Common Areas for their intended
purposes in such manner as Landlord shall, in Landlord's sole discretion, from
time to time determine. Landlord's rights respecting the Common Areas shall
include (but shall not be limited to) the following:
(i) to construct, maintain and operate lighting facilities
serving the Common Areas;
(ii) from time to time to change the area, level, location and
arrangement of parking areas and other Common Area facilities, to
make installations therein and to move or remove such installations,
and to change the location of, or permanently diminish or
discontinue the use of, any portion of the Common Areas;
(iii) to restrict parking by tenants, their officers, agents,
employees, customers and invitees, to designated areas;
(iv) to discontinue, or restrict the use of, any portion of
the Common Areas to such extent, and for such period of time, as may
in the opinion of Landlord's counsel be necessary to prevent a
dedication thereof or the accrual of any rights to any person or the
public therein;
(v) to temporarily suspend the use of all, or any portion of,
the Common Areas; and
(vi) to take any other action with respect to the Common
Areas, as Landlord, in his sole discretion, shall determine to be
advisable.
43.02. Tenant's right to use the Common Areas shall be deemed to be
a license coterminous with this Lease, and Landlord shall not be subject to any
liability nor shall Tenant be entitled to any compensation or diminution or
abatement of Rent by reason of Landlord's exercise of any right or rights
respecting Common Areas reserved pursuant to Section 43.01 hereof, nor shall the
exercise of any such right be deemed a constructive or actual eviction.
43.03. Tenant shall be entitled to free use of up to the number of
parking spaces provided in Section 1.01 hereof for its employees and invitees.
43.04. With respect to the parking of vehicles at the Property:
(a) If Landlord elects to designate a specific parking area
for Tenant's use, Tenant shall require its personnel and visitors to
park their vehicles only in parking spaces designated by Landlord
for Tenant's use for its personnel and visitors on a "first come,
first served" basis. Landlord reserves the right at all times to
redesignate such parking spaces. Tenant, its personnel and visitors
shall not at any time park any trucks or delivery vehicles in any of
the parking areas.
(b) All parking spaces and any other parking areas used by
Tenant, its personnel and visitors will be at their own risk, and
Landlord shall not be liable for any injury to person or property,
or for loss or damage to any automobile or its contents, resulting
from theft, collision, vandalism or any other cause whatsoever.
(c) If any automobile owned by Tenant or by its personnel or
visitors remains in the parking area overnight and the same
interferes with the cleaning or
maintenance of said area (snow or otherwise), and any such
automobile is not relocated within the parking lot after reasonable
notice from Landlord to do so, any costs or liabilities incurred by
Landlord in removing said automobile to effectuate cleaning or
maintenance, or any damages resulting to said automobile or to
Landlord's equipment or equipment owned by others by reason of the
presence of or removal of said automobile during such cleaning or
maintenance shall be paid by Tenant to Landlord, as Additional Rent
on the Fixed Rent payment date next following submission of a bill
therefor.
43.05. Tenant shall have the right to use the conference room
located in the common areas of the first floor of the Building, upon such terms
and conditions, and subject to the rules and regulations for the Building as
promulgated by Landlord in its sole discretion, on a first come, first served
basis in common with the other tenants of the Building. Notwithstanding anything
contained herein or in the rules and regulations of the Building to the
contrary, Landlord agrees that Tenant will not be charged for the first two
times that Tenant uses the conference room each month.
43.06. Tenant shall have the right to use the area set forth on
Exhibit E hereto, located in the first floor lobby of the Building, for the
retail sale of flowers (the "Retail Space"), without charge to Tenant for Fixed
Rent, however, Tenant shall be responsible for payment of all charges for
electric service and janitorial services for the Retail Space.
ARTICLE 44
Holding Over
44.01. If Tenant holds over after the expiration or sooner
termination hereof without the express written consent of Landlord, Tenant shall
become a tenant at sufferance only at the greater of (i) one and one-half times
the Fixed Rent due hereunder or (ii) the then prevailing market rate rent, as
determined by Landlord in its sole and absolute discretion, plus all items of
Additional Rent provided herein, and either (i) or (ii) shall be prorated on a
daily basis according to the number of days contained in the month that such
expiration or earlier termination takes place, and otherwise upon the terms,
covenants and conditions herein specified so far as applicable. Acceptance by
Landlord of this Fixed Rent after such expiration or earlier termination shall
not constitute a consent to a holdover hereunder or result in a renewal. The
foregoing provisions of this paragraph are in addition to and do not affect
Landlord's rights of re-entry or any other rights of Landlord hereunder or as
otherwise provided by law.
ARTICLE 45
Industrial Development Agency
45.01. Tenant represents that:
(i) The performance under this lease by Tenant will not result in
the removal of an industrial, manufacturing, warehousing, recreation or
commercial plant or facility from one area of the State of New York, or in the
abandonment of one or more of such plants or facilities
within the State of New York, unless such removal or abandonment is reasonably
necessary in Tenant's judgment to discourage Tenant from removing such other
plant or facility to a location outside the State of New York, or is reasonably
necessary to preserve the competitive position of Tenant in its industry; and
(ii) Tenant shall use the Demised Premises for purposes permitted
under the New York State Industrial Development Agency Act (constituting Title I
of Article 18-A of the General Municipal Law, Chapter 24 of the Consolidated
Laws of New York), as amended, and Chapter 529 of the 1971 Laws of New York, as
amended.
ARTICLE 46
RIGHT OF FIRST OFFER
46.01. In the event that any other space in the Building becomes
available for rent on or before April 1, 2002, then, provided Tenant is not in
default beyond applicable cure periods of any material terms or material
provisions of this Lease, Landlord shall first offer such space to Tenant for
lease. Tenant acknowledges and agrees that the foregoing right of first offer is
subject to the rights of all existing tenants of the Building to renew their
current leases whether or not the current leases contain a renewal option.
Landlord shall notify Tenant, in writing, within twelve (12) months of the date
that a space in the Building will become available for lease. Tenant shall have
seven (7) calendar days from the time Tenant receives such notice from Landlord
to exercise this right of first offer, by written notice to Landlord, time being
of the essence with respect to such notice. In the event that Tenant timely
exercises the aforesaid option, it shall lease such additional space on the
first, second and/or third floors of the Building upon terms and conditions then
being offered by Landlord to the general market for like space in the Building;
and any additional space on the fourth or sixth floors of the Building shall be
upon the same terms and conditions, including the then current Basic Annual
Rent, as set forth in this Lease, with the aggregate cost of Tenant improvements
to be installed in the additional space by Landlord calculated as follows: $2.14
per square foot per month remaining in the lease term.
ARTICLE 47
RENEWAL OPTION
Landlord agrees that so long as Tenant is not in default beyond
applicable cure periods of any of the material terms or material provisions of
this lease and Tenant has not assigned the Lease or sub-let the Demised
Premises, Tenant shall have the option (the "Renewal Option") to renew the term
of this lease for one (1) additional period of five (5) years (the "Renewal
Term"). The Renewal Term shall be upon the same terms and conditions as are
herein contained except that the Fixed Rent shall be as determined to be 95% of
"fair" market rent for comparable space in the Building.
Tenant shall exercise the Renewal Option by delivery of written
notice to Landlord no later than nine (9) months prior to the commencement of
the Renewal Term, time being of the essence with respect to such notice.
Landlord shall provide an allowance to Tenant in an amount
equivalent to Landlord's cost to repaint and re-carpet the Demised Premises
using Building standard materials, at the commencement of the Renewal Term.
Nothing herein shall require Landlord to perform any other work, renovations or
improvements upon demised premises or otherwise.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as
of the day and year first above written.
WITNESS: LANDLORD:
1600 STEWART AVENUE, L.L.C
By: STEWART HOLDINGS, L.L.C.,
its Member
By: OAKTREE CAPITAL MANAGEMENT, LLC,
its Manager
By:_____________________________________
Name: Russel S. Bernard
Title: Principal
By:_____________________________________
Name: Michael S. Halpern
Title: Vice President
WITNESS: TENANT:
800-FLOWERS, INC.
_______________________ By:_____________________________________
Name: Christopher McCann
Title: Senior Vice President
|
Tenant's Federal Tax Identification Number Is___________________________________
EXHIBIT A
Description of Property
TAX LOT 364
ALL that certain part place or parcel of land lying, being and situate near
Westbury, Town of Hempstead, County of Nassau and State of New York, being more
particularly bounded and described as follows:
BEGINNING at the corner formed by the intersection of the southerly side of
Stewart Avenue and the westerly side of Merrick Avenue;
RUNNING THENCE from said point of beginning southerly along the westerly side of
Merrick Avenue South 19 degrees 37 minutes 12 seconds East 736.97 feet to a
point and land now or formerly of The Long Island Railroad;
RUNNING THENCE generally westerly along said land of the Long Island Railroad,
the following five (5) courses and distances:
(1) North 88 degrees 09 minutes 12 seconds West a distance of 135.00 feet;
(2) North 1 degree 50 minutes 48 seconds East a distance of 10.00 feet;
(3) North 88 degrees 09 minutes 12 seconds West a distance of 60.00 feet;
(4) South 1 degree 50 minutes 48 seconds West a distance of 10.00 feet;
(5) North 88 degrees-09 minutes 12 seconds West a distance of 117.60 feet to a
point and land now or formerly of the County of Nassau;
RUNNING THENCE northerly and westerly along said land now or formerly of the
County of Nassau the following five (5) courses and distances:
(1) Along the arc of a curve bearing to the left, having a radius of 500.00
feet a distance of 168.06 feet;
(2) Along the arc of a curve bearing to the left having a radius of 1,000.00
feet a distance of 118.69 feet;
(3) North 52 degrees 32 minutes 40 seconds West a distance of 368.00 feet;
(4) Along the arc of a curve bearing to the right having a radius of 150.00
feet a distance of 360.07 feet;
(5) North 84 degrees 59 minutes 30 seconds East 18.03 feet to the southerly
side of Stewart Avenue;
RUNNING THENCE southerly and easterly along the southerly side of Stewart
Avenue, the following two courses and distances:
(1) South 1 degree 50 minutes 48 seconds West a distance of 7.99 feet;
(2) South 88 degrees 09 minutes 12 seconds East 449.81 feet to the corner
formed by the intersection of the southerly side of Stewart Avenue and the
westerly side of Merrick Avenue and the point or place of BEGINNING.
TAX LOT 365
ALL that certain plot, piece or parcel of land, lying, being and situate near
Westbury, Town of Hempstead, County of Nassau and State of New York, being more
particularly bounded and described as follows:
BEGINNING at a point on the easterly side of Meadowbrook State Parkway, distant
227.89 feet southerly from the corner formed by the intersection of the
southerly side of Stewart Avenue and the easterly side of Meadowbrook State
Parkway;
RUNNING THENCE from said point of beginning southerly along the Meadowbrook
State Parkway entrance and exit ramp the following three (3) courses and
distances:
(1) South 52 degrees 32 minutes 40 seconds East a distance of 515.73 feet;
(2) Along the arc of a curve bearing to the right having a radius of 942.00
feet a distance of 111.80 feet;
(3) Along the arc of a curve bearing to the right having a radius of 442.00
feet a distance of 116.64 feet to a point and land now or formerly of the
Long Island Railroad;
RUNNING THENCE westerly along said land of the Long Island Railroad the
following two (2) courses and distances:
(1) North 88 degrees 09 minutes 12 seconds West a distance of 149.20 feet;
(2) Along the arc of a curve bearing to the left, having a radius of 5,759.65
feet a distance of 209.50 feet to the easterly side of Meadowbrook State
Parkway;
RUNNING THENCE northerly along said easterly side of Meadowbrook State Parkway
the following two (2) courses and distances:
(1) Along the arc of a curve bearing to the left having a radius of 4,977.01
feet a distance of 286.15 feet;
(2) North 0 degrees 59 minutes 26 seconds West a distance of 268.40 feet to
the point or place of BEGINNING.
OVERALL DESCRIPTION
ALL that plot, place or parcel of land, lying, being and situate near Westbury,
County of Nassau and State of New York, being more particularly bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the southerly side of
Stewart Avenue and the westerly side of Merrick Avenue;
RUNNING THENCE from said point of beginning southerly along the westerly side of
Merrick Avenue South 19 degrees 37 minutes 12 seconds East 736.97 feet to a
point and land now or formerly of the Long Island Railroad;
RUNNING THENCE generally westerly, along said land of the Long Island Railroad,
the following six (6) courses and distances:
(1) North 88 degrees 09 minutes 12 seconds West, a distance of 135.00 feet;
(2) North 1 degree 50 minutes 48 seconds East, a distance of 10.00 feet;
(3) North 88 degrees 09 minutes 12 seconds West, a distance of 60.00 feet;
(4) South 1 degree 50 minutes 48 seconds West, a distance of 10.00 feet;
(5) North 88 degrees 09 minutes 12 seconds West, a distance of 334.01 feet;
(6) Along the arc of a circle bearing to the left, having a radius of 5,759.65
feet, a distance of 209.50 feet to the easterly side of Meadowbrook State
Parkway;
RUNNING THENCE northerly and westerly along said easterly side of Meadowbrook
State Parkway, the following two (2) courses and distances:
(1) Along the arc of a curve bearing to the left, having a radius of 4,977.01
feet, a distance of 286.15 feet;
(2) North 0 degrees 59 minutes 26 seconds West, a distance of 496.29 feet to
the southerly side of Stewart Avenue;
RUNNING THENCE easterly along said southerly side of Stewart Avenue, along the
arc of a curve bearing to the right, having a radius of 5,337.85 feet a distance
of 252.61 feet to a point;
RUNNING THENCE southerly South 1 degree 50 minutes 48 seconds West 7.99 feet to
the widened line of Stewart Avenue;
RUNNING THENCE easterly along the widened southerly line of Stewart Avenue South
88 degrees 09 minutes 12 seconds East a distance of 449.81 feet to the point or
place of BEGINNING.
EXCEPTING THEREFROM such land as is necessary to provide for the entrance and
exit ramps of Meadowbrook State Parkway, said exception parcel being more
particularly bounded and described as follows:
BEGINNING at the corner formed by the intersection of the easterly side of
Meadowbrook State Parkway and the southerly side of Stewart Avenue;
RUNNING THENCE from said point of beginning easterly along the southerly side of
Stewart Avenue, along the arc of a curve bearing to the right, having a radius
of 5,337.85 feet a distance of 252.61 feet to a point;
RUNNING THENCE southerly, along the easterly side of said Meadowbrook Parkway
entrance and exit ramp, the following five (5) courses and distances:
(1) South 84 degrees 59 minutes 30 seconds West, a distance of 18.03 feet;
(2) Along the arc of a curve bearing to the left, having a radius of 150.00
feet, a distance of 360.07 feet;
(3) South 52 degrees 32 minutes 40 seconds East, a distance of 368.00 feet;
(4) Along the arc of a curve bearing to the right, having a radius of 1,000.00
feet a distance of 118.69 feet;
(5) Along the arc of a curve bearing to the right, having a radius of 500.00
feet, a distance of 168.06 feet to a point and land now or formerly of the
Long Island Railroad;
RUNNING THENCE westerly along said land now or formerly of the Long Island
Railroad, North 88 degrees 09 minutes 12 seconds West, 67.21 feet to the
westerly side of said Meadowbrook Parkway entrance and exit ramp;
RUNNING THENCE northerly along said entrance and exit ramp, the following four
(4) courses and distances:
(1) Along the arc of a curve bearing to the left, having a radius of 442.00
feet, a distance of 116.64 feet;
(2) Along the arc of a curve bearing to the left, having a radius of 942.00
feet, a distance of 111.80 feet;
(3) North 52 degrees 32 minutes 40 seconds West, a distance of 515.73 feet;
(4) North 0 degrees 59 minutes 26 seconds West, a distance of 227.89 feet to
the point or place of BEGINNING.
EXHIBIT C
RULES AND REGULATIONS
(1) The rights of tenants in the entrances, corridors and elevators
of the Building are limited to ingress to and egress from the tenant's premises
for the tenants and their employees, licenses and invitees, and no tenant shall
use, or permit the use of the entrances, corridors, or elevators for any other
purpose. No tenant shall invite to the tenant's premises, or permit the visit of
persons in such numbers or under such conditions as to interfere with the use
and enjoyment of any of the plazas, entrances, corridors, elevators and other
facilities of the Building by other tenants. No tenant shall encumber or
obstruct, or permit the encumbrances, or obstruction of any of the sidewalks,
plazas, entrances, corridors, elevators, fire exits or stairways of the
Building. The Landlord reserves the right to control and operate the public
portions of the Building, the public facilities, as well as facilities furnished
for the common use of the tenants, in such manner as it deems best for the
benefit of the tenants generally.
(2) The Landlord may refuse admission to the Building outside of
ordinary business hours to any person not known to the watchman in charge or not
having a pass issued by the Landlord or not properly identified, and may require
all persons admitted to or leaving the Building outside of ordinary business
hours to register. Tenant's employees, agents and visitors shall be permitted to
enter and leave the Building whenever appropriate arrangements have been
previously made between the Landlord and the Tenant with respect thereto. Each
tenant shall be responsible for all persons for whom he request such permission
and shall be liable to the Landlord for all acts of such persons. Any person
whose presence in the Building at any time shall, in the judgment of the
Landlord, be prejudicial to the safety, character, reputation and interests of
the Building or its tenants may be denied access to the Building or may be
ejected therefrom. In case of invasion, riot, public excitement or other
commotion the Landlord may prevent all access to the Building during the
continuance of the same, by closing the doors or otherwise, for the safety of
the tenants and protection of property in the Building. The Landlord may require
any person leaving the Building with any package or other object to exhibit a
pass from the tenant from whose premises the package or object is being removed,
but the establishment and enforcement of such requirement shall not impose any
responsibility on the Landlord for the protection of any tenant against the
removal of property from-the premises of the tenant. The Landlord shall, in no
way, be liable to any tenant for damages or loss arising from the admission,
exclusion or ejection of any person to or from the tenant's premises or the
Building under the provisions of this rule.
(3) No tenant shall obtain or accept for use in its premises ice,
food, beverages, barbering, boot lacking, floor polishing, lighting maintenance,
cleaning or other similar services from any person not authorized by the
Landlord in writing to furnish such services, provided always that the charges
for such services by persons authorized by the Landlord are not excessive. Such
services shall be furnished only at such hours, in such places within the
tenant's premises and under such regulations as may be fixed by the Landlord. It
is agreed understood that this provision shall not apply to take-out food
ordered in by Tenant.
(4) No awnings or other projections over or around the windows shall
be installed by any tenant, and only such window coverings as are supplied or
permitted by the Landlord shall be used in a tenant's premises.
(5) There shall not be used in any space, nor in the public halls of
the Building, either by the Tenant or by jobbers, or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
(6) All entrance doors in each tenant's premises shall be left
locked when the tenant's premises are not in use. Entrance doors shall not be
left open at any time. All windows in each tenant's premises shall be kept
closed at all times and all blinds therein above the ground floor shall be
lowered when and as reasonably required because of the position of the sun,
during the operation of the Building air conditioning system to cool or
ventilate the tenant's premises.
(7) No noise, including the playing of any musical instruments,
radio or television, which, in the judgment of the Landlord, might disturb other
tenants in the Building, shall be made or permitted by any tenant, and no
cooking shall be done in the tenant's premises, except as expressly approved in
writing by the Landlord. No dangerous, inflammable, combustible or explosive
object or material shall be brought into the Building by any tenant or with the
permission of any tenant.
(8) Tenant shall not permit any foul odors emanating within the
premises to seep into any other portion of the Building.
(9) No acids, vapors or other materials shall be discharged into the
waste lines, vents or flues of the Building which may cause damage thereto. The
water and wash closets and other plumbing fixtures in or serving any tenant's
premises shall not be used for any purpose other than the purposes for which
they were designed or constructed, and no sweeping, rubbish, rags, acids or
other foreign substances shall be deposited therein. All damages resulting from
any misuse of the fixtures shall be borne by the tenant who, or whose servants,
employees, agents, visitors or licensees shall have, caused the same.
(10) No signs, advertisements, notices or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside of the premises or the Building without the prior written
consent of Landlord. In the event of the violation of the foregoing by any
tenant, Landlord may remove the same without any liability, and may charge the
expense incurred by such removal to the tenant or tenants violating this rule.
Signs and lettering on doors shall be inscribed, painted, or affixed for each
tenant by Landlord at the expense of such tenant, and shall be of a size, color
and style acceptable to Landlord. Tenant shall not use any advertising which
impairs the reputation of the Building or its desirability as a first class
office building, and upon written notice from Landlord, Tenant shall refrain
from or discontinue such advertising.
(11) No additional locks or bolts of any kind shall be placed upon
any of the doors or windows in any tenant's premises and no lock on any door
therein shall be changed or altered in any respect. Duplicate keys for a
tenant's premises and toilet rooms shall be procured only from the Landlord,
which may make a reasonable charge therefor. Upon the termination of
a tenant's lease, all keys of the tenant's premises and toilet rooms shall be
delivered to the Landlord. It is understood that Tenant shall have the right to
designate "secured" rooms within the Demised Premises for which Landlord shall
not be provided keys. Tenant agrees to supply a list of the area(s) so secured
to Landlord.
(12) No tenant shall install any resilient tile or similar floor
covering in the premises except in such manner as may be approved by Landlord.
(13) No tenant or occupant shall engage or pay any employees in the
Building, except those actually working for the management company employed by
Landlord for the Building.
(14) No premises shall be used, or permitted to be used, at any
time, as a store for the sale or display of goods, wares, or merchandise of any
kind or a restaurant, shop booth, bootblack or other stand, or for the conduct
of any business or occupation which predominately involves direct patronage of
the general public in the Premises or for manufacturing or for other similar
purposes.
(15) The tenant's employees shall not loiter around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
(16) If the premises become infested with insects or vermin, such
tenant, at its sole cost and expense, shall cause its premises to be
exterminated, from time to time, to the satisfaction of Landlord, and shall
employ such exterminators therefor as shall be approved by Landlord.
(17) Tenant shall not install nor permit to be installed any vending
machines for public use.
(18) The floors, windows, doors and transoms that reflect or admit
light in passageways, or into any place in the Building, shall not be covered or
obstructed by any of the tenants.
(19) Nothing shall be placed on the outside of the Building or of
the windows, window sills or projections.
(20) No tenant shall cause unnecessary labor by reason of
carelessness and indifference to the preservation of good order and cleanliness
in its premises or in the Building.
(21) No animals or birds, bicycles, mopeds or vehicles of any kind
shall be kept in or about the premises or permitted therein.
(22) A directory in a conspicuous place on the first floor will be
provided by the Landlord, on which the names of tenants will be placed by
Landlord.
(23) Tenant shall not use or keep in the Building any explosives,
kerosene, gasoline, benzine, camphene, burning fluid or other illuminating
material, except for that which is permitted by Landlord's insurance coverage
and Tenant's insurance coverage.
(24) No tenant, or any other employee of any tenant, shall go upon
the roof of the Building without the written consent of the Landlord.
(25) No furniture, office equipment, packages or merchandise will be
received in the Building or carried up or down in the elevator, except between
such hours as shall be designated by the Landlord. The Landlord shall prescribe
the method and manner in which any merchandise, heavy furniture, equipment or
safes shall be brought in or taken out of the Building, and also the hours at
which such moving shall be done. The Landlord in all cases retains the right to
prescribe the weight and proper position of such heavy furniture and safes. All
damages done to the Building by taking in or out such merchandise, heavy
furniture or safes or any damages done to the Building while any of the said
property shall be therein, shall be made good and paid for by tenant on demand.
(26) No article shall be fastened to or holes drilled or nails or
screws driven into the walls or partitions which are greater than 5/8" long, nor
shall the wall or partitions be in any way marked or broken, nor shall any
attachment be made to the electric-lighting wires of the Building for storing of
electricity, or for the running of motors or other purposes, nor shall any
Tenant use any other method of heating than that provided by Landlord, without
the written consent of Landlord. No mechanics shall be allowed in or about the
Building other than those employed by the Building Management without the
written consent of the Landlord first having been obtained.
(27) Pursuant to Article 36, the Landlord reserves the right to
rescind any of these rules and regulations and to make such other and further
rules and regulations as, in Landlord's judgment, may from time to time be
needed for the safety, care, maintenance, operation and cleanliness of the
Building, and for the preservation of good order therein which, when so made,
and notice thereof given to the tenant, shall have the same force and effect as
if originally made a part of the foregoing lease; provided that such other and
further rules and regulations shall not be inconsistent with the proper and
rightful enjoyment by the tenant under the foregoing lease of the premises
therein referred to.
EXHIBIT D
CLEANING SCHEDULE
LANDLORD'S CLEANING SERVICES
I. LAVATORIES (in common hallways only):
(nightly unless otherwise noted)
A. Clean and disinfect all bowls, seats, urinals and sinks.
B. Clean all mirrors.
C. Empty all trash receptacles and sanitary napkin disposal receptacles
and remove to a designated area.
D. Wipe dry all metal work.
E. Refill all soap, paper towel, toilet tissue and seat cover
dispensers.
F. Sweep and damp mop tile floors with disinfectant.
G. Wipe clean the exterior or all waste cans and dispensing units.
H. Spot clean and disinfect all walls and partitions.
I. Scrub flooring as necessary.
J. Remove smudges from doors, doorframes and light switches.
II. COMMON HALLWAYS AND CORRIDORS:
(nightly unless otherwise noted)
A. Spot clean all glass.
B. Clean all drinking fountains.
C. Vacuum all carpeted areas, as necessary.
III. RUBBISH REMOVAL SERVICE:
Remove all ordinary, office dry rubbish and paper from waste paper
receptacles nightly, Monday through Friday, Holidays excepted.
IV. WINDOW CLEANING SERVICE:
Clean the outside of all exterior windows periodically during the year as
Landlord deems necessary.
THIS is by GIFT HOUSE, INC., as successor to McCann Companies Inc., a
Delaware Corporation, having its principal place of business at 1600 Stewart
Avenue, Westbury, New York I 1530 (hereinafter referred to as "Guarantor"), to
1600 STEWART AVENUE, L.L.C., a Delaware limited liability company ("Landlord"),
having its offices at c/o Oaktree Capital Management, LLC, 550 South Hope
Street, 22nd Floor, Los Angeles, California 90071, Attn: Michael A. Halperin
(the "Landlord"), on this ____ day of May, 1998
At the request of the Guarantor, the Landlord has entered into a lease
(the "Lease") of office space with 800-FLOWERS, INC., (the "Tenant") in premises
located at 1600 Stewart Avenue, Westbury, New York I 1590 New York (the
"`Demised Premises"), winch is dated the same date as this guaranty and
The Landlord would not have entered into the Lease except for the request
of the Guarantor and the execution and delivery of this guaranty; and
In consideration of the Landlord entering into the Lease with the Tenant:
The Guarantor jointly and severally agrees as follows:
1. Guaranty. The Guarantor, for itself and its legal representatives,
guarantees the prompt payment when due, or whenever payment may become due under
the terms of the lease, of all payments of rent, additional rent, and all other
charges, expenses ant costs of every laud and nature, which are or may be due
now or in the future under the terms of the Lease, any agreements or documents
related to the Lease, or any other transaction between the Landlord and the
Tenant directly or indirect related to the Lease; and the complete and timely
performance, satisfaction and observation of the terms and conditions of the
Lease, rules and regulations and related obligations arising by reason of the
Lease, required to be performed satisfied or observed by the Tenant.
2. Coverage of guaranty. This guaranty extends to any and all liability
which the Tenant has or may have to the Landlord by reason of matters occurring
after the expiration of the term of the lease by reason of removal of Tenant
property, surrender of possession, Tenant's default, or other matters. This
guaranty extends to any successor of the Tenant, any assignee or sublessee of
the Tenant, to any extensions or renewals of the Lease, and to any term
established by reason of the holdover of the Tenant, an assignee or sublessee.
3. Performance guaranty. In the event that the Tenant fails to perform,
satisfy or observe the teens and conditions of the Lease, rules and regulations,
and related Lease obligations required to be performed, satisfied or observed by
the Tenant, the Guarantor will promptly and fully perform, satisfy and observe
the obligation or obligations in the place of the Tenant. The Guarantor shall
pay, reimburse and indemnify the Landlord for any and all damages, costs,
expenses, losses and other liabilities arising or resulting from the failure of
the Tenant to perform, satisfy or observe regulations and related obligations.
4. Waiver of notices. Without notice to or further from the Guarantor, the
Landlord may waive or modify any of the terms or conditions of the Lease, any
rules and regulations or related Tenant obligations; or compromise, settle or
extend the time of payment of any amount due from the Tenant or the time of
performance of any obligations of the Tenant. These actions
may be taken by the Landlord without discharging or otherwise affecting the
obligations of the Guarantor.
5. Lease security. This guaranty shall remain in full force and effect,
and the Guarantor shall be fully responsible, without regard to any security
deposit or other collateral for the performance of the terms and conditions of
the lease, or the receipt, disposition, application, or release of any security
deposit or other collateral, now or hereafter held by or for the Landlord
6. Unconditional Obligations. The liability of the Guarantor is direct,
immediate, absolute, continuing, unconditional and unlimited. The landlord shall
not be required to pursue any remedies it may have against the Tenant or against
any security deposit or other collateral as a condition to enforcement of this
guaranty. Nor shall the Guarantor be discharged or released by reason of the
discharge or release of the tenant for any reason, including a discharge in
Bankruptcy, receivership or other proceedings, a disaffirmation or rejection of
the Lease by a trustee, custodian, or other representative in Bankruptcy a stay
or other enforcement restriction, or any other reduction, modification,
impairment or limitations of the liability of the Tenant or any remedy of the
Landlord, including but not limited to the Landlord's obtaining of a judgment of
possession and the issuance and/or execution of a warrant of eviction issued by
any count of competent jurisdiction. The Guarantor assumes all responsibility
for bang and keeping himself informed of Tenant's financial condition and
assets, and of all other circumstances bearing upon the risk of non-performance
by Tenant under the Lease. The Guarantor agrees that Landlord shall have no duty
to advise the Guarantor of information known to it regarding such circumstances
or risks.
7. Binding effect. This guaranty is binding upon the Guarantor, his legal
representatives and assigns, and is binding upon and shall inure to the benefit
of the Landlord, its successors and assigns. No assignment or delegation by the
Guarantor shall release the Guarantor of his joint and several liability and
obligations under this guaranty includes also the first and any successive
assignee or sublessee of the Tenant or any assignee or sublessee of the Tenant.
8. Modification. This guaranty may not be modified orally, but only by a
writing signed by the Guarantor and the Landlord. Modifications include any
waiver, change, discharge, modification, or termination.
IN WITNESS WHEREOF, the Guarantor has duly signed this guaranty on the
date stated above.
WITNESS: Guarantor:
800 GIFT HOUSE, INC.
By:_____________________________________
Christopher McCann, V.P.
STATE NEW YORK )
)ss.:
COUNTY OF NASSAU )
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On the ________ day of May, 1998, before me personally came James F.
McCann to me known to be the President of 800 GIFT HOUSE, INC., the corporation
described in and which executed the foregoing instrument'; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
Notary Public
Exhibit 10.3
EXECUTION COPY
CONSENT AND AMENDMENT NO. 1 TO
INVESTMENT AGREEMENT
THIS CONSENT AND AMENDMENT NO. 1 TO INVESTMENT AGREEMENT (this
"CONSENT AND AMENDMENT"), dated as of May 20, 1999, among Chase Venture Capital
Associates, a California limited partnership formerly known as Chemical Venture
Capital Associates ("CHASE"), 1-800-FLOWERS.COM, Inc., a Delaware corporation
formerly known as Teleway, Inc. ("FLOWERS"), and James F. McCann ("MCCANN").
WHEREAS, McCann and the predecessor entities of Chase and Flowers are party to the Investment Agreement, dated January 16, 1995 (the "INVESTMENT AGREEMENT"), whereby Flowers issued to Chase 26,345 shares of its Class C Common Stock, par value $0.01 per share (the "CLASS C COMMON STOCK") and warrants (the "WARRANTS") to purchase 237,104 shares of its Class B Common Stock, par value $0.01 per share (the "CLASS B COMMON STOCK"); and
WHEREAS, Flowers and McCann desire to sell certain shares of Flowers capital stock to Chase and certain other investors in a private placement offering (the "PRIVATE PLACEMENT"), and
WHEREAS, Flowers desires to register shares of its capital stock under the Securities Act of 1933, as amended, for sale to the public in an initial public offering (the "IPO"); and
WHEREAS, in connection with the Private Placement and the IPO,
Flowers deems it necessary to recapitalize its capital stock (the
"RECAPITALIZATION"); and
WHEREAS, Chase considers the consummation of the Private Placement, the IPO and the Recapitalization to be in the best interests of Flowers and to be in its best interests as a stockholder of Flowers; and
WHEREAS, as certain provisions of the Investment Agreement would inhibit or prevent the consummation of the Private Placement, the IPO and the Recapitalization, the parties desire to amend the Investment Agreement and consent to certain events as provided herein;
NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby recognized, the parties agree as follows:
1. AMENDMENTS TO INVESTMENT AGREEMENT.
1.1. REFERENCES IN INVESTMENT AGREEMENT.All references in the Investment Agreement to CVCA shall be deemed references to Chase and all references to the Company shall be deemed references to Flowers.
1.2. RECAPITALIZATION. Upon a Recapitalization Event (as defined in section 2.1 below), section 7.11 of the Investment Agreement shall be terminated in its entirety.
1.3. ELIMINATION OF CERTAIN COVENANTS. Upon the consummation of the IPO, (the "IPO CLOSING"), sections 6.1, 6.3 and 6.6(d) of the Investment Agreement shall be terminated in their entirety. In addition, section 6.6(c) is hereby amended and restated in its entirety as follows:
"The consent requirements set forth in clauses (a) and (b) above shall terminate upon a Recapitalization Event (as defined in the Consent and Amendment No. 1 to Investment Agreement, dated May 20, 1999)."
1.4. REGISTRATION RIGHTS. Upon the consummation of the Private Placement (the "PRIVATE PLACEMENT CLOSING"), section 8 of the Investment Agreement shall be terminated in its entirety. In connection with the Private Placement, Chase, Flowers and the investors purchasing capital stock in the Private Placement shall enter into an Investors' Rights Agreement, substantially in the form of EXHIBIT B hereto, providing Chase with the investors' rights set forth therein.
1.5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. Section 10 of the Investment Agreement is hereby amended and restated in its entirety as follows:
"SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. All representations and warranties contained in this Agreement will terminate on the date hereof. All rights to indemnification arising under this Agreement shall terminate on the date hereof."
1.6. BOARD REPRESENTATION. Upon a Recapitalization Event, section 7.6 of the Investment Agreement shall be terminated in its entirety.
1.7. CONVERSION OF CLASS A COMMON STOCK; TREATMENT OF DEBT. Upon a Recapitalization Event, sections 7.9 and 7.10 of the Investment Agreement shall be terminated in their entirety.
2. CONSENTS.
2.1. CONSENT TO SECOND AND THIRD AMENDED AND RESTATED CERTIFICATES.
(a) At the earlier of (i) the closing of the first registered offering of a class of common stock of the Company with gross proceeds to the Company of not less than $25 million (a "QUALIFIED PUBLIC OFFERING") or (ii) the closing of a private placement of securities of the Company with gross proceeds to the Company of not less than $50 million (the earlier of such events, the "RECAPITALIZATION EVENT"), the Company's Amended and Restated Certificate of Incorporation shall be amended and restated in the form of the Second Amended and Restated Certificate of Incorporation attached hereto as EXHIBIT A-1 (the "SECOND AMENDED AND RESTATED CERTIFICATE"), and Chase hereby consents to the amendment and restatement of the Amended and Restated Certificate of Incorporation in the form of such Second Amended and Restated Certificate and the
filing thereof with the Secretary of State of the State of Delaware upon a Recapitalization Event. Following the date on which all of the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") have expired or been terminated relating to the filings made thereunder by the Company and certain investors in connection with the Private Placement, the Second Amended and Restated Certificate shall be amended and restated in the form of the Third Amended and Restated Certificate of Incorporation attached hereto as EXHIBIT A-2 (the "Third Amended and Restated Certificate"), and Chase hereby consents to the amendment and restatement of the Second Amended and Restated Certificate in the form of such Third Amended and Restated Certificate and the filing thereof with the Secretary of State of the State of Delaware at such time.
(b) RECAPITALIZATION. In accordance with the terms of the Second Amended and Restated Certificate, the Company's capital stock shall be reclassified upon a Recapitalization Event as follows:
(i) each share of Class A Common Stock shall, without further action on the part of the holder thereto, convert into one share of class A common stock, $0.01 par value, with rights and privileges thereto as described in the Second Amended and Restated Certificate (the "NEW CLASS A");
(ii) each share of Class B Common Stock shall, without further action on the part of the holder thereto, convert into one share of Class B common stock, $0.01 par value, with rights and thereto as described in the Second Amended and Restated Certificate (the "NEW CLASS B"); and
(iii) each share of Class C Common Stock shall, without further action on the part of the holder thereto, convert into one share of New Class B and one share of series C preferred stock, with rights and privileges thereto as described in the Second Amended and Restated Certificate (the "SERIES C PREFERRED STOCK"). In accordance with the Second Amended and Restated Certificate, the shares of Series C Preferred Stock shall be automatically redeemed by the Company immediately upon their issuance for an amount equal to $553.15210484 per share, plus $.13916502 per share accruing cumulatively on a daily basis after May 20, 1999.
(iv) after the reclassification of the Company's capital stock as provided herein, all references in the Investment Agreement to the Class A Common Stock and Class B Common Stock shall be deemed to be references to the New Class A and New Class B, consistent with the above.
(d) WARRANTS AND WARRANT SHARES. Upon a Recapitalization Event and the reclassification of the Company's capital stock as provided in paragraph (b) above:
(i) the Warrants shall be automatically amended to provide that upon exercise, each Warrant shall represent the right to acquire a share of New Class B and shall no longer represent the right to acquire a share of Class B Common Stock; and
(ii) within ten (10) days of the Recapitalization Event, Chase shall exercise the Warrants as provided therein;
(e) Upon the effectiveness of the Third Amended and Restated Certificate, Chase shall immediately convert each and every share of New Class B owned by it, pursuant to Section B.4(a) of Article IV of the Third Amended and Restated Certificate, into one share of class A common stock, $0.01 par value, with rights and privileges thereto as described in the Third Amended and Restated Certificate.
2.2. WAIVER AND TERMINATION OF CO-SALE RIGHTS. Chase hereby waives all of its rights contained in section 7.2 in connection with the Private Placement. Upon a Recapitalization Event, section 7.2 of the Investment Agreement shall be terminated in its entirety.
2.3. WAIVER AND TERMINATION OF CERTAIN PRE-EMPTIVE RIGHTS. Chase hereby waives all of its rights contained in section 7.3 in connection with the Private Placement. Upon a Recapitalization Event, section 7.3 of the Investment Agreement shall be terminated in its entirety.
2.4. EFFECTIVENESS. The effectiveness of this Consent and Amendment is conditioned upon the execution and delivery by Flowers and Chase of the Stock Purchase Agreement and the Investors' Rights Agreement, each dated as of May 20, 1999, among Chase, Flowers, James F. McCann, Chris G. McCann, and certain other investors, in connection with the Private Placement.
3. MISCELLANEOUS
3.1. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of New York, exclusive of the provisions thereof governing conflicts of laws.
3.2. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
3.3. NOTICES. Any notice, request, demand or other communication required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified, upon the date of transmittal of services via telecopy to the party to whom notice is being given, or on the fifth day after deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, return receipt requested, and addressed to the other party to:
(a) if to Flowers and McCann, to James F. McCann, Chief Executive Officer, 1-800-FLOWERS.COM, Inc., 1600 Stewart Avenue, Westbury, New York, 11590, with a copy to Jerry Gallagher, Gallagher, Walker, Bianco & Plastaras, 98 Willis Avenue, New York 11501, and Alexander D. Lynch, Brobeck, Phleger & Harrison LLP, 1633 Broadway New York, New York, 10019.
(b) if to Chase, to Jeffrey C. Walker, 380 Madison Avenue, 12th Floor, New York, New York 10017, with a copy to William E. Curbow, Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017.
3.4. REMEDIES; SEVERABILITY. It is specifically understood and agreed that any breach of the provisions of this Consent and Amendment by any person subject hereto will result in irreparable injury to the other parties hereto, that the remedy at law alone will be an inadequate remedy for such breach, and that, in addition to any other remedies which they may have, such other parties may enforce their respective rights by actions for specific performance (to the extent permitted by law). Whenever possible, each provision of this Consent and Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Consent and Amendment shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Consent and Amendment.
3.5. AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this Amendment and Consent and all agreements executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof and thereof. No provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision as contemplated herein. No amendment to this Consent and Amendment may be made without the written consent of the Flowers, McCann and Chase. Except as provided in this Consent and Amendment, all provisions contained in the Investment Agreement shall remain in full force and effect and shall be unaffected by the provisions hereof.
3.6. NO THIRD-PARTY BENEFICIARIES. The parties hereto specially acknowledge and agree that there are no intended third-party beneficiaries to this Consent and Amendment.
3.7. ENTIRE AGREEMENT. This Consent and Amendment and all documents and instruments referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein.
[Remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties have caused this Consent and Amendment to be duly executed and delivered as of the date first above written.
1-800-FLOWERS.COM, INC.
By: ------------------------------------------ Name: James F. McCann Title: Chief Executive Officer |
CHASE VENTURE CAPITAL ASSOCIATES
By:
------------------------------------------
Name: Jeff Walker
Title: Managing Partner
Address: 380 Madison Avenue, 12th Floor
New York, New York 10017
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JAMES F. McCANN
CONSENT AND AMENDMENT
Exhibit 10.4
CREDIT AGREEMENT
DATED AS OF MARCH 19, 1999
BY AND BETWEEN
1-800-FLOWERS, INC.
AND
THE CHASE MANHATTAN BANK
TABLE OF CONTENTS
ARTICLE I ................................................................. 1
SECTION 1.01. DEFINITIONS ................................................. 1
SECTION 1.02. TERMS GENERALLY ............................................. 19
ARTICLE II ................................................................ 20
SECTION 2.01. REVOLVING CREDIT LOANS ...................................... 20
SECTION 2.02. REVOLVING CREDIT NOTE ....................................... 21
SECTION 2.03. TERM LOANS .................................................. 21
SECTION 2.04. TERM NOTE ................................................... 21
SECTION 2.05. LETTERS OF CREDIT............................................ 22
ARTICLE III ............................................................... 24
SECTION 3.01. INTEREST RATE; CONTINUATION AND CONVERSION OF LOANS ......... 24
SECTION 3.02. USE OF PROCEEDS ............................................. 26
SECTION 3.03. PREPAYMENTS ................................................. 26
SECTION 3.04. FEES ........................................................ 27
SECTION 3.05. INABILITY TO DETERMINE INTEREST RATE......................... 27
SECTION 3.06. ILLEGALITY .................................................. 28
SECTION 3.07. INCREASED COSTS ............................................. 28
SECTION 3.08. INDEMNITY ................................................... 29
SECTION 3.09. CHANGE OF LENDING OFFICE .................................... 30
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SECTION 3.10. TAXES ....................................................... 30
SECTION 3.11. PAYMENTS .................................................... 30
SECTION 3.12. DISBURSEMENT OF LOANS ....................................... 31
ARTICLE IV ................................................................ 31
SECTION 4.01. ORGANIZATION, POWERS ........................................ 31
SECTION 4.02. AUTHORIZATION OF BORROWING, ENFORCEABLE OBLIGATIONS ......... 32
SECTION 4.03. FINANCIAL CONDITION ......................................... 32
SECTION 4.04. TAXES ....................................................... 33
SECTION 4.05. TITLE TO PROPERTIES ......................................... 33
SECTION 4.06. LITIGATION .................................................. 33
SECTION 4.07. AGREEMENTS .................................................. 33
SECTION 4.08. COMPLIANCE WITH ERISA ....................................... 34
SECTION 4.09. FEDERAL RESERVE REGULATIONS; USE OF PROCEEDS ................ 34
SECTION 4.10. APPROVAL .................................................... 34
SECTION 4.11. SUBSIDIARIES ................................................ 35
SECTION 4.12. HAZARDOUS MATERIALS ......................................... 35
SECTION 4.13. INVESTMENT COMPANY ACT ...................................... 35
SECTION 4.14. PLEDGE AGREEMENTS ........................................... 35
SECTION 4.15. NO DEFAULT .................................................. 35
SECTION 4.16. MATERIAL CONTRACTS .......................................... 35
SECTION 4.17. PERMITS AND LICENSES ........................................ 36
SECTION 4.18. COMPLIANCE WITH LAW ......................................... 36
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SECTION 4.19. Y2K ......................................................... 36
SECTION 4.20. REPURCHASE OBLIGATIONS ...................................... 37
SECTION 4.21. FISCAL YEAR END ............................................. 37
SECTION 4.22. DISCLOSURE .................................................. 37
ARTICLE V ................................................................. 37
SECTION 5.01. CONDITIONS TO INITIAL EXTENSION OF CREDIT ................... 37
SECTION 5.02. CONDITIONS TO ALL EXTENSIONS OF CREDIT ...................... 39
ARTICLE VI ................................................................ 40
SECTION 6.01. EXISTENCE, PROPERTIES, INSURANCE ............................ 40
SECTION 6.02. PAYMENT OF INDEBTEDNESS AND TAXES ........................... 41
SECTION 6.03. FINANCIAL STATEMENTS, REPORTS, ETC .......................... 41
SECTION 6.04. BOOKS AND RECORDS; ACCESS TO PREMISES ....................... 43
SECTION 6.05. NOTICE OF ADVERSE CHANGE .................................... 43
SECTION 6.06. NOTICE OF DEFAULT ........................................... 44
SECTION 6.07. NOTICE OF LITIGATION ........................................ 44
SECTION 6.08. NOTICE OF DEFAULT IN OTHER AGREEMENTS ....................... 44
SECTION 6.09. NOTICE OF ERISA EVENT ....................................... 44
SECTION 6.10. NOTICE OF ENVIRONMENTAL LAW VIOLATIONS ...................... 45
SECTION 6.11. NOTICE REGARDING MATERIAL CONTRACTS ......................... 45
SECTION 6.12. COMPLIANCE WITH APPLICABLE LAWS ............................. 45
SECTION 6.13. SUBSIDIARIES ................................................ 45
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SECTION 6.14. ENVIRONMENTAL LAWS .......................................... 46
ARTICLE VII ............................................................... 46
SECTION 7.01. LIENS ....................................................... 46
SECTION 7.02. INDEBTEDNESS ................................................ 48
SECTION 7.03. GUARANTIES .................................................. 49
SECTION 7.04. SALE OF ASSETS .............................................. 50
SECTION 7.05. SALES OF RECEIVABLES ........................................ 50
SECTION 7.06. LOANS AND INVESTMENTS ....................................... 50
SECTION 7.07. NATURE OF BUSINESS .......................................... 51
SECTION 7.08. SALE AND LEASEBACK .......................................... 51
SECTION 7.09. FEDERAL RESERVE REGULATIONS ................................ 51
SECTION 7.10. ACCOUNTING POLICIES AND PROCEDURES .......................... 51
SECTION 7.11. HAZARDOUS MATERIALS ......................................... 52
SECTION 7.12. LIMITATIONS ON FUNDAMENTAL CHANGES .......................... 52
SECTION 7.13. FINANCIAL CONDITION COVENANTS ............................... 52
SECTION 7.14. SUBORDINATED DEBT ........................................... 54
SECTION 7.15. DIVIDENDS ................................................... 54
SECTION 7.16. TRANSACTIONS WITH AFFILIATES ................................ 54
SECTION 7.17. IMPAIRMENT OF SECURITY INTEREST ............................. 55
SECTION 7.18. NO AMENDMENTS ............................................... 55
ARTICLE VIII .............................................................. 55
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SECTION 8.01. EVENTS OF DEFAULT ........................................... 55
ARTICLE IX ................................................................ 58
SECTION 9.01. NOTICES ..................................................... 58
SECTION 9.02. EFFECTIVENESS; SURVIVAL ..................................... 59
SECTION 9.03. EXPENSES .................................................... 59
SECTION 9.04. SUCCESSORS AND ASSIGNS; PARTICIPATIONS ...................... 60
SECTION 9.05. NO WAIVER; CUMULATIVE REMEDIES .............................. 60
SECTION 9.06. APPLICABLE LAW .............................................. 60
SECTION 9.07. SUBMISSION TO JURISDICTION .................................. 61
SECTION 9.08. SEVERABILITY ................................................ 61
SECTION 9.09. RIGHT OF SETOFF ............................................. 61
SECTION 9.10. CONFIDENTIALITY ............................................. 62
SECTION 9.11. HEADINGS .................................................... 62
SECTION 9.12. CONSTRUCTION ................................................ 62
SECTION 9.13. COUNTERPARTS ................................................ 63
SCHEDULES
Schedule I - Subsidiaries
Schedule II - Existing Liens
Schedule III - Existing Indebtedness
Schedule IV - Existing Guarantees
Schedule V - Financial Condition Changes
Schedule VI - Existing Letters of Credit
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Schedule VII - Litigation Schedule VIII - Hazardous Materials Schedule IX - Material Contracts Schedule X - Existing Investments Schedule XI - Changes in Business EXHIBITS Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Term Note Exhibit C-1 - Form of Company Pledge Agreement Exhibit C-2 - Form of Subsidiary Pledge Agreement Exhibit D - Form of Guaranty Exhibit E - Form of Opinion of Counsel Exhibit F - Form of Permitted Acquisition Summary |
CREDIT AGREEMENT dated as of March 19, 1999, by and among 1-800-FLOWERS, INC., a Delaware corporation (the "Company") and THE CHASE MANHATTAN BANK, a New York banking corporation, (the "Lender").
RECITALS
The Company has requested the Lender to extend credit from time to time and the Lender is willing to extend such credit to the Company, subject to the terms and conditions hereinafter set forth.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. DEFINITIONS. As used herein, the following words and terms shall have the following meanings:
"Ace" shall mean Amalgamated Consolidated Enterprises, Inc.
"Ace Notes" shall mean, collectively, the obligations of Ace to Stanley H. Schwartz, Bruce G. Caldwell and Carter S. Miller pursuant to Promissory Notes in the original aggregate principal amount of $3,225,000 each dated October 10, 1994.
"Adjusted Libor Loans" shall mean Loans at such time as they are made and/or being maintained at a rate of interest based upon Reserve Adjusted Libor.
"Affiliate" shall mean with respect to a specified Person, another Person which, directly or indirectly, controls or is controlled by or is under common control with such specified Person. For the purpose of this definition, "control" of a Person shall mean the power, direct or indirect, to direct or cause the direction of the management or policies of such Person whether through the ownership of voting securities, by contract or otherwise; provided that, in any event, any Person who owns directly or indirectly 20% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 20% or more of the partnership or other ownership interest of any Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person.
"Aggregate Letters of Credit Outstandings" shall mean, at a particular time, the sum of (a) the aggregate maximum stated amount at such time which is available or available in the future to be drawn under all outstanding Letters of Credit and Other Letters of Credit and (b) the aggregate amount of all payments made by the Lender under any Letter of Credit that has
not been reimbursed by the Company at such time.
"Aggregate Outstandings" shall mean, at a particular time, the sum of (a) the Aggregate Letters of Credit Outstandings at such time and (b) the aggregate outstanding principal amount of all Revolving Credit Loans at such time.
"Agreement" shall mean this Credit Agreement dated as of March 19, 1999, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time.
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate as in effect on such day, and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Lender shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Lender to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"Alternate Base Rate Loans" shall mean Loans at such times as they are being made and/or maintained at a rate of interest based on the Alternate Base Rate.
"Borrowing Date" shall mean, with respect to any Loan, the date on which such Loan is disbursed to the Company.
"Business Day" shall mean (a) any day not a Saturday, Sunday or legal holiday, on which banks in New York City are open for business and (b) as it relates to any payment, determination, funding or notice to be made or given in connection with any Adjusted Libor Loan, any day specified in clause (a) on which trading is carried on by and between banks in Dollar deposits in the London interbank eurodollar market.
"Capital Expenditures" shall mean additions to property and equipment of the Company and its Subsidiaries which, in conformity with Generally Accepted Accounting Principles, are included as "additions to property, plant or equipment" or similar items which would be reflected in the consolidated statement of cash flow of the Company and its Subsidiaries, including without limitation, property and equipment which are the subject of Capital Leases.
"Capital Lease" shall mean any lease the obligations of which are required to be
capitalized on the balance sheet of a Person in accordance with Generally Accepted Accounting Principles.
"Cash Collateral" shall mean a deposit by the Company made in immediately available funds to a cash collateral account at the Lender and the taking of all action required to provide the Lender, a first priority perfected security interest in such deposit.
"Change of Control" shall mean the failure of Mr. James F. McCann, any trust of which members of his family are sole beneficiaries and of which Mr. McCann is the sole trustee with the sole right to vote all securities held by it, and/or a limited partnership or limited liability company of which members of his family (including siblings) are the sole limited partners or members, respectively, and of which he is the sole general partner or manager, respectively, in each case with the sole right to vote all securities held by it, to own beneficially and of record a majority of the outstanding capital stock of the Company or the failure of Mr. James F. McCann or such trusts, limited partnership or limited liability company to have, collectively, the right to vote a majority of the outstanding capital stock of the Company.
"Chief Financial Officer" shall mean either the Senior Vice President of Finance or the Vice President of Finance of the Company.
"Closing Date" shall mean March 19, 1999.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.
"Commitments" shall mean, collectively, the Revolving Credit Commitment and the Term Loan Commitment.
"Company" shall have the meaning set forth in the preamble hereto.
"Consideration" shall mean with respect to any proposed acquisition all cash, stock, transaction costs, guarantees and other contingent obligations, liabilities and Indebtedness in the event of an acquisition of assets, assumed (to the extent such assumed Indebtedness is permitted pursuant to Section 7.02; provided assumed Indebtedness shall exclude obligations to pay rent or its equivalent under operating leases for real property), compensation to be paid to former shareholders of the seller pursuant to employment agreements, consulting agreements or non-compete agreements, (other than salaries paid to former shareholders of such seller who will be employed by the acquired Person, on a full-time basis and who will be involved in the day-to-day operations of the acquired Person upon the consummation of such proposed acquisition fees) earn out provisions, any deferred portions of the purchase price or any other costs paid in connection with such proposed acquisition.
"Consolidated Debt Service Coverage Ratio" shall mean, for any period, the ratio of (a) Consolidated Net Income after taxes plus, to the extent deducted in determining Consolidated Net Income, the sum of (i) all cash interest expense, and (ii) all depreciation and amortization expenses or charges, less extraordinary or unusual gains (determined net of taxes) determined in accordance with Generally Accepted Accounting Principles, applied on a consistent basis, plus any non-cash expenses (calculated on an "after-tax" basis) attributable to options outstanding to third parties to purchase shares of P&H, minus all non-cash income or gain (calculated on an "after-tax" basis) attributable to options outstanding to third parties to purchase shares of P&H, minus the cash portion of the purchase price paid to holders of shares of the Company or any of its Subsidiaries in connection with the repurchase of all or a portion of such shares to (b) the sum of (i) cash interest expense plus (ii) the scheduled installments of principal on all Indebtedness. All the foregoing categories shall be calculated with respect to the Company and its Subsidiaries and shall be calculated (without duplication) over the four fiscal quarters next preceding the date of calculation thereof with the exception of the scheduled installments of principal on all Indebtedness of the Company and its Subsidiaries with an original maturity of 365 days or more, which shall each be calculated based upon the next succeeding four fiscal quarters.
"Consolidated EBITDA" shall mean for the Company and its Subsidiaries for any period, the Consolidated Net Income (or consolidated net loss) of the Company and its Subsidiaries for such period, plus the sum, without duplication, of (a) gross interest expense, (b) depreciation and amortization expenses or charges, (c) all income taxes to any government or governmental instrumentality expensed on the Company's or its Subsidiaries' books (whether paid or accrued) and (d) any non-cash expenses attributable to options outstanding to third parties to purchase shares of P&H, minus the sum of (a) all extraordinary or unusual gains, (b) all interest income and (c) all non-cash income or gain, including any gain attributable to options outstanding to third parties to purchase shares of P&H, in each case, determined on a consolidated basis for the Company and its Subsidiaries in accordance with Generally Accepted Accounting Principles applied on a consistent basis. All of the foregoing categories shall be calculated with respect to the Company and its Subsidiaries and shall be calculated (without duplication) over the four fiscal quarters next preceding the date of calculation thereof. Consolidated EBITDA of any Person acquired by the Company or its Subsidiaries during such period shall be included on a PRO FORMA basis for such period (treating the consummation of each such acquisition and the incurrence or assumption of any Indebtedness in connection therewith as if they occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (i) have been previously provided to the Lender and (ii) either (A) have been reported on without qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized
standing or (B) have been found acceptable by the Lender.
"Consolidated Funded Debt" shall mean the sum of all Indebtedness of the Company and its Subsidiaries for borrowed money having an original maturity of one year or more, including the current portion thereof and including, without limitation, Subordinated Indebtedness.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the ratio of (a) Consolidated EBITDA less consolidated Unfunded Capital Expenditures during the four fiscal quarters next preceding the date of calculation thereof to (b) Consolidated Interest Expense; provided, however, Unfunded Capital Expenditures shall be included in such calculation only to the extent incurred after June 28, 1998.
"Consolidated Interest Expense" shall mean the consolidated gross interest expense of the Company and its Subsidiaries determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis and calculated over the four fiscal quarters next preceding the date of calculation thereof.
"Consolidated Net Income" shall mean, for any period, the net income (or net loss) of the Company and its Subsidiaries on a consolidated basis for such period determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.
"Consolidated Net Worth" shall mean (a) total consolidated assets of the Company and its Subsidiaries less (b) total consolidated liabilities of the Company and its Subsidiaries, in each case, determined in accordance with Generally Accepted Accounting Principles applied on a consistent basis.
"Consolidated Total Unsubordinated Liabilities" shall mean all items which, in accordance with Generally Accepted Accounting Principles applied on a consistent basis, would properly be included on the liability side of the balance sheet (other than Subordinated Debt, capital stock, capital surplus, treasury stock and retained earnings), as of the date on which the amount of Consolidated Total Unsubordinated Liabilities is to be determined, of the Company and its Subsidiaries, computed and consolidated in accordance with Generally Accepted Accounting Principles applied on a consistent basis.
"Default" shall mean any condition or event which upon notice, lapse of time or both would constitute an Event of Default.
"Dollar" and the symbol "$" shall mean lawful money of the United States of America.
"Eligible Investments" shall mean (a) direct obligations of the United States of America
or any governmental agency thereof which are fully guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; or (b) dollar denominated certificates of time deposit maturing within one year issued by any bank organized and existing under the laws of the United States or any state thereof and having aggregate capital and surplus in excess of $1,000,000,000; or (c) money market mutual funds having assets in excess of $2,500,000,000; or (d) commercial paper rated not less than P-1 or A-1 or their equivalent by Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, respectively; or (e) tax exempt securities of a U.S. issuer rated A or better by Standard and Poor's Ratings Group or Moody's Investors Service, Inc.
"Eligible Offering Proceeds" shall mean the Net Proceeds received by the Company or any of its Subsidiaries from the offering or placement by the Company or any Subsidiary of any of its equity securities; provided such equity securities, if other than the Company's class A or class B common stock as in effect on the date hereof, including the rights and preferences with respect thereto, are acceptable to the Lender.
"Environmental Law" shall mean any law, ordinance, rule, regulation, or policy having the force of law of any Governmental Authority relating to pollution or protection of the environment or to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.) the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and the rules and regulations promulgated pursuant thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Company or any Affiliate of the Company would be
deemed to be a member of the same "controlled group" within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
"Eurocurrency Reserve Requirement" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate (without duplication) of the rates (expressed as a decimal) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves, under any regulations of the Board of Governors of the Federal Reserve System or any other governmental authority having jurisdiction with respect thereto) as from time to time in effect, dealing with reserve requirements prescribed for eurocurrency funding
(currently referred to as "eurocurrency liabilities" in Regulation D) maintained by the Lender. For purposes hereof each Adjusted Libor Loan shall be deemed to constitute a "eurocurrency liability" as defined in Regulation D, and subject to the reserve requirements of "Regulation D," without benefit of credit or proration, exemptions or offsets which might otherwise be available to the Lenders from time to time under Regulation D.
"Event of Default" shall have the meaning set forth in Article VIII.
"Executive Officer" shall mean any of the President, any Senior Vice President, the Chief Executive Officer, the Treasurer, Chief Financial Officer or the Secretary of the Company or any of its Subsidiaries, as applicable, and their respective successors, if any, designated by the board of directors thereof.
"Existing Indebtedness" shall mean, collectively, the aggregate Indebtedness of the Company to The Chase Manhattan Bank on the Closing Date under the Credit Agreement dated as of April 3, 1998, by and between the Company and The Chase Manhattan Bank.
"Existing Letters of Credit" shall mean the letters of credit issued by The Chase Manhattan Bank for the account of the Company or a Guarantor prior to the date hereof as set forth on Schedule VI.
"Existing P&H Indebtedness" shall mean the revolving credit facility in a principal amount not to exceed $4,500,000 owing by P&H to Wachovia Bank pursuant to a Commitment Letter dated September 22, 1998 and a Commercial Note executed September 28, 1998.
"Existing P&H Mortgage" shall mean the mortgage granted by the P&H Partnership to Wachovia Bank to secure a mortgage note dated June 13, 1997 of which approximately $3,600,000 is outstanding on the date hereof.
"Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal fund brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Lender from three Federal fund brokers of recognized standing selected by the Lender.
"Franchise Agreement" shall mean a written agreement between the Company or any of its Subsidiaries and any other Person pursuant to which such other Person is entitled to use the name "1-800-Flowers", "Conroys" or any other tradename of the Company or any of its Subsidiaries in the sale of flowers and related goods and products as a franchisee.
"Franchise Store" shall mean any Store operated by a Franchisee.
"Franchisee" shall mean any Person with whom the Company or any of its Subsidiaries has a Franchise Agreement.
"Generally Accepted Accounting Principles" shall mean those generally accepted accounting principles in the United States of America, as in effect from time to time.
"Governmental Authority" shall mean any nation or government, any state, province, city or municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign.
"Guarantors" shall mean, collectively, 800-Flowers, Inc., a New York corporation, 1-800 Flowers Retail Inc., a Delaware corporation, Fresh Intellectual Properties, Inc., a Delaware corporation, 800-Gifthouse, Inc., a New York corporation, 1-800-Flowers Team Services, Inc., a Delaware corporation, Teleway Inc., a New York corporation, Bloomlink Systems, Inc., a New York corporation, 1-800-Flowers Acquisition Corp., a Delaware corporation, St. Claire Floral Co., Inc., a New York corporation, Floral Works, Inc., a Delaware corporation, Amalgamated Consolidated Enterprises, Inc., a Nevada corporation, P&H, C.M. Conroy Company, Inc., a California corporation, Conroy's Acquisition Corporation, a California corporation, Conroy's Inc., a California corporation, and Florists' Capital Corporation, Inc., a California corporation, and each other Subsidiary (excluding Gerber Gardens/1-800 Flowers LLC, Flores de Excito, Inc. and P&H Partnership) of the Company on the Closing Date, and each Person who, from time to time, is required to execute a Corporate Guaranty in accordance with Section 5.01 or Section 6.13; provided such Person's status as a Guarantor shall be effective as of the date of such execution.
"Guaranty" shall mean the Corporate Guaranty in the form attached hereto as Exhibit D to be executed and delivered by each Guarantor on the Closing Date and thereafter by Subsidiaries of the Company pursuant to Section 6.13, as the same may hereafter be amended, restated, supplemented or otherwise modified from time to time.
"Hazardous Materials" shall mean any explosives, radioactive materials, or other materials, wastes, substances, or chemicals regulated as toxic hazardous or as a pollutant, contaminant or waste under any applicable Environmental Law.
"Hedging Agreement" shall mean any interest rate swap, collar, cap, floor or forward rate agreement or other agreement regarding the hedging of interest rate risk exposure executed
in connection with hedging the interest rate exposure of the Company or any of its Subsidiaries and any confirming letter executed pursuant to such agreement, all as amended, supplemented, restated or otherwise modified from time to time.
"Indebtedness" shall mean, without duplication, as to any Person or Persons (a) indebtedness for borrowed money; (b) indebtedness for the deferred purchase price of property or services; (c) indebtedness evidenced by bonds, debentures, term notes or other similar instruments; (d) obligations and liabilities secured by a Lien upon property owned by such Person, whether or not owing by such Person and even though such Person has not assumed or become liable for the payment thereof; (e) obligations and liabilities directly or indirectly guaranteed by such Person; (f) obligations or liabilities created or arising under any conditional sales contract or other title retention agreement with respect to property used and/or acquired by such Person; (g) obligations of such Person as lessee under Capital Leases; (h) net liabilities of such Person under Hedging Agreements and foreign currency exchange agreements, as calculated in accordance with accepted practice; (i) all obligations of such Person in respect of bankers' acceptance; (j) all obligations, contingent or otherwise of such Person as an account party or applicant in respect of letters of credit; and (k) with respect to the Company and its Subsidiaries, the Option Liability.
"Interest Payment Date" shall mean (a) as to any Loan, the first day of each calendar month during the term hereof; (b) as to any Adjusted Libor Loan, the last day of the Interest Period for such Adjusted Libor Loan; and (c) as to any Loan, the date such Loan is paid in full or in part.
"Interest Period" shall mean with respect to any Adjusted Libor Loan:
(a) initially, the period commencing on the date such Adjusted Libor Loan is made and ending one, three or six months thereafter, as selected by the Company in its notice of borrowing or in its notice of conversion from an Alternate Base Rate Loan provided, in each case, in accordance with the terms of Articles II and III hereof; and
(b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Adjusted Libor Loan and ending one, three or six months thereafter, as selected by the Company by irrevocable written notice to the Lender not later than 11:00 a.m. New York, New York time three Business Days prior to the last day of the then current Interest Period with respect to such Adjusted Libor Loan; provided, however, that all of the foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;
(ii) if the Company shall fail to give notice as provided in clause (b) above, the Company shall be deemed to have requested conversion of the affected Adjusted Libor Loan to an Alternate Base Rate Loan on the last day of the then current Interest Period with respect thereto;
(iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month;
(iv) no more than eight (8) Interest Periods may exist at any one time; and
(v) the Company shall select Interest Periods so as not to require a payment or prepayment of any Adjusted Libor Loan during an Interest Period for such Adjusted Libor Loan.
"Interest Rate Margin" shall mean (a) with respect to each Adjusted Libor Loan, the percentage set forth below under the heading "LIBOR Margin" opposite the applicable ratio and (b) with respect to each Alternate Base Rate Loan, the percentage set forth below under the heading "ABR Margin" opposite the applicable ratio.
Consolidated Funded Debt LIBOR Margin ABR Margin
to Consolidated EBITDA (360 day basis) (360 day basis)
---------------------- --------------- ---------------
Less than 1.50:1.00 1.50% .25%
Greater than or equal to 1.75% .50%
1.50:1.00 but less than
2.00:1.00
Greater than or equal to 2.00% .75%
2.00:100 but less than
2.50:1:00
10
|
Greater than or equal to 2.25% 1.00%
2.50:1.00 but less than
3.00:1.00
11
|
Greater than or equal to 2.50% 1.25% 3.00:1.00 but less than 3.50:1.00 Greater than or equal to 3.50:1.00 2.75% 1.50% |
Notwithstanding the foregoing, during the period commencing the Closing Date and ending on the fifth Business Day following the date of delivery of the financial statements to the Lender for the third fiscal quarter ending March 28, 1999 (a) the Interest Rate Margin with respect to each Adjusted Libor Loan shall be 2.25% per annum, and (b) the Interest Rate Margin with respect to each Alternate Base Rate Loan shall be 1.0% per annum. The Interest Rate Margin will be set or reset quarterly with respect to each Loan on the date which is five Business Days following the date of receipt by the Lender of the financial statements referred to in Section 6.03(a) or Section 6.03(b), as applicable, together with a certificate of the Chief Financial Officer of the Company certifying the ratio of Consolidated Funded Debt to Consolidated EBITDA and setting forth the calculation thereof in detail; provided, however, if any such financial statement and certificate are not received by the Lender within the time period required pursuant to Section 6.03(a) or Section 6.03(b), as the case may be, the Interest Rate Margin will be set or reset, unless the rate of interest specified in Section 3.01(c) is in effect, based on a ratio of Consolidated Funded Debt to Consolidated EBITDA of greater than 3.50:1.00 from the date such financial statement and certificate were due until the date which is five Business Days following the receipt by the Lender of such financial statements and certificate, and provided, further, that the Lender shall not in any way be deemed to have waived any Default or Event of Default, including, without limitation, an Event of Default resulting from the failure of the Company to comply with Section 7.13 of this Agreement, or any rights or remedies hereunder or under any other Loan Document in connection with the foregoing proviso. During the occurrence and continuance of a Default or Event of Default, no downward adjustment, and only upward adjustments, shall be made to the Interest Rate Margin.
"LC Disbursement" shall mean a payment made by the Lender pursuant to a Letter of Credit.
"LC Exposure" shall mean, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Company at such time.
"LC Margin" shall mean the percentage set forth below under the heading "LC Margin" opposite the applicable ratio.
Consolidated Funded Debt to Consolidated EBITDA LC Margin ---------------------- --------- Less than 1.50:1.00 1.50% Greater than or equal to 1.50:1.00 but 1.75% less than 2.00:1.00 Greater than or equal to 2.00:1.00 but 2.00% less than 2.50:1.00 Greater than or equal to 2.50:1.00 but 2.25% less than 3.00:1.00 Greater than or equal to 3.00:1.00 but 2.50% less than 3.50:1.00 Greater than or equal to 3.50:1.00 2.75% |
Notwithstanding the foregoing, during the period commencing the Closing Date and
ending on the fifth Business Day following the date of the delivery of the
financial statements for the third fiscal quarter ending March 28, 1999, the LC
Margin shall be 2.25%. The LC Margin will be set or reset quarterly on the date
which is five Business Days following the date of receipt by the Lender of the
financial statements referred to in Section 6.03(a) or Section 6.03(b), as
applicable, together with a certificate of the Chief Financial Officer of the
Company certifying the ratio of Consolidated Funded Debt to Consolidated EBITDA
and setting forth the calculation thereof in detail; provided, however, if any
such financial statement and certificate are not received by the Lender within
the time period required pursuant to Section 6.03(a) or Section 6.03(b), as the
case may be, the LC Margin will be set or reset based on a ratio of Consolidated
Funded Debt to Consolidated EBITDA of greater than 3.50:1:00 and subject to
increase as provided in Section 3.01(c) from the date such financial statement
and certificate were due until the date which is five Business Days following
the receipt by the Lender of such financial statements and certificate, and
provided, further, that the Lender shall not in any way be deemed to have waived
any Default or Event of Default, including without limitation, a Default or
Event of Default resulting from the failure of the Company to comply with
Section 7.13 of this Agreement, or any rights or remedies hereunder or under any
other Loan Document in connection with the foregoing proviso. During the
occurrence and continuance of a Default or Event of Default, no downward
adjustments, and only upward adjustments, shall be made to the
LC Margin.
"Lender" shall have the meaning set forth in the preamble hereto.
"Letter of Credit" shall mean any Standby Letter of Credit issued by the Lender for the account of the Company or any Guarantor pursuant to the terms of this Agreement or deemed a Letter of Credit hereunder pursuant to Section 2.05(d) of this Agreement .
"Lien" shall mean any lien (statutory or otherwise), security interest, mortgage, deed of trust, pledge, charge, conditional sale, title retention agreement, Capital Lease or other encumbrance or similar right of others, or any agreement to give any of the foregoing.
"Loans" shall mean, collectively, the Revolving Credit Loans and the Term Loans.
"Loan Documents" shall mean, collectively, this Agreement, the Notes, the Security Documents, the Guaranties, any Hedging Agreement entered into with the Lender and each other agreement executed in connection with the transactions contemplated hereby or thereby, as each of the same may hereafter be amended, restated, supplemented or otherwise modified from time to time.
"Material Adverse Effect" shall mean a material adverse effect upon (a) the business, operations, property, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company or any of its Material Subsidiaries to perform in any material respect any material obligations under any Loan Document to which it is a party.
"Material Contract" shall mean each contract, instrument or agreement (a) to which the Company or any of its Subsidiaries is a party which is material to the business, operations or condition (financial or otherwise), prospects, or properties of the Company or of the Company and its Subsidiaries taken as a whole, or (b) which requires the payment during the term thereof in excess of $1,000,000.
"Material Subsidiary" shall mean each Subsidiary of the Company which (a) owns or holds the rights to any trademark, tradename or other intellectual property used by or useful in the Company's or any Subsidiary's business, or (b) has during any Relevant Fiscal Period (i) earnings before taxes as determined from the consolidating statements of such Subsidiary for such Relevant Fiscal Period in excess of 10% of the consolidated earnings before taxes of the Company and its Subsidiaries for such Relevant Fiscal Period or (ii) assets as determined from the consolidating statements of such Subsidiary for any Relevant Fiscal Period in excess of 10% of the consolidated assets of the Company and its Subsidiaries for such Relevant Fiscal Period; provided, however, neither ACE, C.M. Conroy Inc. nor Conroy's Inc. shall be a Material
Subsidiary pursuant to (x) clause (a) as a result of owning or holding the trademark "Conroys" or (y) clause (b) unless the consolidated assets of Amalgamated Consolidated Enterprises, Inc. determined from the consolidated statements of Amalgamated Consolidated Enterprises, Inc. exceeds 35% of the consolidated assets of the Company and its Subsidiaries for any Relevant Fiscal Period. Any Subsidiary of the Company which is a Material Subsidiary on the date hereof or which at any time thereafter becomes a Material Subsidiary shall continue to be a Material Subsidiary regardless of its financial performance after the date it becomes a Material Subsidiary.
"Net Proceeds" shall mean the gross proceeds from the sale or placement of equity securities net of attorneys' fees, accountants' fees, underwriting or placement agent commissions and other customary and usual fees actually incurred in connection with such sales.
"Nonconforming Letters of Credit" shall mean letters of credit, if any, issued by the Lender after the date hereof, at the request of the Company and in the Lender's sole and absolute discretion which cannot be issued as Letters of Credit pursuant to this Agreement due to a requirement by the beneficiary of such letter of credit that the expiry date be a date later than three Business Days preceding the Revolving Credit Commitment Termination Date.
"Notes" shall mean, collectively, the Revolving Credit Note and the Term Note.
"Obligations" shall mean all obligations, liabilities and indebtedness of the Company to the Lender, whether now existing or hereafter created, absolute or contingent, direct or indirect, due or not, whether created directly or acquired by assignment or otherwise, arising under or relating to this Agreement, the Notes or any other Loan Document or any Other Letter of Credit including, without limitation, all obligations, liabilities and indebtedness of the Company with respect to the principal of and interest on the Loans, reimbursement of Letters of Credit and the Other Letters of Credit, obligations arising under Hedging Agreements with the Lender and all fees, costs, expenses and indemnity obligations of the Company hereunder, under any other Loan Document or any Hedging Agreement.
"Option Liability" shall mean the aggregate consideration payable by P&H and its Affiliates to holders of capital stock of P&H and to holders of options to purchase shares of capital stock of P&H arising from the obligation or right to purchase such shares or options, pursuant to the Stock Option Plan, the P&H Acquisition Agreement and the Stockholders Agreement. The Option Liability shall be determined on the assumption that all such shareholders and option holders have exercised the right to sell the shares or options at the Put Price (as that term is defined in the Stockholders Agreement) pursuant to the Stock Option Plan, the P&H Acquisition Agreement and/or the Stockholders Agreement, as of the date of calculation of the Option Liability, regardless if such shareholders or option holders do not have a right to sell such shares or options on such date.
"Other Letters of Credit" shall mean, collectively, the Existing Letters of Credit and the Nonconforming Letters of Credit.
"P&H" shall mean The Plow & Hearth, Inc., a Virginia corporation.
"P&H Acquisition" shall mean the purchase of at least 80% of the outstanding capital stock or 70% of the fully diluted capital stock after giving effect to dilution resulting from the rollover of existing stock options of P&H and of all of the limited partnership interests of P&H Partnership as contemplated by, and in accordance with, the P&H Acquisition Agreement.
"P&H Acquisition Agreement" shall mean, collectively, the Stock Purchase Agreement dated March 9, 1998, by and among the Company, P&H and the shareholders of P&H identified therein, and the Purchase Agreement dated March 9, 1998, by and among the limited partners of the P&H Partnership, the Company, P&H Partnership, 1-800-Flowers Acquisition Corp. and Peter G. Rice.
"P&H Partnership" shall mean P&H, L.P. a Virginia limited partnership.
"Participant" shall have the meaning set forth in Section 10.05.
"Payment Office" shall mean the Lender's office located at 395 North Service Road, Melville, New York 11747 or such other office as the Lender may designate from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall mean any acquisition by the Company or a Guarantor of more than 50% of the outstanding capital stock, membership interest, partnership interest or other similar ownership interest of a Person organized under the laws of the United States or any state thereof which is engaged in a line of business similar to the business of the Company or any of its Subsidiaries or the purchase of all or substantially all of the assets used by such Person excluding the purchase of a Store from a Franchisee; provided (a) an Executive Officer of the Company shall have delivered to the Lender a duly completed and executed Permitted Acquisition Summary with respect to the proposed acquisition not less than ten (10) Business Days prior to the proposed Borrowing Date; (b) the Lender shall have received, to the extent not previously received, a duly executed Pledge Agreement and Guaranty, to the extent required to be delivered pursuant to Section 6.13 hereof; (c) the Lender shall have been satisfied that all third party and governmental consents and approvals (including, without limitation, waivers or approvals under any Material Contracts), necessary in connection with the consummation of the Permitted Acquisition, shall have been obtained; (d) the Lender shall receive evidence satisfactory to it that the shares or other interests in the Person, or the assets of the Person,
which is the subject of the Permitted Acquisition are free and clear of all
Liens, except Permitted Liens, including, without limitation, with respect to
the acquisition of shares or other equity interests, free of any restrictions on
transfer other than restrictions applicable to the sale of securities under the
federal and state securities laws and regulations generally; (e) the Lender
shall have received the documentation governing the proposed acquisition,
including, without limitation, the purchase agreement with respect thereto,
which documentation shall be in form and substance reasonably satisfactory to
the Lender, together with such other additional documentation or information
with respect to the proposed acquisition as the Lender may reasonably require;
(f) no Default or Event of Default shall have occurred and be continuing
immediately prior to or would occur after giving effect to the acquisition; (g)
the acquisition has either (i) been approved by the Board of Directors or other
governing body of the Person which is the subject of the acquisition or (ii)
been recommended for approval by the Board of Directors or other governing body
of such Person to the shareholders or other members of such Person and
subsequently approved by all of the shareholders or all of such members if
shareholder or such member approval is required under applicable law or the
by-laws, certificate of incorporation or other governing instruments of such
Person; (h) the purchase price is paid to the seller(s) in full on the closing
date of the Permitted Acquisition solely from Eligible Offering Proceeds;
provided, however, the Company shall be permitted to acquire the assets of a
Person solely for cash (but not from proceeds of Loans) provided the aggregate
cash consideration paid with respect to all such acquisitions during the term of
this Agreement shall not exceed $1,000,000 and provided such acquisition
complies with the requirements of clauses (a) through (g) and, to the extent the
documents identified therein are available, clauses (i), (j) and (k) of this
definition; (i) the Lender shall have received the financial statements of the
Person which is the subject of the Permitted Acquisition for each of the
immediately prior two fiscal years ended; (j) the Lender shall have received
copies of due diligence reports, if any, prepared by the Company, its
accountants, attorneys or other consultants in connection with the proposed
acquisition, and the Lender shall be satisfied with the results thereof, and (k)
the Lender shall have received pro forma financial statements of the Company and
its consolidated Subsidiaries including the Person who is the subject of the
acquisition prepared as of the last day of the immediately preceding fiscal
quarter and including the consolidating pro forma financial statement at such
date of the Person which is the subject of the acquisition.
"Permitted Acquisition Summary" shall mean the Permitted Acquisition Summary attached hereto as Exhibit F, as the same may hereafter be amended, supplemented or otherwise modified from time to time.
"Permitted Liens" shall mean the Liens specified in clauses (a) through
(l) of Section 7.01.
"Person" shall mean any natural person, corporation, limited liability company, limited liability partnership, business trust, joint venture, association, company, partnership or
Governmental Authority.
"Plan" shall mean any multi-employer or single-employer plan defined in
Section 4001 of ERISA, which covers, or at any time during the five calendar
years preceding the date of this Agreement covered, employees of the Company,
any Subsidiary of the Company or an ERISA Affiliate on account of such
employees' employment by the Company, any Subsidiary of the Company or an ERISA
Affiliate.
"Pledge Agreement" shall mean, with respect to the Company, the Pledge
Agreement, substantially in the form attached hereto as Exhibit C 1, and, with
respect to each Subsidiary, the Pledge Agreement, substantially in the form
attached hereto as Exhibit C 2 to be executed and delivered on the Closing Date
by the Company and each Subsidiary of the Company, respectively, pursuant to
Section 5.01 and, thereafter, by any Subsidiary of the Company who may be
required to execute the same pursuant to Section 6.13, as each of the same may
hereafter be amended, restated, supplemented or otherwise modified from time to
time.
"Prime Rate" shall mean the rate per annum announced by the Lender from time to time as its prime rate in effect at its principal office, each change in the Prime Rate shall be effective on the date such change is announced to become effective.
"Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time.
"Relevant Fiscal Period" shall mean any period consisting of the four consecutive fiscal quarters of the Company immediately preceding such date of calculation.
"Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan as to which the 30 day notice requirement has not been waived by the PBGC.
"Reserve Adjusted Libor" shall mean with respect to the Interest Period
pertaining to an Adjusted Libor Loan, the rate per annum equal to the product
(rounded upwards to the next higher 1/16 of one percent) of (a) the annual rate
of the interest at which Dollar deposits of an amount comparable to the amount
of such Loan and for a period equal to the Interest Period applicable thereto
are offered to the Lender in immediately available funds in the London interbank
market for eurodollars at approximately 11:00 A.M. (London time) on the second
Business Day prior to the commencement of such Interest Period, multiplied by
(b) the Eurocurrency Reserve Requirement.
"Retail Store" shall mean any Store which is not a Franchise Store.
"Revolving Credit Commitment" shall mean the Lender's obligation to make Revolving
Credit Loans to the Company in an aggregate amount not to exceed $12,000,000, as such amount may be adjusted in accordance with the terms of this Agreement.
"Revolving Credit Commitment Period" shall mean the period from and including the Closing Date to, but not including, the Revolving Credit Commitment Termination Date or such earlier date as the Revolving Credit Commitment to extend Revolving Credit Loans shall terminate as provided herein.
"Revolving Credit Commitment Termination Date" shall mean September 19, 2000.
"Revolving Credit Loans" shall have the meaning set forth in Section 2.01(a).
"Revolving Credit Notes" shall have the meaning set forth in Section 2.02.
"Security Documents" shall mean the Pledge Agreements and each other collateral security document delivered to the Lender hereunder.
"Solvent" shall mean with respect to any Person as of the date of determination thereof that (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise," as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required on its debts as such debts become absolute and matured, (c) such Person will not have as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature.
"Standby Letter of Credit" shall mean any letter of credit issued to support an obligation of a Person and which may be drawn on only upon the failure of such Person to perform such obligation or other contingency.
"Stock Option Plan" shall mean the P&H Non-Qualified Stock Option Agreement dated as of February 28, 1998 between P&H and the option holders named therein.
"Stockholders Agreement" shall mean the Stockholders Agreement dated April 3, 1998 by and among P&H, the Company, Peter G. Rice and the other individuals set forth on Schedule A thereto.
"Store" shall mean any store established and operated by the Company, any of its Subsidiaries or any Franchisee at which flowers and related goods and products are sold.
"Subordinated Debt" or "Subordinated Indebtedness" shall mean all debt which is subordinated in right of payment to the prior final and indefeasible payment in full of the obligations of the Company and/or of its Subsidiaries to the Lender hereunder and under any other Loan Document on terms satisfactory to and approved in writing by the Lender.
"Subsidiaries" shall mean with respect to any Person any corporation, association or other business entity more than 50% of the voting stock or other ownership interests (including, without limitation, membership interests in a limited liability company) of which is at the time owned or controlled, directly or indirectly, by such Person or one or more of its Subsidiaries or a combination thereof.
"Taxes" shall have the meaning set forth in Section 3.10.
"Term Loan" shall have the meaning set forth in Section 2.03.
"Term Loan Commitment" shall mean the Lender's obligation to make the Term Loan on the Closing Date to the Company in an amount equal to $18,000,000.
"Term Loan Maturity Date" shall mean March 31, 2004.
"Term Note" shall have the meaning set forth in Section 2.04.
"Total Commitment" shall mean, at any time, the aggregate of the Commitments in effect at such time which, initially, shall be $30,000,000.
"Type" shall mean as to any Loan its status as an Alternate Base Rate Loan or an Adjusted Libor Loan.
"Unfunded Capital Expenditures" shall mean Capital Expenditures which are not financed with the proceeds from any Indebtedness.
"Unfunded Current Liability" of any Plan shall mean the amount, if any, by which the present value of the accrued benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, determined in accordance with Section 412 of the Code.
"Unused Fee Rate" shall mean the percentage set forth below opposite the applicable ratio.
Consolidated Funded Debt Unused Fee Rate to Consolidated EBITDA (360 day basis) ---------------------- --------------- Less than 2.00:1.00 .375% Greater than or equal to 2.00:1.00 .50% |
Notwithstanding the foregoing, during the period commencing the Closing Date and
ending on the fifth Business Day following the date of the delivery of the
financial statements for the third fiscal quarter ending March 28, 1999, the
Unused Fee Rate shall be .50%. The Unused Fee Rate will be set or reset
quarterly on the date which is five Business Days following the date of receipt
by the Lender of the financial statements referred to in Section 6.03(a) or
Section 6.03(b), as applicable, together with a certificate of the Chief
Financial Officer of the Company certifying the ratio of Consolidated Funded
Debt to Consolidated EBITDA and setting forth the calculation thereof in detail;
provided, however, if any such financial statement and certificate are not
received by the Lender within the time period required pursuant to Section
6.03(a) or Section 6.03(b), as the case may be, the Unused Fee Rate will be set
or reset, based on a ratio of Consolidated Funded Debt to Consolidated EBITDA of
greater than 2.00:1.00 from the date such financial statement and certificate
were due until the date which is five Business Days following the receipt by the
Lender of such financial statements and certificate, and provided, further, that
the Lender shall not in any way be deemed to have waived any Default or Event of
Default, including without limitation, an Event of Default resulting from the
failure of the Company to comply with Section 7.13 of this Agreement, or any
rights or remedies hereunder or under any other Loan Document in connection with
the foregoing proviso. During the occurrence and continuance of a Default or
Event of Default, no downward adjustment, and only upward adjustments, shall be
made to the Unused Fee Rate.
SECTION 1.02. TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and the neuter. Except as otherwise herein specifically provided, each accounting term used herein shall have the meaning given to it under Generally Accepted Accounting Principles. The term "including" shall not be limited or exclusive, unless specifically indicated to the contrary. The word "will" shall be construed to have the same meaning in effect as the word "shall". The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the exhibits and schedules hereto, all of which are by this reference incorporated into this Agreement.
ARTICLE II
LOANS
SECTION 2.01. REVOLVING CREDIT LOANS. (a) Subject to the terms and conditions, and relying upon the representations and warranties, set forth herein, the Lender severally agrees to make loans (individually a "Revolving Credit Loan" and, collectively, the "Revolving Credit Loans") to the Company from time to time during the Revolving Credit Commitment Period up to but not exceeding at any one time outstanding the amount of its Revolving Credit Commitment; PROVIDED, HOWEVER, that no Revolving Credit Loan shall be made if, after giving effect to such Revolving Credit Loan, the Aggregate Outstandings would exceed the Revolving Credit Commitment in effect at such time. During the Revolving Credit Commitment Period, the Company may from time to time borrow, repay and reborrow hereunder on or after the date hereof and prior to the Revolving Credit Commitment Termination Date, subject to the terms, provisions and limitations set forth herein. The Revolving Credit Loans may be (i) Adjusted Libor Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof.
(b) The Company shall give the Lender irrevocable written notice (or
telephonic notice promptly confirmed in writing) not later than 11:00 a.m., New
York, New York time, three Business Days prior to the date of each proposed
Adjusted Libor Loan under this Section 2.01 or prior to 11:00 a.m. New York, New
York time on the date of each proposed Alternate Base Rate Loan under this
Section 2.01. Such notice shall be irrevocable and shall specify (i) the amount
and Type of the proposed borrowing, (ii) the proposed use of the loan proceeds,
(iii) the initial Interest Period if an Adjusted Libor Loan, and (iv) the
proposed Borrowing Date. Except for borrowings which utilize the full remaining
amount of the Revolving Credit Commitment, each borrowing of an Alternate Base
Rate Loan shall be in an amount not less than $500,000 or, if greater, whole
multiples of $100,000 in excess thereof. Each borrowing of an Adjusted Libor
Loan shall be an amount not less than $500,000 or whole multiples of $100,000 in
excess thereof. Funding of all Loans shall be made in accordance with Section
3.12 of this Agreement.
(c) The Company shall have the right, upon not less than three Business Days' prior written notice to the Lender to terminate the Revolving Credit Commitment or from time to time to permanently reduce the amount of the Revolving Credit Commitment; provided, however, that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans made on the effective date thereof, the Aggregate Outstandings would exceed the Revolving Credit Commitment as then reduced; provided, further, that any such termination or reduction requiring prepayment of any Adjusted Libor Loan shall be made only on the last day of the Interest Period with respect thereto or on the date of payment in full of all amounts owing pursuant to Section 3.08 as a result of such termination or reduction. Any such reduction shall be in the amount of $500,000 or whole multiples of $100,000 in excess thereof, and shall reduce permanently the amount of the Revolving Credit
Commitment then in effect.
(d) The agreement of the Lender to make Revolving Credit Loans pursuant to this Section 2.01 shall automatically terminate on the Revolving Credit Commitment Termination Date. Upon such termination, the Company shall immediately repay in full the principal amount of the Revolving Credit Loans then outstanding, together with all accrued interest thereon and all other amounts due and payable hereunder.
SECTION 2.02. REVOLVING CREDIT NOTE. The Revolving Credit Loans made by the Lender shall be evidenced by a promissory note of the Company (the "Revolving Credit Note"), substantially in the form attached hereto as Exhibit A, appropriately completed, duly executed and delivered on behalf of the Company and payable to the order of the Lender in a principal amount equal to the Revolving Credit Commitment of the Lender. The Revolving Credit Note shall (a) be dated the Closing Date, (b) be stated to mature on the Revolving Credit Commitment Termination Date, and (c) bear interest from the date thereof until paid in full on the unpaid principal amount thereof from time to time outstanding as provided in Section 3.01. The Lender is authorized to record the date, Type and amount of each Revolving Credit Loan and the date and amount of each payment or prepayment of principal of each Revolving Credit Loan in the Lender's records or on the grid schedule annexed to the Revolving Credit Note; PROVIDED, HOWEVER, that the failure of the Lender to set forth each such Revolving Credit Loan, payment and other information shall not in any manner affect the obligation of the Company to repay each Revolving Credit Loan made by the Lender in accordance with the terms of its Revolving Credit Note and this Agreement. The Revolving Credit Note, the grid schedule and the books and records of the Lender shall constitute presumptive evidence of the information so recorded absent manifest error.
SECTION 2.03. TERM LOANS. (a) Subject to the terms and conditions hereof,
the Lender agrees to make a term loan (the "TERM LOAN") to the Company on the
Closing Date in an amount not to exceed the Term Loan Commitment. The Company
shall give the Lender irrevocable written notice (or telephonic notice promptly
confirmed in writing) not later than 11:00 a.m. New York, New York time three
Business Days prior to the Closing Date specifying (i) the amount to be
borrowed, which shall not exceed the Term Loan Commitment, (ii) the Type or
Types of such Term Loans and the related amounts for each, and (iii) if such
Term Loan is an Adjusted Libor Loan, the initial Interest Period selected for
such Term Loan. The Term Loan may, at the election of the Company, consist of
(i) Adjusted Libor Loans, (ii) Alternate Base Rate Loans or (iii) a combination
thereof. The Term Loan Commitment shall terminate upon funding of the Term Loan
on the Closing Date.
SECTION 2.04. TERM NOTE. The Term Loan made by the Lender shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit B, with appropriate insertions (the "TERM NOTE") payable to the order of the Lender and representing the
obligation of the Company to pay the unpaid principal amount of the Term Loan of the Lender with interest thereon as prescribed in Section 3.01. The Lender is authorized to record the Type and the date and amount of each payment or prepayment of principal thereof in the Lender's records or on the grid schedule annexed to the Term Note; PROVIDED, HOWEVER, that the failure of the Lender to set forth each payment and other information shall not in any manner affect the obligation of the Company to repay the Term Loan in accordance with the terms of the Term Note and this Agreement. The Term Note, the grid schedule and the books and records of the Lender shall constitute presumptive evidence of the information so recorded absent manifest error. The Term Note shall (a) be dated the Closing Date, (b) be stated to mature on the Term Loan Maturity Date and (c) be payable as to principal in sixteen consecutive quarterly installments of $1,125,000 commencing June 30, 2000; provided that the final installment on the Term Loan Maturity Date shall be in an amount equal to the remaining principal amount outstanding on the Term Loan Maturity Date. Repayments and prepayments of the Term Loan may not be reborrowed. The Term Note shall bear interest from the date thereof until paid in full on the unpaid principal amount thereof from time to time outstanding at the applicable interest rate per annum determined as provided in, and payable as specified in, Section 3.01.
SECTION 2.05. LETTERS OF CREDIT. (a) GENERALLY. Subject to the terms and conditions set forth in this Agreement, upon the written request of the Company in accordance herewith, the Lender shall issue Letters of Credit at any time during the Revolving Credit Commitment Period. Notwithstanding the foregoing, at no time shall the sum of Aggregate Letters of Credit Outstanding exceed $3,000,000, and no Letter of Credit shall be issued if, after giving effect to the same, the Aggregate Outstandings would exceed the Revolving Credit Commitment. Each request for issuance of a Letter of Credit shall be in writing and shall be received by the Lender by no later than 12:00 noon, New York, New York time, on the day which is at least two Business Days prior to the proposed date of issuance. Such issuance shall occur by no later than 5:00 p.m. on the proposed date of issuance (assuming proper prior notice as aforesaid). Subject to the terms and conditions contained herein, the expiry date, and the amount and beneficiary of the Letters of Credit will be as designated by the Company. Each Letter of Credit issued by the Lender hereunder shall identify: (i) the dates of issuance and expiry of such Letter of Credit, (ii) the amount of such Letter of Credit (which shall be a sum certain), (iii) the beneficiary of such Letter of Credit, and (iv) the drafts and other documents necessary to be presented to the Lender upon drawing thereunder. In no event shall any Letter of Credit expire after the Business Day which is three Business Days immediately prior to the Revolving Credit Commitment Termination Date. The Company agrees to execute and deliver to the Lender such further documents and instruments in connection with any Letter of Credit issued hereunder (including without limitation, applications therefor) as the Lender in accordance with its customary practices may request.
(b) DRAWINGS UNDER LETTERS OF CREDIT. The Company hereby absolutely and unconditionally promises to pay the Lender not later than 3:00 p.m. (New York, New York
time) the amount of each drawing under a Letter of Credit if the Company receives notice of such drawing prior to 10:00 a.m., New York, New York time, on the date of such drawing, or if such notice has not been received by the Company prior to such time on such date, then not later than 12:00 noon, New York, New York time, on the Business Day immediately following the day that the Company receives such notice; provided, however, if any drawing was in an amount not less than $500,000, the Company may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.01 that such payment be financed with a Revolving Credit Loan which is an Alternate Base Rate Loan in an equivalent amount, and, to the extent so financed, the Company's obligation to make such payment shall be discharged and replaced by such an Alternate Base Rate Loan. Such request shall be made by the Company on the date of receipt of notice from the Lender of a drawing under a Letter of Credit. Each drawing under a Letter of Credit which is not paid on the date such drawing is made shall accrue interest, for each day from and including the date of such drawing to but excluding the date that the Company reimburses the Lender in full for such drawing, at the rate per annum then applicable to Revolving Credit Loans which are Alternate Base Rate Loans; provided, however, that if the Company fails to reimburse such drawing when due pursuant to this paragraph (b), then the Company shall pay to the Lender interest on the amount of such drawing at the rate per annum set forth in Section 3.01(d).
(c) LETTER OF CREDIT OBLIGATIONS ABSOLUTE. (i) The obligation of the Company to reimburse the Lender as provided hereunder in respect of drawings under Letters of Credit shall rank PARI PASSU with the obligation of the Company to repay the Revolving Credit Loans hereunder, and shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, the obligation of the Company to reimburse the Lender in respect of drawings under Letters of Credit shall not be subject to any defense based on the non-application or misapplication by the beneficiary of the proceeds of any such drawing or the legality, validity, regularity or enforceability of the Letters of Credit or any related document, even though such document shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company, the beneficiary of any Letter of Credit or any financial institution or other party to which any Letter of Credit may be transferred. The Lender may accept or pay any draft presented to it under any Letter of Credit regardless of when drawn or made and whether or not negotiated, if such draft, accompanying certificate or documents and any transmittal advice are presented or negotiated on or before the expiry date of such Letter of Credit or any renewal or extension thereof then in effect, and is in substantial compliance with the terms and conditions of such Letter of Credit. Furthermore, neither the Lender nor any of its correspondents shall be responsible, as to any document presented under a Letter of Credit which appears to be regular on its face, and appears on its face to be in substantial compliance with the terms of the Letter of Credit, for the validity or sufficiency of any signature or endorsement, for delay in giving any notice or failure of any instrument to bear adequate reference to the Letter of Credit, or for failure of any Person to note the amount of any draft on the reverse of the Letter of Credit.
(ii) Any action, inaction or omission on the part of the Lender or any of its correspondents under or in connection with any Letter of Credit or the related instruments, documents or property, if in good faith and in conformity with such laws, regulations or customs as are applicable, shall be binding upon the Company and shall not place the Lender or any of its correspondents under any liability to the Company in the absence of (x) gross negligence or willful misconduct by the Lender or its correspondents or (y) the failure by the Lender to pay under a Letter of Credit after presentation of a draft and documents strictly complying with such Letter of Credit unless the Lender is prohibited from making such payment pursuant to a court order. The Lender's rights, powers, privileges and immunities specified in or arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise created or arising, whether by statute or rule of law or contract. All Letters of Credit issued hereunder will, except to the extent otherwise expressly provided hereunder, be governed by the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500, and any subsequent revisions thereof.
(d) EXISTING LETTERS OF CREDIT. The Company and the Lender agree that from and after the Closing Date, subject to the satisfaction of the conditions precedent to the initial Loans hereunder as set forth in Article V, the Existing Letters of Credit shall be Letters of Credit for all purposes of this Agreement, including, without limitation, for purposes of Section 3.04(b).
ARTICLE III
PROVISIONS RELATING TO ALL EXTENSIONS OF CREDIT;
FEES AND PAYMENTS
SECTION 3.01. INTEREST RATE; CONTINUATION AND CONVERSION OF LOANS.
(a) Each Alternate Base Rate Loan shall bear interest for the period from the date thereof on the unpaid principal amount thereof at a fluctuating rate per annum equal to the Alternate Base Rate plus the applicable Interest Rate Margin.
(b) Each Adjusted Libor Loan shall bear interest for the Interest Period applicable thereto on the unpaid principal amount thereof at a rate per annum equal to the Reserve Adjusted Libor determined for each Interest Period thereof in accordance with the terms hereof plus the applicable Interest Rate Margin.
(c) Upon the occurrence and during the continuance of an Event of Default the outstanding principal amount of the Loans (excluding any defaulted payment of principal
accruing interest in accordance with clause (d) below), shall, at the option of the Lender, bear interest payable on demand at a rate of interest 2% per annum in excess of the interest rate otherwise then in effect.
(d) If the Company shall default in the payment of the principal of or interest on any portion of any Loan or any other amount becoming due hereunder, whether with respect to reimbursement of drawings under Letters of Credit, interest, fees, expenses or otherwise, the Company shall pay interest on such defaulted amount accruing from the date of such default (without reference to any period of grace) up to and including the date of actual payment (after as well as before judgment) at a rate of 2% per annum in excess of the rate otherwise in effect or, if no rate is in effect, 2% per annum in excess of the Alternate Base Rate.
(e) The Company may elect from time to time to convert outstanding Loans from Adjusted Libor Loans to Alternate Base Rate Loans by giving the Lender at least three Business Day's prior irrevocable written notice of such election, provided that any such conversion of Adjusted Libor Loans shall only be made on the last day of an Interest Period with respect thereto or upon the date of payment in full of any amounts owing pursuant to Section 3.08 as a result of such conversion. The Company may elect from time to time to convert outstanding Loans from Alternate Base Rate Loans to Adjusted Libor Loans by giving the Lender irrevocable written notice of such election not later than 11:00 a.m. New York, New York time, three Business Days prior to the date of the proposed conversion. All or any part of outstanding Alternate Base Rate Loans may be converted as provided herein, provided that each conversion shall be in the principal amount of $500,000 or whole multiples of $100,000 in excess thereof, and further provided that no Default or Event of Default shall have occurred and be continuing. Any conversion to or from Adjusted Libor Loans hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Adjusted Libor Loans having the same Interest Period shall not be less than $500,000.
(f) Any Adjusted Libor Loan in a minimum principal amount of $500,000 may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Company with the notice provisions contained in the definition of Interest Period; provided, that no Adjusted Libor Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to an Alternate Base Rate Loan on the last day of the Interest Period in effect when the Lender is notified, or otherwise has actual knowledge, of such Default or Event of Default.
(g) If the Company shall fail to select the duration of any Interest Period for any Adjusted Libor Loan in accordance with the definition of "Interest Period" set forth in Section 1.01, the Company shall be deemed to have selected an Interest Period of one month.
(h) No Loan may be converted to or continued as an Adjusted Libor Loan with an Interest Period that extends beyond (i) the Revolving Credit Commitment Termination Date, with respect to Revolving Credit Loans, or (ii) the Term Loan Maturity Date with respect to the Term Loan.
(i) Anything in this Agreement or in any Note to the contrary notwithstanding, the obligation of the Company to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be paid to the Lender to the extent that the charging or receipt thereof would not be permissible under the law or laws applicable to the Lender limiting the rates of interest that may be charged or collected by the Lender. In each such event payments of interest required to be paid to the Lender shall be calculated at the highest rate permitted by applicable law until such time as the rates of interest required hereunder may lawfully be charged and collected by the Lender. If the provisions of this Agreement or any Note would at any time otherwise require payment by the Company to the Lender of any amount of interest in excess of the maximum amount then permitted by applicable law, the interest payments to the Lender shall be reduced to the extent necessary so that the Lender shall not receive interest in excess of such maximum amount. To the extent that, pursuant to the foregoing sentence, the Lender shall receive interest payments hereunder or under any Note in an amount less than the amount otherwise provided herein or in any Note, such deficit (hereinafter called the "Interest Deficit") will accumulate and will be carried forward (without interest) until the termination of this Agreement. Interest otherwise payable to the Lender hereunder and under such Note for any subsequent period shall be increased by such maximum amount of the Interest Deficit that may be so added without causing the Lender to receive interest in excess of the maximum amount then permitted by applicable law. The amount of the Interest Deficit relating to any Note at the time of complete payment of such Note and termination of the Commitments shall be cancelled and not paid.
(j) Interest on each Loan shall be payable in arrears on each Interest Payment Date and shall be calculated on the basis year of 360 days and shall be payable for the actual days elapsed. Any rate of interest on the Loans or other Obligations which is computed on the basis of the Alternate Base Rate shall change when and as the Alternate Base Rate changes in accordance with the definition thereof. Each determination by the Lender of an interest rate or fee hereunder shall, absent manifest error, be conclusive and binding for all purposes.
SECTION 3.02. USE OF PROCEEDS. The Term Loan shall be used to pay the Existing Indebtedness in full on the Closing Date. The proceeds of the Revolving Credit Loans shall be used solely for general corporate purposes, including, without limitation, (a) the purchase and lease of real property and the construction of and improvements to the Retail Stores, and (b) the purchase of a Franchise Store from a Franchisee to the extent such purchase is permitted pursuant to Section 7.12. Letters of Credit issued by the Lender hereunder shall be for the account of the Company and shall be issued to support the obligations of the Company and the Guarantors with respect to equipment and retail store leases to which they are a party.
SECTION 3.03. PREPAYMENTS.
(a) The Company may on the last day of an Interest Period if the Loans to be prepaid are Adjusted Libor Loans, or at any time and from time to time if the Loans to be prepaid are Alternate Base Rate Loans, prepay the then outstanding Loans, in whole or in part, without premium or penalty, except as provided in Section 3.08, upon written notice to the Lender (or telephonic notice promptly confirmed in writing) not later than 11:00 a.m. New York, New York time, three Business Days before the date of prepayment with respect to prepayments of Adjusted Libor Loans, or 11:00 a.m. New York, New York time one Business Day before the date of prepayment with respect to Alternate Base Rate Loans. Each notice shall be irrevocable and shall specify the date and amount of prepayment and whether such prepayment is of Adjusted Libor Loans or Alternate Base Rate Loans or a combination thereof, and if a combination thereof, the amount of prepayment allocable to each. If such notice is given, the Company shall make such prepayment, and the amount specified in such notice shall be due and payable, on the date specified therein. Each partial prepayment pursuant to this Section 3.03 shall be in a principal amount of $500,000 or whole multiples of $100,000 in excess thereof.
(b) Each prepayment of principal of a Loan pursuant to this Section 3.03 shall be accompanied by accrued interest to the date prepaid on the amount prepaid. All partial prepayments of the Term Loan, shall be applied to the remaining installments of principal thereof in inverse order of maturity. Prepayments of the Term Loan may not be reborrowed. Unless otherwise directed by the Company pursuant to Section 3.03(a), partial prepayments of any Loan shall be applied first to outstanding Alternate Base Rate Loans and then to Adjusted Libor Loans having the shortest remaining Interest Periods.
SECTION 3.04. FEES.
(a) The Company agrees to pay to the Lender a commitment fee on the average daily unused portion of the Revolving Credit Commitment from the date of this Agreement until the Revolving Credit Commitment Termination Date at a rate per annum equal to the Unused Fee Rate, based on a year of 360 days, payable in arrears on the last day of
March, June, September, and December of each year commencing June 30, 1999, on the Revolving Credit Commitment Termination Date and on each date the Revolving Credit Commitment is permanently reduced in whole or in part.
(b) The Company shall pay to the Lender a fee equal to the LC Margin multiplied by the stated amount of each Letter of Credit at the time of the issuance thereof and payable on the date of such issuance and each anniversary thereafter. Such fee shall be calculated on the basis of 360 days for the actual number of days from the date of issuance of the Letter of Credit or anniversary, as applicable, to the earlier of the next succeeding anniversary or the date on which the Letter of Credit expires if there is no drawing thereunder. The Company shall pay to the Lender the Lender's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder.
(c) The Company agrees to pay to the Lender a nonrefundable structuring fee of $175,000 which shall be paid in full on the Closing Date.
SECTION 3.05. INABILITY TO DETERMINE INTEREST RATE. In the event that the Lender shall have determined (which determination shall be conclusive and binding upon the Company) that, by reason of circumstances affecting the London interbank market, adequate and reasonable means do not exist for ascertaining the Reserve Adjusted Libor applicable pursuant to Section 3.01(b) for any requested Interest Period with respect to (a) the making of an Adjusted Libor Loan, (b) an Adjusted Libor Loan that will result from the requested conversion of an Alternate Base Rate Loan into an Adjusted Libor Loan, or (c) the continuation of an Adjusted Libor Loan beyond the expiration of the then current Interest Period with respect thereto, the Lender shall forthwith give notice by telephone of such determination, promptly confirmed in writing, to the Company of such determination. Until the Lender notifies the Company that the circumstances giving rise to the suspension described herein no longer exist, the Company shall not have the right to request or continue an Adjusted Libor Loan or to convert an Alternate Base Rate Loan to an Adjusted Libor Loan.
SECTION 3.06. ILLEGALITY. Notwithstanding any other provisions herein, if any introduction of or change in any law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for the Lender to make or maintain Adjusted Libor Loans as contemplated by this Agreement, the Lender shall forthwith give notice by telephone of such circumstances, promptly confirmed in writing, and (a) the commitment of the Lender to make and to allow conversion to or continuations of Adjusted Libor Loans shall forthwith be cancelled for the duration of such illegality and (b) the Loans then outstanding as Adjusted Libor Loans, if any, shall be converted automatically to Alternate Base Rate Loans on the next succeeding last day of each Interest Period applicable to such Adjusted Libor Loans or within such earlier period as may be required by law. The Company shall pay to the Lender, upon demand, any additional amounts required to be paid pursuant to Section 3.08 hereof.
SECTION 3.07. INCREASED COSTS. (a) In the event that any introduction of or change in, on or after the date hereof, any applicable law, regulation, treaty, order, directive or in the interpretation or application thereof (including, without limitation, any request, guideline or policy, whether or not having the force of law, of or from any central bank or other governmental authority, agency or instrumentality and including, without limitation, Regulation D), by any authority charged with the administration or interpretation thereof shall occur, which:
(i) shall subject the Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Loan, or any Letter of Credit or change the basis of taxation of payments to the Lender of principal, interest, fees or any other amount payable hereunder (other than any tax that is measured with respect to the overall net income of the Lender or lending office of the Lender and that is imposed by the United States of America, or any political subdivision or taxing authority thereof or therein, or by any jurisdiction in which the Lender's lending office is located, or by any jurisdiction in which the Lender is organized, has its principal office or is managed and controlled); or
(ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement (whether or not having the force of law) against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of the Lender; or
(iii) shall impose on the Lender any other condition, or change therein;
and the result of any of the foregoing is to increase the cost to the Lender of making, renewing or maintaining or participating in advances or extensions of credit hereunder or to reduce any amount receivable hereunder, in each case by an amount which the Lender deems material, then, in any such case, the Company shall pay the Lender, upon demand, such additional amount or amounts as the Lender shall have determined will compensate the Lender for such increased costs or reduction.
(b) If the Lender shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender (or any lending office of the Lender) or the Lender's holding company, with any request or directive regarding capital adequacy (whether or not having the force of the law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Lender's capital or on the capital of the Lender's holding company as a consequence of its obligations hereunder to a level below that which the Lender could have achieved but for such adoption, change or compliance (taking into consideration the Lender's policies and the policies of the Lender's holding company with respect to capital adequacy) by
an amount deemed by the Lender to be material, then from time to time, the Company shall pay to the Lender, the additional amount or amounts as the Lender shall have determined will compensate the Lender or the Lender's holding company for such reduction. The Lender's determination of such amounts shall be conclusive and binding on the Company absent manifest error.
(c) A certificate of the Lender setting forth the amount or amounts payable pursuant to Sections 3.07(a) and 3.07(b) above shall be conclusive absent manifest error. The Company shall pay the Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) In the event the Lender shall be entitled to compensation pursuant to Section 3.07(a) or Section 3.07(b), it shall promptly notify the Company of the event by reason of which it has become so entitled; provided, however, no failure on the part of the Lender to demand compensation under clause (a) or clause (b) above on one occasion shall constitute a waiver of its right to demand compensation on any other occasion.
SECTION 3.08. INDEMNITY. The Company agrees to indemnify the Lender and to hold the Lender harmless from any loss, cost or expense which the Lender may sustain or incur, including, without limitation, interest or fees payable by the Lender to lenders of funds obtained by it in order to maintain Adjusted Libor Loans hereunder, as a consequence of (a) default by the Company in payment of the principal amount of or interest on any Adjusted Libor Loan, (b) default by the Company to accept or make a borrowing of an Adjusted Libor Loan or a conversion into or continuation of an Adjusted Libor Loan after the Company has requested such borrowing, conversion or continuation, (c) default by the Company in making any prepayment of any Adjusted Libor Loan after the Company gives a notice in accordance with Section 3.03 of this Agreement and/or (d) the making of any payment or prepayment (whether mandatory or optional) of an Adjusted Libor Loan or the making of any conversion of an Adjusted Libor Loan to an Alternate Base Rate Loan on a day which is not the last day of the applicable Interest Period with respect thereto. A certificate of the Lender setting forth such amounts shall be conclusive absent manifest error. The Company shall pay the Lender the amount shown as due on any certificate within ten days after receipt thereof.
SECTION 3.09. CHANGE OF LENDING OFFICE. The Lender agrees to use
reasonable efforts to designate an alternate lending office with respect to its
Adjusted Libor Loans affected by the events or circumstances described in
Section 3.05, Section 3.06 or Section 3.07 to avoid or minimize the Company's
liability thereunder; provided, however, that such efforts shall not cause the
imposition on the Lender of any additional cost or legal, regulatory or
administrative burdens deemed by the Lender, in its sole discretion, to be
material.
SECTION 3.10. TAXES. Except as set forth in clause (c) below or as required by
law, all payments made by the Company under this Agreement shall be made free and clear of, and without reduction for or on account of, any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding income and franchise taxes imposed on the Lender by (i) the United States of America or any political subdivision or taxing authority thereof or therein, (ii) the jurisdiction under the laws of which the Lender is organized or in which it has its principal office or is managed and controlled or any political subdivision or taxing authority thereof or therein, or (iii) any jurisdiction in which the Lender's lending office is located or any political subdivision or taxing authority thereof or therein (such non-excluded taxes being called "TAXES"). If any Taxes are required to be withheld from any amounts payable to the Lender hereunder, or under the Notes, the amount so payable to the Lender shall be increased to the extent necessary to yield to the Lender (after payment of all Taxes and free and clear of all liability in respect of such Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Taxes are payable by the Company, as promptly as possible thereafter, the Company shall send to the Lender, as the case may be, a certified copy of an original official receipt showing payment thereof. If the Company fails to pay Taxes when due to the appropriate taxing authority or fails to remit to the Lender the required receipts or other required documentary evidence, the Company shall indemnify the Lender for any incremental taxes, interest or penalties that may become payable by the Lender as a result of any such failure together with any expenses payable by the Lender in connection therewith
SECTION 3.11. PAYMENTS. All payments (including prepayments) to be made by the Company on account of principal, interest, fees and reimbursement obligations shall be made without set-off or counterclaim and shall be made to the Lender, at the Payment Office of the Lender in Dollars in immediately available funds. The Lender may, in its sole discretion, directly charge principal and interest payments due in respect of the Loans and reimbursement obligations with respect to Letters of Credit to the Company's accounts at the Payment Office or other office of the Lender. Except as otherwise provided in the definition of "Interest Period", if any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.
SECTION 3.12. DISBURSEMENT OF LOANS. The Lender shall make each Loan to be made by it hereunder available to the Company at the Payment Office by crediting the account of the Company with such amount and in like funds; provided, however, that if the proceeds of any Loan or any portion thereof are to be used to prepay outstanding Loans, then the Lender shall apply such proceeds for such purpose to extent necessary and credit the balance, if any, to the Company's account.
ARTICLE IV .
REPRESENTATIONS AND WARRANTIES .
In order to induce the Lender to enter into this Agreement and to extend the credit herein provided for, the Company represents and warrants to the Lender that:
SECTION 4.01. ORGANIZATION, POWERS. The Company (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (b) has the corporate power and authority to own its properties and to carry on its business as now being conducted, (c) is duly qualified to do business in every jurisdiction wherein the conduct of its business or the ownership of its properties are such as to require such qualification except those jurisdictions in which the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and (d) has the corporate power to execute, deliver and perform each of the Loan Documents to which it is a party, including, without limitation, the power to obtain extensions of credit hereunder and to execute and deliver the Notes. Each Subsidiary of the Company is a corporation, limited liability company or partnership (as indicated on Schedule I hereto) duly organized or formed, as applicable, validly existing and, except as set forth on Schedule I, in good standing under the laws of the state of its incorporation or formation, (b) has the corporate, limited partnership or limited liability company power and authority to own or lease its properties and to carry on its business as now being conducted, (c) is duly qualified to do business in every jurisdiction wherein the conduct of its business or the ownership of its properties are such as to require such qualification except those jurisdictions in which the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and (d) has the corporate, limited partnership or limited liability company power, as applicable, to execute, deliver and perform each of the Loan Documents to which it is a party.
SECTION 4.02. AUTHORIZATION OF BORROWING, ENFORCEABLE OBLIGATIONS. The execution, delivery and performance by the Company of this Agreement, and the other Loan Documents to which it is a party, the borrowings and the other extensions of credit to the Company hereunder, and the execution, delivery and performance by each of its Subsidiaries of the Loan Documents to which such Subsidiary is a party, (a) have been duly authorized by all requisite corporate, limited partnership or limited liability action, (b) will not violate or require any consent (other than consents as have been made or obtained and which are in full force and effect) under (i) any provision of law applicable to the Company or any Subsidiary of the Company, any rule or regulation of any Governmental Authority, or the Certificate of Incorporation or By-laws of the Company or the Certificate of Incorporation, By-Laws, or other organizational documents, as applicable, of any Subsidiary of the Company or (ii) any order of any court or other Governmental Authority binding on the Company or any Subsidiary of the Company or any indenture, agreement or other instrument to which the Company or any Subsidiary of the Company is a party, or by which the Company or any Subsidiary of the Company or any of its property is bound, and (c) will not be in conflict with, result in a breach
of or constitute (with due notice and/or lapse of time) a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any Lien, of any nature whatsoever upon any of the property or assets of the Company or any Subsidiary of the Company other than as contemplated by this Agreement or the other Loan Documents. This Agreement and each other Loan Document to which the Company or any of its Subsidiaries is a party constitutes a legal, valid and binding obligation of the Company and each such Subsidiary of the Company, as the case may be, enforceable against the Company and each such Subsidiary of the Company, as the case may be, in accordance with its terms except to the extent that enforcement may be limited by applicable bankruptcy, reorganization, moratorium, insolvency and similar laws affecting creditors' rights generally or by equitable principles of general application, regardless of whether considered in a proceeding in equity or at law.
SECTION 4.03. FINANCIAL CONDITION. (a) The Company has heretofore furnished to the Lender (i) the audited consolidated balance sheet of the Company and its Subsidiaries and the related consolidated statement of income, retained earnings and cash flow of the Company and its Subsidiaries, audited by Ernst & Young, independent certified public accountants, for the fiscal year ended June 28, 1998, and (ii) the unaudited consolidated balance sheet of the Company and its Subsidiaries and the related consolidated statements of income, retained earnings and cash flow of the Company and its Subsidiaries for the six month period ended December 27, 1998. Such financial statements were prepared in conformity with Generally Accepted Accounting Principles, applied on a consistent basis, and fairly present the consolidated financial condition and consolidated results of operations of the Company and its Subsidiaries as of the date of such financial statements and for the periods to which they relate and, except as set forth on Schedule V, since June 28, 1998, no Material Adverse Effect has occurred. The Company shall deliver to the Lender, with a copy for the Lender a certificate of the Chief Financial Officer of the Company to that effect on the Closing Date. Other than obligations and liabilities arising in the ordinary course of business since June 28, 1998, there are no material obligations or liabilities contingent or otherwise, of the Company or any of its Subsidiaries which are not reflected or disclosed on such audited statements other than obligations of the Company and its Subsidiaries incurred in the ordinary course of business (which shall be deemed to exclude acquisitions by the Company or any Subsidiary of the Company of the business or assets (including, without limitation stock) of any Person).
(b) The Company, individually and together with the Guarantors, is Solvent and immediately after giving effect to each Loan and each other extension of credit contemplated by this Agreement and the execution of each Loan Document, will be Solvent.
SECTION 4.04. TAXES. All assessed deficiencies resulting from Internal Revenue Service examinations of the federal income tax returns of the Company or any of its Subsidiaries have been discharged or reserved against in accordance with Generally Accepted Accounting Principles. The Company and each of its Subsidiaries has filed or caused to be filed all federal,
state and local tax returns which are required to be filed, and has paid or has caused to be paid all taxes as shown on said returns or on any assessment received by them, to the extent that such taxes have become due, except taxes which are being contested in good faith and which are reserved against in accordance with Generally Accepted Accounting Principles.
SECTION 4.05. TITLE TO PROPERTIES. The Company and each of its Subsidiaries has good title to their respective properties and assets reflected on the financial statements referred to in Section 4.03 hereof, except for such properties and assets as have been disposed of since the date of such financial statements as no longer used or useful in the conduct of their respective businesses or as have been disposed of in the ordinary course of business including the sale of stores, and all such properties and assets are free and clear of all Liens other than Permitted Liens.
SECTION 4.06. LITIGATION. (a) Except as set forth on Schedule VII, there are no actions, suits or proceedings (whether or not purportedly on behalf of the Company or any of its Subsidiaries) pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries at law or in equity or before or by any Governmental Authority, which involve any of the transactions contemplated herein or which, if adversely determined against the Company or such Subsidiary, could reasonably be expected to result in a Material Adverse Effect; and (b) neither the Company nor any of its Subsidiaries is in default with respect to any judgment, writ, injunction, decree, rule or regulation of any Governmental Authority which could reasonably be expected to result in a Material Adverse Effect.
SECTION 4.07. AGREEMENTS. Neither the Company nor any of its Subsidiaries is a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree or regulation which could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party, which default could reasonably be expected to have a Material Adverse Effect.
SECTION 4.08. COMPLIANCE WITH ERISA. Each Plan is in compliance in all
material respects with ERISA; to the knowledge of the Company no Plan which is a
"Multi-Employer Plan (as defined in Section 4001(a)(3) of ERISA) is insolvent
(as defined in Section 4245 of ERISA) or in reorganization (as defined in
Section 4241 of ERISA), no Plan or Plans which are single employer Plans (within
the meaning of Section 4001(a)(15) of ERISA) have an Unfunded Current Liability
in excess of $100,000 in the aggregate, and no Plan which is a single employer
Plan (within the meaning of Section 4001(a)(15) of ERISA) has an accumulated or
waived funding deficiency within the meaning of Section 412 of the Code; neither
the Company nor any ERISA Affiliate has incurred any material liability to or on
account of a Plan pursuant to Section 515, 4062, 4063, 4064, 4201 or 4204 of
ERISA or reasonably expects to
incur any liability under any of the foregoing sections on account of the prior termination of participation in or contributions to any such Plan; to the knowledge of the Company no proceedings have been instituted to terminate any Plan; to the knowledge of the Company no condition exists which could reasonably be expected to present a risk to the Company or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code in excess of $250,000 in the aggregate; and no lien imposed under the Code or ERISA on the assets of the Company or any of its ERISA Affiliates exists or to the knowledge of the Company is likely to arise on account of any Plan.
SECTION 4.09. FEDERAL RESERVE REGULATIONS; USE OF PROCEEDS. (a) Neither the Company nor any of its Subsidiaries is engaged principally in, nor has as one of its important activities, the business of extending credit for the purpose of purchasing or carrying any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United States, as amended from time to time).
(b) No part of the proceeds of any Loan and no other extension of credit hereunder will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, (i) to purchase or to carry margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock, or to refund indebtedness originally incurred for such purposes, or (ii) for any purpose which violates or is inconsistent with the provisions of Regulation T,U, or X of the Board of Governors of the Federal Reserve System.
(c) The proceeds of each Loan, and each other extension of credit hereunder shall be used solely for the purposes permitted under Section 3.02.
SECTION 4.10. APPROVALS. No registration with or consent or approval of, or other action by, any Governmental Authority or any other Person is required in connection with the execution, delivery and performance of this Agreement by the Company or any of its Subsidiaries, or with the execution and delivery of other Loan Documents to which it is a party or, with respect to the Company, the borrowings and each other extension of credit hereunder other than registrations, consents and approvals received prior to the date hereof and disclosed to the Lender and which are in full force and effect.
SECTION 4.11. SUBSIDIARIES. Attached hereto as Schedule I is a correct and complete list of each of the Company's Subsidiaries as of the Closing Date showing as to each Subsidiary, its name, the jurisdiction of its incorporation, its shareholders or other owners of an interest in each Subsidiary and the number of outstanding shares or other ownership interest owned by each shareholder or other owner of an interest. Other than P&H, 800 Flowers, Inc., 1-800-Flowers Retail, Inc., Fresh Intellectual Properties, Inc. and 800-Gifthouse, Inc., no Subsidiary of the Company as of the date hereof is a Material Subsidiary (as that term is defined herein).
SECTION 4.12. HAZARDOUS MATERIALS. Except as may be relevant with respect to the matters set forth on Schedule VIII, the Company and each of its Subsidiaries are in compliance in all material respects with all applicable Environmental Laws and neither the Company nor any of its Subsidiaries has used Hazardous Materials on, from, or affecting any property now owned or occupied or hereafter owned or occupied by the Company or any of its Subsidiaries in any manner which violates any applicable Environmental Law. Except as may be relevant with respect to the matters set forth on Schedule VIII, to the best actual knowledge of any officer of the Company, no prior owner of any such property or any tenant, subtenant, prior tenant or prior subtenant have used Hazardous Materials on, from, or affecting such property in any manner which violates any applicable Environmental Law.
SECTION 4.13. INVESTMENT COMPANY ACT. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.14. PLEDGE AGREEMENTS. Each Pledge Agreement executed by the Company and each Subsidiary of the Company, as applicable, shall, pursuant to its terms, constitute a valid and continuing lien on and security interest in the collateral referred to in such Pledge Agreement in favor of the Lender, which shall be prior to all other Liens, claims and rights of all other Persons in such collateral.
SECTION 4.15. NO DEFAULT. No Default or Event of Default has occurred and is continuing.
SECTION 4.16. MATERIAL CONTRACTS. As of the Closing Date, all Material
Contracts are disclosed on Schedule IX hereto. Each such Material Contract is in
full force and effect and is binding upon and enforceable against the Company
and its Subsidiaries, in each case, to the extent they are a party thereto, and,
to the Company's knowledge, all other parties thereto in accordance with its
terms, except, in each case, to the extent enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and subject to general principles of
equity regardless of whether considered in a proceeding in equity or at law and
(a) there exists no default, in any material respect, under any Material
Contract (as defined in clause (a) of the definition thereof) by the Company or
any Subsidiary of the Company or, to the Company's knowledge, by any other party
thereto which has not been fully cured or waived, and (b) there exists no
default under any Material Contract (as defined in clause (b) of the definition
thereof) by the Company or any Subsidiary of the Company, or to the Company's
knowledge by any other party thereto which has not been fully cured or waived,
in each case other than a default which could not individually or in the
aggregate reasonably be expected to have a Material Adverse Effect.
SECTION 4.17. PERMITS AND LICENSES. The Company and each of its Subsidiaries
each has all permits, licenses, certifications, authorizations and approvals required for it lawfully to own and operate their respective businesses except those the failure of which to have could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 4.18. COMPLIANCE WITH LAW. The Company and each of its Subsidiaries are each in compliance, with all laws, rules, regulations, orders and decrees which are applicable to the Company or any of its Subsidiaries, or to any of their respective properties, which the failure to comply with could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 4.19. Y2K. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (a) the Company's or any of its Subsidiaries' computer systems and (b) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Company's or any of its Subsidiaries' systems interface to the extent the failure to perform such reprogramming could reasonably be expected to have a Material Adverse Effect), and the testing of all such systems and equipment, as so reprogrammed, will be completed by June 30, 1999. The cost to the Company and each of its Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of the year 2000 to the Company and each of its Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or Event of Default or have a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Company and each of its Subsidiaries are and, with ordinary course upgrading and maintenance, will continue to be sufficient to permit the Company and each of its Subsidiaries to conduct their respective businesses without having a Material Adverse Effect.
SECTION 4.20. REPURCHASE OBLIGATIONS. Neither the Company nor any of its Subsidiaries is obligated to repurchase prior to the Term Loan Maturity Date any of its shares of capital stock or any option to purchase shares of its capital stock from any holder thereof other than the obligations referred to in the definition of Option Liability, and the aggregate consideration required to be paid in connection with the Option Liability is approximately $6,887,122, as of September 27, 1998, subject to adjustment as provided in the Stockholders Agreement.
SECTION 4.21. FISCAL YEAR END. The last day of the Company's fiscal years ending 1999, 2000, 2001 and 2002 is June 27, July 2, July 1, and June 30, respectively.
SECTION 4.22. DISCLOSURE. Neither this Agreement, any other Loan Document, nor any other document, certificate or written statement furnished to the Lender by or on behalf of the Company or any of its Subsidiaries for use in connection with the transactions
contemplated by this Agreement contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which they were made.
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01. CONDITIONS TO INITIAL EXTENSION OF CREDIT. The obligation of the Lender to make its initial Loan hereunder, and the obligation of the Lender to issue the initial Letter of Credit, are subject to the following conditions precedent:
(a) NOTES. On or prior to the Closing Date, the Lender shall have received a Revolving Credit Note and the Term Note, each duly executed by the Company.
(b) GUARANTIES. On or prior to the Closing Date, the Lender shall have received a Guaranty duly executed by each Subsidiary of the Company other than P&H Partnership, Gerber Gardens/1-800 Flowers LLC and Flores de Excito, Inc.
(c) PLEDGE AGREEMENTS. On or prior to the Closing Date, the Lender shall have received the Pledge Agreements duly executed by the Company and each Subsidiary of the Company, as applicable, with respect to the outstanding capital stock of each Material Subsidiary owned by the Company and/or its Subsidiaries, together with the stock certificates evidencing the shares pledged thereunder and stock powers duly executed in blank by the Company or Subsidiary of the Company, as appropriate.
(d) OPINIONS OF COUNSEL. On or prior to the Closing Date, the Lender shall have received a written opinion of counsel for the Company and the Corporate Guarantors dated the Closing Date and addressed to the Lender, substantially in the form of Exhibit E attached hereto.
(e) SUPPORTING DOCUMENTS. On or prior to the Closing Date, the Lender shall have received (i) a certificate of good standing for the Company and each of its Subsidiaries from the secretary of state of the states of their organizational jurisdiction dated as of a recent date; (ii) certified copies of the Certificate of Incorporation and By-laws of the Company and the Certificate of Incorporation and By-Laws or other organizational documents, as applicable of each of its Subsidiaries; (iii) a certificate of the Secretary or an Assistant Secretary of the Company and each of its Subsidiaries dated the Closing Date and certifying: (x) that neither the Certificates of Incorporation nor the By-laws of the Company nor of any Subsidiary of the Company has been amended since the date of their certification (or if there has been any such amendment, attaching a certified copy thereof); (y) that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of the Company and by the board of directors or other governing body or Persons of each of its Subsidiaries authorizing the execution, delivery and performance of each Loan Document to which it is a party and, with respect to the Company, the borrowings and other extensions of credit hereunder; and (z) the incumbency and specimen signature of each officer of the Company and of each officer or other authorized Person of each of its Subsidiaries executing each Loan Document to which the Company or any Subsidiary of the Company is a party and any certificates or instruments furnished pursuant hereto or thereto, and a certification by another officer of the Company and each of its Subsidiaries as to the incumbency and signature of the Secretary or Assistant Secretary of the Company and each of its Subsidiaries; and (iv) such other documents as the Lender may reasonably request. For purposes of this subsection (e), the term "Subsidiary" shall not include P&H Partnership, Gerber Gardens/1-800-Flowers, LLC or Flores de Excito, Inc.
(f) INSURANCE. On or prior to the Closing Date, the Lender shall have received a certificate or certificates of insurance from an independent insurance broker or brokers confirming the insurance required to be maintained pursuant to Section 6.01 hereof.
(g) ASSETS FREE FROM LIENS. Prior to the Closing Date, the Lender shall have received UCC-1 financing statement, tax and judgment lien searches evidencing that the Company's and each of its Subsidiaries' accounts receivable, inventory, equipment and all other assets of the Company and each of its Subsidiaries are free and clear of all Liens except (i) Permitted Liens and (ii) liens to be satisfied on the Closing Date pursuant to the terms hereof.
(h) FEES AND EXPENSES. On or prior to the Closing Date, The Chase Manhattan Bank shall have received the fees payable on the Closing Date pursuant to Section 3.04(c) and reimbursement of expenses in accordance with Section 9.03(b).
(i) NO LITIGATION. There shall exist no action, suit, investigation, litigation or proceeding affecting the Company or any of its Subsidiaries pending or, to the knowledge of the Company, threatened before any court, governmental agency or arbiter that could reasonably be expected to be adversely determined against the Company or such Subsidiary and, if so adversely determined, could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(j) CONSENTS AND APPROVALS. All governmental and third party consents and approvals necessary in connection with the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender) and shall remain in effect, and no law or regulation shall be applicable in the reasonable judgment of the Lender that imposes materially adverse conditions upon the transactions contemplated hereby.
(k) NO MATERIAL ADVERSE CHANGES. Except as set forth on Schedule V, there shall not have occurred any material adverse change in the business, operations, properties, prospects or condition (financial or otherwise) of the Company or the Company and its Subsidiaries, taken as a whole, since June 28, 1998.
(l) EXISTING INDEBTEDNESS. The Lender shall have received concurrently with the extension of the initial Loan evidence that the Existing Indebtedness has been paid in full and on such date the credit agreement governing such indebtedness shall be terminated.
(m) PROJECTIONS. The Lender shall have received projections of the Company and its Subsidiaries for each fiscal quarter during the period commencing with the fiscal quarter ended December 27, 1998 and ending on, but including, the fiscal quarter ending July 2, 2000, and for the fiscal year ending 2001 and 2002, together with calculations demonstrating compliance with each of the financial covenants set forth in Section 7.13 for each such fiscal quarter and year end.
(n) FINANCIAL STATEMENTS. The Lender shall have received the consolidated financial statements of the Company and its Subsidiaries for the second fiscal quarter ended December 27, 1998, which statements shall be in form and substance satisfactory to the Lender.
(o) OTHER INFORMATION, DOCUMENTATION. The Lender shall have received such other and further information and documentation as it may reasonably require, including, but not limited to, any information or documentation relating to compliance by the Company and each of its Subsidiaries with the requirements of all Environmental Laws.
(p) COMPLETION OF PROCEEDINGS. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by the Loan Documents, shall be reasonably satisfactory in form and substance to the Lender, and its counsel.
SECTION 5.02. CONDITIONS TO ALL EXTENSIONS OF CREDIT. The obligation of the Lender to make each Loan hereunder and the obligation of the Lender to issue, amend, renew or extend any Letter of Credit, including, without limitation, the initial Loan and initial Letter of Credit, are subject to the conditions precedent set forth in Section 5.01 and the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties by the Company and each of its Subsidiaries pursuant to this Agreement and the other Loan Documents to which each is a party shall be true and correct in all material respects on and as of the Borrowing Date or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, with the same effect as though such representations and warranties had
been made on and as of such date unless such representation is as of a specific date, in which case, as of such date.
(b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on the Borrowing Date or on the date of issuance, amendment, renewal or extension of a Letter of Credit or will result after giving effect to the Loan requested or the requested issuance, amendment, renewal or extension of a Letter of Credit.
(c) AVAILABILITY. After giving effect to any requested Revolving Credit Loan or Letter of Credit, the Aggregate Outstandings shall not exceed the Revolving Credit Commitment then in effect. After giving effect to any issuance, amendment, renewal or extension of any Letter of Credit, the Aggregate Letters of Credit Outstanding shall not exceed $3,000,000.
(d) ADDITIONAL DOCUMENTATION. With respect to the issuance, amendment, renewal or extension of any Letter of Credit, the Lender shall have received the documents and instruments requested by the Lender in accordance with the last sentence of Section 2.05(a).
Each borrowing hereunder and each issuance, amendment, renewal or extension of a Letter of Credit shall constitute a representation and warranty of the Company that the statements contained in clauses (a), (b), and (c) of Section 5.02 are true and correct on and as of the Borrowing Date or as of the date of issuance, amendment, renewal or extension of a Letter of Credit, as applicable, as though such representation and warranty had been made on and as of such date.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company covenants and agrees with the Lender that so long as the Commitments remain in effect, or any of the principal of or interest on the Notes or any other Obligations hereunder shall be unpaid it will, and will cause each of its Subsidiaries to:
SECTION 6.01. EXISTENCE, PROPERTIES, INSURANCE. Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate, partnership or limited liability company, as applicable, existence, rights and franchises and comply in all material respects with all laws applicable to it (provided the Company, in its discretion, may dissolve Gerber Gardens/1-800 Flowers LLC, Flores de Excito and Floral Works, Inc. provided such entity was not a Material Subsidiary at any time during the period commencing the Closing Date and ending on the proposed date of dissolution); at all times maintain, preserve and protect all franchises and trade names and preserve all of its property, in each case, material to its business
and keep the same in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted in the ordinary course at all times; and at all times maintain insurance covering its assets and its businesses with financially sound and reputable insurance companies or associations in such amounts and against such risks (including, without limitation, hazard, business interruption, public liability and product liability) as are usually carried by companies engaged in the same or similar business. Each such policy of insurance shall provide for at least thirty (30) days' prior written notice to the Lender of any modification or cancellation of such policies. The Company shall provide to the Lender promptly upon receipt thereof evidence of the annual renewal of each such policy.
SECTION 6.02. PAYMENT OF INDEBTEDNESS AND TAXES. (a) Pay all indebtedness
and obligations, now existing or hereafter arising, as and when due and payable
except where (i) the validity or amount thereof is being contested in good faith
and by appropriate proceedings, which proceedings shall include good faith
negotiations, (ii) the Company or its Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with Generally Accepted
Accounting Principles, and (iii) the failure to make such payment pending such
contest could not reasonably be expected to have a Material Adverse Effect, and
(b) pay and discharge or cause to be paid and discharged promptly all taxes,
assessments and government charges or levies imposed upon it or upon its income
and profits, or upon any of its property, real, personal or mixed, or upon any
part thereof, before the same shall become in default, as well as all lawful
claims for labor, materials and supplies or otherwise which, if unpaid, might
become a lien or charge upon such properties or any part thereof; PROVIDED,
HOWEVER, that neither the Company nor any Subsidiary of the Company shall be
required to pay and discharge or cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings, and the Company or such
Subsidiary, as the case may be, shall have set aside on its books adequate
reserves determined in accordance with Generally Accepted Accounting Principles
with respect to any such tax, assessment, charge, levy or claim so contested;
FURTHER, PROVIDED that, subject to the foregoing proviso, the Company and each
of its Subsidiaries will pay or cause to be paid all such taxes, assessments,
charges, levies or claims upon the commencement of proceedings to foreclose any
lien which has attached as security therefor.
SECTION 6.03. FINANCIAL STATEMENTS, REPORTS, ETC. Furnish to the Lender:
(a) (i) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as of the end of such year and the related audited consolidated statements of income, shareholders equity and cash flow for such year, setting forth in each case in comparative form the respective figures as of the end of and
for the previous fiscal year, and accompanied by a report thereon of Ernst & Young or other independent certified public accountants of recognized standing selected by the Company and satisfactory to the Lender (the "Auditor"), which report shall be unqualified; and (ii) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company and each of its Subsidiaries, a copy of the management prepared consolidating financial statements of the Company, and its Subsidiaries setting forth in comparative form the respective figures as of the end of and for the previous fiscal year and which support the financial statements delivered pursuant to clause (i), in each case of (i) and (ii) prepared in accordance with Generally Accepted Accounting Principles, applied on a consistent basis, and with respect to the statements referred to in clause (ii) accompanied by a certificate to that effect executed by the Chief Financial Officer;
(b) as soon as available, but in any event not later than 60 days after the end of each quarterly period of each fiscal year of the Company, a copy of the unaudited interim consolidated and consolidating balance sheet of the Company and its Subsidiaries as of the end of each such quarter and the related unaudited interim consolidated and consolidating statements of income, shareholders equity and cash flow for such quarter and the portion of the fiscal year through such date and setting forth in each case in comparative form the respective figures for the corresponding date and period in the previous fiscal year, in each case prepared by the Chief Financial Officer in accordance with Generally Accepted Accounting Principles, applied on a consistent basis, and accompanied by a certificate to that effect executed by the Chief Financial Officer;
(c) a certificate prepared and signed by the Auditor with each delivery required by clause (a) and a certificate prepared and signed by the Chief Financial Officer with each delivery required by (a) and (b), as to whether or not, as of the close of such preceding period and at all times during such preceding period, the Company or each of its Subsidiaries, as the case may be, was in compliance with all the provisions in this Agreement, showing computation of financial covenants and quantitative negative covenants, and if the Auditor or Chief Financial Officer, as the case may be, shall have obtained knowledge of any default in such compliance or notice of such default, it shall disclose in such certificate such default or defaults or notice thereof and the nature thereof, whether or not the same shall constitute a Default or an Event of Default hereunder;
(d) at all times indicated in clause (a) above (i) a copy of the management letter, if any, prepared by the Auditor, and (ii) a copy of an organizational chart of the Company and its Subsidiaries (including ownership and jurisdiction of incorporation);
(e) at all times indicated in clauses (a) and (b) above, a statement of the Chief
Financial Officer certifying the principal amount of all Indebtedness secured by purchase money liens incurred by the Company and its Subsidiaries during the applicable fiscal year or fiscal quarter;
(f) if applicable, promptly after filing thereof, copies of all regular and periodic financial information, proxy materials and other information and reports which the Company or any of its Subsidiaries shall file with the Securities and Exchange Commission;
(g) promptly after submission to any government or regulatory agency, all documents and information furnished to such government or regulatory agency other than such documents and information prepared in the normal course of business and which could not reasonably be expected to result in any materially adverse action to be taken by such agency;
(h) promptly after filing thereof, a copy of (i) a certificate of amendment pursuant to which the name of any Subsidiary of the Company is changed and (ii) a certificate of merger or consolidation with respect to any merger or consolidation permitted pursuant to Section 7.12; and
(i) promptly, from time to time, such other information regarding the operations, business affairs and condition (financial or otherwise) of the Company or any of its Subsidiaries as the Lender may reasonably request.
SECTION 6.04. BOOKS AND RECORDS; ACCESS TO PREMISES. Keep adequate records and proper books of record and account in which complete entries will be made in a manner to enable the preparation of financial statements in accordance with Generally Accepted Accounting Principles, and which shall reflect all financial transactions of the Company and each of its Subsidiaries. At any time, and from time to time (and provided that no Default or Event of Default has occurred and is continuing, upon reasonable prior notice) permit the Lender or any agents or representatives thereof, to examine and make copies of and abstracts from the books and records of such information which the Lender deems is necessary or desirable (including, without limitation, the financial records of the Company and its Subsidiaries) and to visit the properties of the Company or any of its Subsidiaries and to discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with any of their respective executive officers or the Company's independent accountants.
SECTION 6.05. NOTICE OF ADVERSE CHANGE. Promptly notify the Lender in writing of (a) any change in the business or the operations of the Company or its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, and (b) any information which indicates that any financial statements which are the subject of any representation contained in
this Agreement, or which are furnished to the Lender pursuant to this Agreement, fail, in any material respect, to present fairly, as of the date thereof and for the period covered thereby, the financial condition and results of operations purported to be presented therein, disclosing the nature thereof.
SECTION 6.06. NOTICE OF DEFAULT. Promptly notify the Lender of any Default or Event of Default which shall have occurred, which notice shall include a written statement as to such occurrence, specifying the nature thereof and the action (if any) which is proposed to be taken with respect thereto.
SECTION 6.07. NOTICE OF LITIGATION. Promptly notify the Lender of any action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency which, if adversely determined against the Company or any Subsidiary of the Company on the basis of the allegations and information set forth in the complaint or other notice of such action, suit or proceeding, or in the amendments thereof, if any, could reasonably be expected to have a Material Adverse Effect.
SECTION 6.08. NOTICE OF DEFAULT IN OTHER AGREEMENTS. Promptly notify the Lender of any default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which the Company or any Subsidiary of the Company is a party which default could reasonably be expected to have a Material Adverse Effect.
SECTION 6.09. NOTICE OF ERISA EVENT. Promptly deliver to the Lender a certificate of the Chief Financial Officer of the Company setting forth details as to such occurrence and such action, if any, which the Company, such Subsidiary of the Company or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Company, such Subsidiary of the Company, ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator, with respect thereto: that a Reportable Event has occurred with respect to a Plan, that an accumulated funding deficiency (as defined in Section 412 of the Code) has been incurred or an application may be or has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code with respect to a Plan that is a single employer plan (within the meaning of Section 4001(a)(15) of ERISA), that a Plan has been terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA, that one or more Plans that are Single Employer Plans (within the meaning of Section 4001(a)(15) of ERISA) have an Unfunded Current Liability in excess of $100,000 in the aggregate, that proceedings may be or have been instituted to terminate a Plan, that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan, or that the Company, any Subsidiary of the Company or any ERISA Affiliate will incur any liability
(including any contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA. Upon request of the Lender, the Company will deliver to the Lender a complete copy of the annual report (Form 5500) of each Plan that is a single employer Plan (within the meaning of Section 4001(a)(15) of ERISA), filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Lender pursuant to the first sentence hereof, copies of annual reports and any other notices received by the Company or any Subsidiary of the Company required to be delivered to the Lender hereunder shall be delivered to the Lender no later than ten days after the later of the date such report or notice has been filed with the Internal Revenue Service or the PBGC, given to Plan participants or received by the Company or a Subsidiary of the Company.
SECTION 6.10. NOTICE OF ENVIRONMENTAL LAW VIOLATIONS. Promptly notify the Lender of the receipt of any notice of an action, suit, and proceeding before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending against the Company or any Subsidiary of the Company relating to any alleged violation of any Environmental Law which could reasonably be expected to have a Material Adverse Effect.
SECTION 6.11. NOTICE REGARDING MATERIAL CONTRACTS. Promptly notify the Lender of (a) any termination (prior to the end of its stated term), material amendment, material supplement or other material modification of any Material Contract and (b) the occurrence of a default in any material respect by any party to any Material Contract of which the Company is aware.
SECTION 6.12. COMPLIANCE WITH APPLICABLE LAWS. Comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority, the breach of which could reasonably be expected to have a Material Adverse Effect, including, without limitation, the rules and regulations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.
SECTION 6.13. SUBSIDIARIES. Give the Lender prompt written notice of the creation, establishment or acquisition, in any manner, of any Subsidiary of the Company not existing on the Closing Date. The Company or its Subsidiary, as appropriate, shall execute a Pledge Agreement with respect to all of the shares of capital stock or other ownership interest of each Subsidiary which is or becomes a Material Subsidiary, (together with certificates and powers with respect to such interests duly endorsed in blank, and in the event of uncertificated interests, UCC-1 financing statements identifying such interest and executed by the holder of such interest or such other documentation as reasonably requested by the Lender in order to grant and perfect a security interest in such ownership interest) and shall cause each Subsidiary (excluding Gerber Gardens/1-800 Flowers LLC, Flores de Excito, Inc. and P&H Partnership)
to execute a Guaranty in favor of the Lender concurrently with the creation,
establishment or acquisition of such Subsidiary and in connection therewith
shall provide to the Lender the supporting documents identified in clauses (i),
(ii), and (iii) of Section 5.01(e) in each case with respect to such Subsidiary;
together with a favorable written opinion of counsel to such Subsidiary
addressed to the Lender, in the form attached hereto as Exhibit E with respect
to such Subsidiary and with respect to the documents required to be executed by
such Subsidiary pursuant to this Section 6.13 but, excluding the matters in
paragraph 7 of Exhibit E.
SECTION 6.14. ENVIRONMENTAL LAWS.
Comply in all material respects with the requirements of all Environmental Laws, provide to the Lender all documentation in connection with such compliance that the Lender may reasonably request, and defend, indemnify, and hold harmless the Lender and its respective employees, agents, officers, and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs, or expenses of whatever kind or nature, known or unknown, contingent or otherwise, arising out of, or in any way related to, (a) the presence, disposal, or release of any Hazardous Materials on any property at any time owned or occupied by the Company or any Subsidiary of the Company; (b) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials; (c) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Materials, and/or (d) any violation of applicable Environmental Laws, including, without limitation, reasonable attorney and consultant fees, investigation and laboratory fees, court costs, and litigation expenses.
ARTICLE VII
NEGATIVE COVENANTS
The Company covenants and agrees with the Lender that so long as the Commitments remain in effect or any of the principal of or interest on any Note or any other Obligations hereunder shall be unpaid, it will not, and will not cause or permit any Subsidiary of the Company, directly or indirectly, to:
SECTION 7.01. LIENS. Incur, create, assume or suffer to exist any Lien on any of their respective assets now or hereafter owned, other than:
(a) Liens existing on the date hereof (which are not described in Sections 7.01(b) through 7.01(l)) as set forth on Schedule II attached hereto including any renewals or extensions thereof; provided that no such Lien is extended to cover any additional property and that the amount of Indebtedness secured thereby is not increased;
(b) Liens for taxes, assessments or other governmental charges or levies not yet delinquent or which are being contested in good faith by appropriate proceedings, provided, however, that adequate reserves with respect thereto are maintained on the books of the Company or its Subsidiaries in accordance with Generally Accepted Accounting Principles;
(c) carriers', warehousemens', mechanics', suppliers' or other like Liens arising in the ordinary course of business and not overdue for a period of more than 45 days or which are being contested in good faith by appropriate proceedings in a manner which will not jeopardize or diminish the interest of the Lender in any of the collateral subject to the Pledge Agreements;
(d) Liens incurred or deposits to secure the performance of tenders, bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety, performance and appeal bonds, and other obligations of similar nature incurred in the ordinary course of business;
(e) any attachment, judgment or similar Lien arising in connection with any court or governmental proceeding provided that the execution or other enforcement of such Lien is effectively stayed;
(f) easements, rights of way, restrictions and other similar charges or encumbrances which in the aggregate do not interfere in any material respect with the occupation, use and enjoyment by the Company or any of its Subsidiaries of the property or assets encumbered thereby in the normal course of their respective business or materially impair the value of the property subject thereto;
(g) deposits under workmen's compensation, unemployment insurance and social security laws;
(h) liens granted to the Lender;
(i) purchase money liens for fixed or capital assets including obligations with respect to Capital Leases; provided in each case (i) no Default or Event of Default shall have occurred and be continuing or shall occur after giving effect to such lien, (ii) such purchase money lien does not exceed 100% of the purchase price of, and encumbers only, the property acquired, and (iii) such purchase money Lien does not secure any Indebtedness other than in respect of the purchase price of the asset acquired;
(j) Liens securing the Indebtedness described in Sections 7.02(h) and 7.02(j);
(k) Liens on shares of capital stock of P&H repurchased from the holder
thereof to secure solely the Indebtedness described in Section 7.02(i) owing to such holder;
(l) Liens granted by P&H in its accounts receivable, inventory, furniture, fixtures, equipment and general intangibles to Wachovia Bank as successor to Central Fidelity National Bank to secure the Existing P&H Indebtedness provided such liens shall be released in full on or prior to June 30, 1999; and
(m) Liens securing Indebtedness described in Section 7.02(m); provided, however, such liens shall be limited solely to the personal property located at the Store purchased from the Franchisee which is the payee with respect to such Indebtedness.
SECTION 7.02. INDEBTEDNESS. Incur, create, assume or suffer to exist or otherwise become liable in respect of any Indebtedness, other than:
(a) Indebtedness incurred prior to the date hereof (which are not described in Section 7.02(b) through 7.02(l)) as described in Schedule III attached hereto, including any renewals or extensions thereof; provided such renewal or extension does not result in an increase in the aggregate principal amount of such Indebtedness;
(b) Indebtedness to the Lender;
(c) Indebtedness for trade payables incurred in the ordinary course of business; provided such payables shall be paid or discharged when due (including any extended due date agreed to by the payee with respect to any trade payable) or in conformity with customary trade terms;
(d) Indebtedness consisting of guarantees permitted pursuant to
Section 7.03;
(e) Subordinated Indebtedness; provided, however, that no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to the incurrence of such Subordinated Indebtedness;
(f) Indebtedness secured by purchase money liens as permitted under
Section 7.01(i); provided such Indebtedness incurred in any fiscal year of the
Company shall not exceed $5,000,000, and, further, provided no Default or Event
of Default shall have occurred and be continuing or would occur after giving
effect to the incurrence of such Indebtedness;
(g) Indebtedness owing by the Company to any Guarantor or from any Guarantor to the Company or from any Guarantor to any Guarantor;
(h) the Existing P&H Mortgage, in the aggregate principal amount of approximately $3,600,000 as of the date hereof, including any renewals, refinancings or extensions thereof; provided immediately after giving effect to such renewal, refinancing or extension the aggregate principal amount of such Indebtedness of the Company and its Subsidiaries shall not exceed an amount equal to the aggregate principal amount of such Indebtedness immediately prior to such refinancing plus $4,000,000;
(i) the Option Liability and promissory notes evidencing all or a portion of the repurchase price of shares of P&H, to the extent repurchase of such shares is permitted pursuant to Section 7.15(a);
(j) additional Indebtedness not to exceed $200,000 in the aggregate principal amount at any one time outstanding;
(k) Indebtedness owing by Gerber Gardens/1-800-Flowers, LLC to the Company or its Subsidiaries in an aggregate amount not to exceed $50,000;
(l) The Existing P&H Indebtedness until June 30, 1999, at which time all such Indebtedness shall be paid in full and the loan documents governing such Indebtedness shall be terminated; and
(m) Indebtedness evidencing all or a portion of the purchase price owing by the Company or any of its Subsidiaries to a Franchisee in connection with the purchase from such Franchise of a Franchisee Store, to the extent such purchase is permitted pursuant to Section 7.12.
SECTION 7.03. GUARANTIES. Guarantee, endorse, become surety for, or otherwise in any way become or be responsible for the Indebtedness or obligations of any Person, whether by agreement to maintain working capital or equity capital or otherwise maintain the net worth or solvency of any Person or by agreement to purchase the Indebtedness of any other Person, or agreement for the furnishing of funds, directly or indirectly, through the purchase of goods, supplies or services for the purpose of discharging the Indebtedness of any other Person or otherwise, or enter into or be a party to any contract for the purchase of merchandise, materials, supplies or other property if such contract provides that payment for such merchandise, materials, supplies or other property shall be made regardless of whether delivery of such merchandise, supplies or other property is ever made or tendered except:
(a) guaranties executed prior to the date hereof (which are not described in Sections 7.03(b) through 7.03(g)) as described on Schedule IV attached hereto but not including any renewals or extension thereof;
(b) endorsements of negotiable instruments for collection or deposit in the ordinary course of business;
(c) guaranties of any Indebtedness under this Agreement or any other Loan Document;
(d) guaranties of the obligations of any Guarantor under any lease for a Retail Store to which it is a party;
(e) guaranties of the obligations of a Franchisee under a lease for a Franchise Store; provided the aggregate obligations of the Company and its Subsidiaries under all such guaranties shall not exceed $3,000,000;
(f) guaranties of the obligations of a Guarantor with respect to Indebtedness of such Guarantor described in clauses (c), (f) and (j) of Section 7.02; and
(g) guaranties by the Company, 1-800 Flowers Retail Inc. or the owner of the capital stock of the Guarantor which will acquire stock or assets pursuant to a Permitted Acquisition of the obligations of such Guarantor under the agreement governing the terms of such Permitted Acquisition.
SECTION 7.04. SALE OF ASSETS. Sell, lease, transfer or otherwise dispose of their respective properties and assets, whether or not pursuant to an order of a federal agency or commission, except for (a) the sale of inventory disposed of in the ordinary course of business, (b) the sale or other disposition of properties or assets no longer used or useful in the conduct of their respective businesses, (c) the sale of a Retail Store, including, without limitation, the inventory equipment and fixtures relating to such Retail Store, to a Franchisee or other Person in a bona fide arms-length transaction provided (i) the aggregate Retail Stores sold during the period commencing the Closing Date and ending July 2, 2000 shall not exceed fifteen (15) and the aggregate Retail Stores sold in any fiscal year of the Company commencing the fiscal year ending July 1, 2001 shall not exceed five (5), and (ii) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to the proposed sale of each Retail Store, and (d) the sale of the assets of Floral Works, Inc. or Gerber Gardens/1-800 Flowers LLC or the sale of the Company's membership interest therein.
SECTION 7.05. SALES OF RECEIVABLES. Sell, transfer, discount or otherwise dispose of notes, accounts receivable or other obligations owing to the Company or any of its Subsidiaries, with or without recourse, except for collection in the ordinary course of business.
SECTION 7.06. LOANS AND INVESTMENTS. Make or commit to make any advance, loan, extension of credit, or capital contribution to, or purchase or hold beneficially any stock
or other securities, or evidence of Indebtedness of, purchase or acquire all or
a substantial part of the assets of, make or permit to exist any interest
whatsoever in, any other Person except for (a) the ownership of stock of any
Subsidiaries existing as of the Closing Date or acquired after the date hereof
whether pursuant to a Permitted Acquisition or otherwise, provided the Company
has complied with its obligations under Section 6.13 with respect to such
Subsidiary, (b) investments described on Schedule VI attached hereto, (c) loans
by the Company to any Guarantor (other than Ace and its Subsidiaries and loans
by any Guarantor to the Company or any other Guarantor (other than Ace and its
Subsidiaries), (d) Eligible Investments, (e) loans and advances to employees not
to exceed $250,000 in the aggregate at any one time outstanding, (f) capital
contributions by the Company to any Guarantor or by any Guarantor to any other
Guarantor (other than Ace and its Subsidiaries), (g) loans and capital
contributions by the Company or any Subsidiary of the Company to any Subsidiary
of the Company which is not a Guarantor (other than Gerber
Gardens/1-800-Flowers, LLC); provided the aggregate amount of all such loans and
capital contributions shall not exceed $50,000, (h) securities traded on a
national securities exchange or quoted on NASDAQ in an aggregate amount not to
exceed $250,000, (i) purchases of an equity interest in a public or privately
held entity (calculated exclusive of the limitation set forth in the proceeding
clause (h) in an aggregate amount not to exceed $1,000,000 provided the terms of
any such investment shall not obligate the Company or any of its Subsidiaries to
make additional loans or investments to such entity, (j) Loans and capital
contributions by the Company or any Corporate Guarantor to Ace's or its
Subsidiaries; provided, however, so long as Indebtedness evidenced by the Ace
Notes shall be outstanding, such Loans and capital contributions shall not
exceed in the aggregate $5,800,000; (k) ownership of shares of capital stock of
the Company and P&H resulting from the repurchase of such shares to the extent
permitted pursuant to Section 7.15, (l) loans by the Company and its
Subsidiaries to Gerber Gardens/1-800-Flowers, LLC or P&H Partnership provided
the aggregate amount of all such loans shall not exceed $50,000; (m)
indebtedness owing by a Franchisee to the Company or any Guarantor which
indebtedness evidences all or a portion of the purchase price from the sale of a
Retail Store to such Franchisee provided such sale is permitted pursuant for
Section 7.04 and further provided such indebtedness is secured by at least all
of the personal property located at such Store; and (n) assets of a Person
acquired by the Company or any Guarantor pursuant to a Permitted Acquisition.
SECTION 7.07. NATURE OF BUSINESS. Except as set forth on Schedule XI, change or alter, in any material respect, the nature of its business from the nature of the business engaged in by it on the date hereof.
SECTION 7.08. SALE AND LEASEBACK. Enter into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any property, whether real or personal, used or useful in its business, whether now owned or hereafter acquired, of it or any of its Subsidiaries, if at the time of such sale or disposition it intends to lease or otherwise acquire the right to use or possess (except by purchase) such property or like property for a
substantially similar purpose.
SECTION 7.09. FEDERAL RESERVE REGULATIONS. Permit any Loan or the proceeds of any Loan to be used for any purpose which violates or is inconsistent with the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.
SECTION 7.10. ACCOUNTING POLICIES AND PROCEDURES. Permit any change in the accounting policies and procedures of the Company or any of its Subsidiaries, including a change in fiscal year, provided, however, that any policy or procedure required to be changed by the Financial Accounting Standards Board (or other board or committee thereof) in order to comply with Generally Accepted Accounting Principles may be so changed.
SECTION 7.11. HAZARDOUS MATERIALS. Cause or permit any of its properties or assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose of, transfer, produce or process Hazardous Materials, except in compliance with all applicable federal, state and local laws or regulations, or cause or permit, as a result of any intentional or negligent act or omission on the part of the Company or any of its Subsidiaries, a release of Hazardous Materials onto such property or asset or onto any other property.
SECTION 7.12. LIMITATIONS ON FUNDAMENTAL CHANGES, LIMITATIONS ON CONSIDERATION. Merge or consolidate with, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now or hereafter acquired) to, any Person, or, except with respect to a Permitted Acquisition, acquire all of the stock or all or substantially all of the assets or the business of any Person or liquidate, wind up or dissolve or suffer any liquidation or dissolution, provided, however, (a) any Guarantor may merge or consolidate with any other Guarantor (other than Ace and its Subsidiaries and other than Floral Works, Inc. and Gerber Gardens/1-800-Flowers, LLC); (b) each of Floral Works, Inc. and Gerber Gardens/1-800-Flowers, LLC may, in its discretion, sell all or substantially all of its assets or liquidate and dissolve or the Company may sell its membership interest in Gerber Gardens/1-800-Flowers, LLC; (c) Company or any of its Subsidiaries may purchase from a Franchisee a Franchise Store provided that the aggregate Franchise Stores repurchased during the period commencing the Closing Date and ending July 2, 2000 shall not exceed ten (10) and the aggregate Franchisee Stores purchased in any fiscal year of the Company commencing with the fiscal year ending July 1, 2001 shall not exceed five (5); permit the aggregate Consideration paid in connection with all Permitted Acquisitions (a) during the period commencing the Closing Date and ending on July 2, 2000 to exceed $10,000,000 and (b) during any fiscal year of the Company commencing with the fiscal year ending July 1, 2001 to exceed $5,000,000.
SECTION 7.13. FINANCIAL CONDITION COVENANTS.
(a) CONSOLIDATED NET WORTH. Permit at any time Consolidated Net Worth plus consolidated Subordinated Debt to be less than the amount set forth below opposite the applicable period:
Period Amount
------ ------
Closing Date through June 26, 1999 $16,500,000 plus 65% of the Net
Proceeds from the sale or
issuance of equity securities of
the Company or any of its
Subsidiaries during such period
June 27, 1999 through July 1, 2000 $20,000,000 plus 65% of the Net
Proceeds from the sale or
issuance of equity securities of
the Company or any of its
Subsidiaries during such period
|
and for each comparable period thereafter commencing on the last day of a fiscal year through the day next preceding the last day of the following fiscal year an amount not less than $5,000,000 plus the sum of (x) the actual Consolidated Net Worth plus consolidated Subordinated Debt on the last day of the immediately preceding fiscal year and (y) plus 65% of the Net Proceeds from the sale or issuance of equity securities of the Company or any of its Subsidiaries during such period.
(b) CONSOLIDATED INTEREST COVERAGE RATIO. Permit at any time the Consolidated Interest Coverage Ratio to be less than 2.00:1.00.
(c) CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EBITDA. Permit at any time the ratio of Consolidated Funded Debt to Consolidated EBITDA to be greater than 4.00:1.00.
(d) CONSOLIDATED DEBT SERVICE COVERAGE RATIO. Permit at any time the Consolidated Debt Service Coverage Ratio to be less than 1.25:1.00.
(e) CONSOLIDATED TOTAL UNSUBORDINATED LIABILITIES TO CONSOLIDATED NET
WORTH PLUS SUBORDINATED DEBT. Permit at any time the ratio of Consolidated Total
Unsubordinated Liabilities to Consolidated Net Worth plus Consolidated
Subordinated Debt to be greater than the ratio set forth below opposite the
applicable period:
Period Ratio
------ -----
Closing Date through July 1, 2000 4.25:1.00
July 2, 2000 and thereafter 3.75:1.00
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(f) CONSOLIDATED NET LOSS. Suffer a consolidated net loss (calculated exclusive of extraordinary gains but inclusive of extraordinary losses) for any fiscal year of the Company.
(g) MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES. Permit consolidated Capital Expenditures of the Company and its Subsidiaries to exceed $16,000,000 for the Company's fiscal year ending June 27, 1999 and $13,000,000 for any fiscal year of the Company thereafter.
SECTION 7.14. SUBORDINATED DEBT. Directly or indirectly prepay, defease, purchase, redeem, or otherwise acquire any Subordinated Debt or amend, supplement or otherwise modify any of the terms thereof without the prior written consent of the Lender.
SECTION 7.15. DIVIDENDS. Declare any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of stock of the Company or any of its Subsidiaries or any warrant to purchase any class of stock of the Company or any of its Subsidiaries, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, securities or property or in obligations of the Company or any of its Subsidiaries or in any combination thereof, or permit any Affiliate (excluding, for the purposes of this Section 7.15, James F. McCann and Christopher McCann) to make any payment on account of, or purchase or otherwise acquire, any shares of any class of the stock of the Company or any of its Subsidiaries or any warrant to purchase any class of stock of the Company or any of its Subsidiaries from any Person; provided, however, (a) P&H may repurchase shares of its capital stock from any holder thereof provided (i) no Default or Event of Default has occurred and is continuing or would occur after giving effect to the proposed repurchase, (ii) the Company is in compliance with the covenants set forth in Section 7.13 both prior to and after giving effect to such repurchase, (iii) the purchase price of such shares, if not purchased pursuant to the Stockholders Agreement or Stock Option Plan, shall not exceed the Put Price (as that term is defined in the Stockholders Agreement) which would be payable by P&H if they were purchased pursuant to the Stockholders Agreement or Stock Option Plan, including without limitation the terms of any financing of the purchase price, (iv) in the event the purchase price is not evidenced in whole or part by a promissory note executed by P&H in favor of the seller of the shares, the certificates evidencing the repurchased shares are promptly delivered to the Lender to be held by the Lender pursuant to the terms of the Pledge Agreement and (v) the Company shall have delivered to the Lender a notice of the terms of such proposed repurchase and which notice shall include a certification from the Chief Financial Officer as to the matters referred to in the
preceding clauses (i) and (ii), together with demonstration of the Company's compliance with the financial covenants identified in the preceding clause (ii), and the requirements set forth in the preceding clause (iii), (b) the Company may repurchase shares of its capital stock from any holder thereof, provided the aggregate purchase price for all shares purchased from any one Person during the term of this Agreement shall not exceed $300,000 and the aggregate purchase price of all such purchases during the term of this Agreement shall not exceed $1,000,000 and, further, provided, no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to such repurchase, and (c) any direct or indirect Subsidiary of the Company may declare and pay dividends ratably with respect to its capital stock.
SECTION 7.16. TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Company's or any of its Subsidiaries' business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than they would obtain in a comparable arms-length transaction with a Person not an Affiliate.
SECTION 7.17. IMPAIRMENT OF SECURITY INTEREST. Take or omit to take any action which could reasonably be expected to have the result of impairing the security interest in any property subject to a security interest in favor of the Lender or grant to any person any interest whatsoever in any property which is subject to a security interest in favor of the Lender.
SECTION 7.18. NO AMENDMENTS. Amend, supplement or otherwise modify the Stock Option Plan, the Stockholders Agreement or the P&H Acquisition Agreement if the effect of such amendment, supplement or modification would be to increase the Option Liability or adversely affect the Lender.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. EVENTS OF DEFAULT. In the case of the happening of any of the following events (each an "Event of Default"):
(a) failure to pay the principal of or interest on any Loan, any reimbursement obligations with respect to a drawing under any Letter of Credit or Other Letter of Credit, or any fees under this Agreement as and when due and payable, and with respect to interest payments and fee payments only, such failure shall continue unremedied for a period of three Business Days;
(b) default shall be made in (i) the due observance or performance of any
covenant, condition or agreement of the Company or any of its Subsidiaries to be performed pursuant to Section 6.04, 6.05, 6.06, 6.07, 6.08, 6.11 (only with respect to a Material Contract pursuant to clause (a) of the definition thereof), 6.13 or Article VII of this Agreement, or (ii) the due observance or performance of any other covenant, condition or agreement of the Company or any of its Subsidiaries to be performed pursuant to this Agreement or any other Loan Document (other than those specified in clause (a) of this Section 8.01) and such failure shall continue unremedied for a period of thirty (30) days after written notice thereof from the Lender or the Lender;
(c) any representation or warranty made or deemed made in this Agreement or any other Loan Document shall prove to be false or misleading in any material respect when made or given or when deemed made or given;
(d) any report, certificate, financial statement or other instrument furnished in connection with this Agreement or any other Loan Document or the borrowings hereunder, shall prove to be false or misleading in any material respect when made or given or when deemed made or given;
(e) default in the performance or compliance in respect of any agreement or condition relating to any Indebtedness of the Company or any of its Subsidiaries in excess of $500,000 individually or in the aggregate (other than the Notes and other than with respect to Indebtedness for trade payables which are paid or discharged when due (including any extended due date agreed to by the payee with respect to any trade payable) or in conformity with customary trade terms) if the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder or obligee thereof (or a trustee on behalf of such holder or obligee) to cause such Indebtedness to become due prior to the stated maturity thereof, or, except as otherwise permitted by Section 7.02(c), any such Indebtedness shall not be paid when due;
(f) the Company or any of its Subsidiaries (other than Gerber
Gardens/1-800- Flowers LLC) shall (i) voluntarily commence any proceeding
or file any petition seeking relief under Title 11 of the United States
Code or any other federal or state bankruptcy, insolvency or similar law,
(ii) consent to the institution of, or fail to controvert in a timely and
appropriate manner, any such proceeding or the filing of any such
petition, (iii) apply for or consent to the employment of a receiver,
trustee, custodian, sequestrator or similar official for the Company or
any of its Subsidiaries or for a substantial part of its property; (iv)
file an answer admitting the material allegations of a petition filed
against it in such proceeding, (v) make a general assignment for the
benefit of creditors, or (vi) take corporate action for the purpose of
effecting any of the foregoing; or the Company or any Material Subsidiary
shall become unable or admit in writing its inability or fail generally to
pay its debts as they become due, or any Subsidiary, other than a
Material Subsidiary, becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, which Subsidiary when aggregated with all other Subsidiaries unable or which admit in writing their inability to pay their debts as they become due constitutes a Material Subsidiary;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i)
relief in respect of the Company or any of its Subsidiaries (other than
Gerber Gardens/1-800 Flowers LLC) or of a substantial part of their
respective property, under Title 11 of the United States Code or any other
federal or state bankruptcy insolvency or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator or similar
official for the Company or any of its Subsidiaries (other than Gerber
Gardens/1-800 Flowers LLC) or for a substantial part of their property, or
(iii) the winding-up or liquidation of the Company or any of its
Subsidiaries (other than Gerber Gardens/1-800 Flowers LLC) and such
proceeding or petition shall continue undismissed for 30 days or an order
or decree approving or ordering any of the foregoing shall continue
unstayed and in effect for 30 days;
(h) One or more orders, judgments or decrees for the payment of
money in excess of $500,000 in the aggregate shall be rendered against the
Company or any of its Subsidiaries and the same shall not have been paid
in accordance with such judgment, order or decree or settlement and either
(i) an enforcement proceeding shall have been commenced by any creditor
upon such judgment, order or decree, or (ii) there shall have been a
period of sixty (60) days during which a stay of enforcement of such
judgment, order or decree, by reason of pending appeal or otherwise, was
not in effect;
(i) any Plan, which is a single employer Plan, shall fail to
maintain the minimum funding standard required under Section 412 of the
Code for any Plan year or part thereof or a waiver of such standard or
extension of any amortization period is applied for or granted under
Section 412 of the Code, any Plan is terminated by the Company or any
ERISA Affiliate or the subject of termination proceedings under ERISA, any
Plan shall have an Unfunded Current Liability, a Reportable Event shall
have occurred with respect to a Plan or the Company, any Subsidiary of the
Company, or any ERISA Affiliate shall have incurred a liability to or on
account of a Plan under Section 515, 4062, 4063, 4201 or 4204 of ERISA,
and there shall result from any such event or events the imposition of a
lien upon the assets of the Company or any of its Subsidiaries, the
granting of a security interest on such assets, or a liability to the PBGC
or a Plan or a trustee appointed under ERISA or a penalty under Section
4971 of the Code, and in each case, such event or condition, together with
all such events or conditions, if any, could reasonably be expected to
result in liability of the Company and its Subsidiaries in an aggregate
amount exceeding $500,000;
(j) any material provision of any Loan Document shall for any reason cease to be in full force and effect in accordance with its terms or the Company or any of its Subsidiaries shall so assert in writing;
(k) a Change of Control shall have occurred;
(l) Mr. James F. McCann shall cease to be Chief Executive Officer of the Company; or
(m) any of the Liens purported to be granted pursuant to any Security Document shall fail or cease for any reason to be legal, valid and enforceable liens on the collateral purported to be covered thereby or shall fail or cease to have the priority purported to be created thereby;
then, at any time thereafter during the continuance of any such event, the
Lender may, in its sole discretion, by written or telephonic notice to the
Company, take either or both of the following actions, at the same or different
times, (a) terminate the Commitments and (b) declare (i) the Notes, both as to
principal and interest, (ii) an amount equal to the maximum amount that may be
drawn under all Letters of Credit then outstanding (whether or not any
beneficiary under any Letter of Credit shall have presented or be entitled to
present the drafts and other documents required to draw under such Letter of
Credit), and (iii) all other Obligations, to be forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, anything contained herein or in the Notes to the
contrary notwithstanding; PROVIDED, HOWEVER, that if an event specified in
Section 8.01(f) or (g) shall have occurred, the Commitments shall automatically
terminate and interest, principal and amounts referred to in the preceding
clauses (i), (ii), and (iii) shall be immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived, anything contained herein or in the Notes to the contrary
notwithstanding. With respect to all Letters of Credit and all Other Letters of
Credit that shall not have matured or presentment for honor shall not have
occurred, the Company shall provide the Lender with Cash Collateral in an amount
equal to the aggregate undrawn amount of the Letters of Credit. Such Cash
Collateral shall be applied by the Lender to reimburse it for drawings under
Letters of Credit and Other Letters of Credit for which the it has not been
reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the reimbursement obligations of the Company at such time or, if the maturity
of the Loans has been accelerated, be applied to satisfy other Obligations.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including telecopy), and unless otherwise expressly provided herein, shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered by hand to such party or one Business Day after being sent by overnight mail to the address set forth below, or, in the case of telecopy notice, when acknowledged as received, or if sent by registered or certified mail, three (3) Business Days after the day on which mailed in the United States, addressed to such party at such address:
(a) if to the Lender, at
The Chase Manhattan Bank 395 North Service Road Melville, New York 11747 Attention: Relationship Manager 1-800-Flowers, Inc. Telecopy: (516) 755-0143
(b) if to the Company, at
1-800-Flowers, Inc.
1600 Stewart Avenue
Westbury, New York 11590
Attention: Mr. William Shea
Telecopy: (516) 237-6060
With a copy to
Gallagher, Walker & Bianco
98 Willis Avenue
Mineola, New York 11501
Attention: Gerard M. Gallagher, Esq.
Telecopy: (516) 248-2394
- and -
(c) as to each such party at such other address as such party shall have designated to the other in a written notice complying as to delivery with the provisions of this Section 9.01.
SECTION 9.02. EFFECTIVENESS; SURVIVAL. This Agreement shall become effective
on the date on which all parties hereto shall have signed a counterpart copy
hereof and shall have delivered the same to the Lender. All representations and
warranties made herein and in the other Loan Documents and in the certificates
delivered pursuant hereto or thereto shall survive the making by the Lender of
the Loans and the issuance of the Letters of Credit, in each case, as herein
contemplated and the execution and delivery to the Lender of the Notes
evidencing the Loans and shall continue in full force and effect so long as the
Obligations hereunder are outstanding and unpaid and the Commitments are in
effect. The obligations of the Company pursuant to Section 3.07, Section 3.08,
Section 3.10 and Section 9.03 shall survive termination of this Agreement and
payment of the Obligations.
SECTION 9.03. EXPENSES. The Company agrees (a) to indemnify, defend and hold harmless the Lender and its officers, directors, employees, and affiliates (each, an "indemnified person") from and against any and all losses, claims, damages, liabilities or judgments to which any such indemnified person may be subject and arising out of or in connection with the Loan Documents, the financings contemplated hereby, the use of any proceeds of such financings or any related transaction or any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any of such indemnified persons is a party thereto, and to reimburse each of such indemnified persons upon demand for any reasonable, legal or other expenses incurred in connection with the investigation or defending any of the foregoing; provided that the foregoing indemnity will not, as to any indemnified person, apply to losses, claims, damages, liabilities, judgments or related expenses to the extent arising from the willful misconduct or gross negligence of such indemnified person, (b) to pay or reimburse the Lender for all its reasonable out-of-pocket costs and expenses incurred in connection with the preparation and execution of and any amendment, supplement or modification to this Agreement, the Notes any other Loan Documents, and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including without limitation, the reasonable fees and disbursements of Farrell Fritz, P.C., counsel to the Lender, and (c) to pay or reimburse the Lender for all their costs and expenses incurred in connection with the enforcement and preservation of any rights under this Agreement, the Notes, the other Loan Documents, and any other documents prepared in connection herewith or therewith, including, without limitation, the reasonable fees and disbursements of counsel (including, without limitation, in-house counsel) to the Lender, including all such out-of-pocket expenses incurred during any work-out, restructuring or negotiations in respect of the Obligations.
SECTION 9.04. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) This Agreement shall be binding upon and inure to the benefit of the Company, the Lender, all future holders of the Notes and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender.
(b) The Lender reserves the right to sell participations in or to sell and assign its rights, duties or obligations with respect to the Loans or the Commitments to such banks, lending institutions or other parties as it may choose and without the consent of the Company. Subject to Section 9.11, the Bank may furnish any information concerning the Company or any of its Subsidiaries in its possession from time to time to any assignee or participant (or proposed assignee or participant). The Lender may at any time pledge or assign or grant a security interest in all or any part of its rights under this Agreement and its Notes to a Federal Reserve Bank, provided that no such assignment shall release the transferor Lender from its Commitments or its obligations hereunder or substitute any such pledgee or assignee for the Lender as a party to this Agreement.
SECTION 9.05. NO WAIVER; CUMULATIVE REMEDIES. Neither any failure nor any delay on the part of the Lender in exercising any right, power or privilege hereunder or under any Note or any other Loan Document shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any other right, power or privilege. The rights, remedies, powers and privileges herein provided or provided in the other Loan Documents are cumulative and not exclusive of any rights, remedies powers and privileges provided by law.
SECTION 9.06. APPLICABLE LAW. THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW.
SECTION 9.07. SUBMISSION TO JURISDICTION; JURY WAIVER. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH FEDERAL OR STATE COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR THEREIN OR THE SUBJECT MATTER HEREOF THEREOF MAY NOT BE LITIGATED IN OR BY SUCH FEDERAL OR STATE COURTS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE COMPANY AGREES NOT TO (I) SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH FEDERAL OR STATE COURT BY ANY FEDERAL OR STATE COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT OR (II) ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING UNLESS SUCH COUNTERCLAIM IS A COMPULSORY COUNTERCLAIM UNDER FEDERAL LAW OR NEW YORK LAW, AS APPLICABLE. THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. EACH PARTY HERETO WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT.
SECTION 9.08. SEVERABILITY. In case any one or more of the provisions contained in this Agreement, any Note or any other Loan Document should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.
SECTION 9.09. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, the Lender and each of its Affiliates are hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender or any Affiliate of the Lender to or for the credit or the account of the Company against any and all of the Obligations of the Company now and hereafter existing under this Agreement and the Notes held by the Lender, irrespective of whether or not the Lender shall have made any demand under this Agreement or any Note and although such obligations may be unmatured. The Lender further agrees that the foregoing right of set off shall not apply to the funds held in the Company's Chase Vista Cash Management Fund Account. The rights of the Lender and each Affiliate of the Lender under this Section 9.09 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which they may have.
SECTION 9.10. CONFIDENTIALITY. The Lender agrees to keep confidential all non-public information, materials and documents furnished by the Company to the Lender pursuant to this Agreement (the "Confidential Information"). Notwithstanding the foregoing, the Lender shall be permitted to disclose Confidential Information (a) to such of its officers, directors, employees, agents, representatives and professional advisors in any of the transactions contemplated by, or the administration of, this Agreement; (b) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any governmental agency or authority; (c) to the extent such
Confidential Information (i) becomes publicly available other than as a result
of a breach of this Section 9.10 by the disclosing party, or (ii) becomes
available to the Lender on a non-confidential basis from a source other than the
Company or its Subsidiaries which to the Lender's knowledge is not prohibited
from disclosing such Confidential Information to the Lender by a contractual or
other legal obligation; (d) to the extent the Company or any of its Subsidiaries
shall have consented to such disclosure in writing; or (e) to any prospective
transferee or participant in connection with any contemplated transfer of the
Notes or any interest therein provided such transferee or participant agrees to
treat the Confidential Information in a manner consistent with this Section
9.10. Nothing herein shall prohibit the disclosure of Confidential Information
in connection with any litigation or where such disclosure is pursuant to
applicable laws, regulations, court order or similar legal process; provided,
however, in the event that the Lender is requested or required by law to
disclose any of the Confidential Information, the Lender shall provide the
Company with written notice, unless notice is prohibited by law, of any such
request or requirement so that the Company may seek a protective order or other
appropriate remedy; provided that no such notification shall be required in
respect of any disclosure to regulatory authorities having jurisdiction over the
Lender.
SECTION 9.11. HEADINGS. Section headings used herein are for convenience of reference only and are not to affect the construction of or be taken into consideration in interpreting this Agreement.
SECTION 9.12. CONSTRUCTION. This Agreement is the result of negotiations between, and has been reviewed by, each of the Company, the Lender and their respective counsel. Accordingly, this Agreement shall be deemed to be the product of each party hereto, and no ambiguity shall be construed in favor of or against either the Company or the Lender.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Lender have caused this Agreement to be duly executed by their duly authorized officers, as of the day and year first above written.
1-800-FLOWERS, INC.
By:_______________________
Name: William E. Shea
Title: Treasurer
THE CHASE MANHATTAN BANK
By:_______________________
Name: Anthony M. Abbate
Title: Vice President
SCHEDULE I
SUBSIDIARIES
NAME OF ENTITY STATE OF OWNERS OF SHARES OR INTERESTS
INCORPORATION NAMES AND PERCENTAGES
OR FORMATION OF SHARES OWNED
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SCHEDULE II
EXISTING LIENS
SCHEDULE III
EXISTING INDEBTEDNESS
SCHEDULE IV
EXISTING GUARANTEES
SCHEDULE V
FINANCIAL CONDITION CHANGES
SCHEDULE VI
EXISTING LETTERS OF CREDIT
TYPE FACE AMOUNT ISSUANCE DATE EXPIRATION DATE
SCHEDULE VII
LITIGATION
SCHEDULE VIII
HAZARDOUS MATERIALS
SCHEDULE IX
MATERIAL CONTRACTS
SCHEDULE X
EXISTING INVESTMENTS
EXHIBIT A
REVOLVING CREDIT NOTE
$12,000,000 Uniondale, New York
March 19, 1999
FOR VALUE RECEIVED, 1-800-FLOWERS, INC., a Delaware corporation (the
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"Company"), promises to pay to the order of THE CHASE MANHATTAN BANK (the "Lender"), on or before September 19, 2000, TWELVE MILLION DOLLARS ($12,0000,000) or, if less, the unpaid principal amount of all Revolving Credit Loans made by the Lender to the Company under the Credit Agreement referred to below.
The Company promises to pay interest on the unpaid principal amount hereof from the date hereof until paid in full at the rates and at the times which shall be determined, and to make principal repayments on this Note at the times which shall be determined, in accordance with the provisions of the Credit Agreement referred to below.
This Note is the "Revolving Credit Note" referred to in the Credit Agreement dated as of March 19, 1999, by and between the Company and the Lender (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement") and is issued pursuant to and entitled to the benefits of the Credit Agreement to which reference is hereby made for a more complete statement of the terms and conditions under which the Revolving Credit Loans evidenced hereby were made and are to be repaid. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement.
Each of the Lender and any subsequent holder of this Note agrees, by its acceptance hereof, that before transferring this Note it shall record the date, Type and amount of each Revolving Credit Loan and the date and amount of each payment or prepayment of principal of each Revolving Credit Loan previously made hereunder on the grid schedule annexed to this Note; PROVIDED, HOWEVER, that the failure of the Lender or holder to set forth such Revolving Credit Loans, payments and other information on the attached grid schedule shall not in any manner affect the obligation of the Company to repay the Revolving Credit Loans made by the Lender in accordance with the terms of this Note.
This Note is subject to optional prepayments pursuant to Section 3.03 of the Credit Agreement.
Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.
All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in immediately available funds at the office of The Chase Manhattan Bank, located at 395 North Service Road, Melville, New York 11747 or at such other place
as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed.
The Company and endorsers of this Note waive presentment, diligence, demand, protest, and notice of any kind in connection with this Note.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year and at the place first above written.
1-800-FLOWERS, INC.
By:__________________________
Name:
Title:
SCHEDULE
Date Principal Type Applicable Amount of Notation of Amount of of Interest Interest Principal Made Loan Loan Loan Rate Period Paid by ---- --------- ---- ---- ---------- ---------- --------- |
EXHIBIT B
TERM NOTE
$18,000,000 Uniondale, New York
March 19, 1999
FOR VALUE RECEIVED, 1-800-FLOWERS, INC. a Delaware corporation (the
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"Company"), promises to pay to the order of THE CHASE MANHATTAN BANK (the "Lender"), on or before March 31, 2004 (the "Maturity Date"), the principal amount of EIGHTEEN MILLION DOLLARS ($18,000,000) in sixteen (16) consecutive quarterly installments of $1,125,000 on the last day of each March, June September, and December commencing June 30, 2000 provided that the final installment on the Maturity Date shall be in an amount equal to the remaining principal amount outstanding on the Maturity Date. The Company also promises to pay interest on the unpaid principal amount hereof from the date hereof until paid in full at the rates and at the times which shall be determined in accordance with the provisions of the Credit Agreement referred to below.
This Note is the "Term Note" issued pursuant to and entitled to the benefits of the Credit Agreement dated as of March 19, 1999 by and between the Company and The Chase Manhattan Bank (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement"), to which reference is hereby made for a more complete statement of the terms and conditions under which the Term Loan evidenced hereby was made and is to be repaid. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement.
Each of the Lender and any subsequent holder of this Note agrees, by its acceptance hereof, that before transferring this Note, it shall record the date and amount of each payment or prepayment of principal of the Term Loan previously made hereunder on the grid schedule annexed to this Note; PROVIDED, HOWEVER, that the failure of the Lender or holder to set forth the Term Loan, payments and other information on the attached grid schedule shall not in any manner affect the obligation of the Company to repay the Term Loan made by the Lender in accordance with the terms of this Note.
This Note is subject to optional prepayments pursuant to Section 3.03 of the Credit Agreement.
Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued but unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.
All payments of principal and interest in respect of this Note shall be made in lawful
money of the United States of America in immediately available funds at the office of The Chase Manhattan Bank, located at 395 North Service Road, Melville, New York 11747 or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement.
This Note is an amendment and restatement of, and is being issued in replacement of and in substitution for, the Revolving Credit Note dated April 3, 1998 in the original principal amount of $5,000,000 and the Standby Credit Note dated April 3, 1998 in the original principal amount of $15,500,000 each executed by the Company in favor of the Lender (collectively, the "Original Notes"). Accordingly, this Note evidences the indebtedness formerly evidenced by the Original Notes.
No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed.
The Company and endorsers of this Note waive diligence, presentment, protest, demand, and notice of any kind in connection with this Note.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered by its duly authorized officer as of the day and year and at the place first above written.
1-800-FLOWERS, INC.
By_____________________
Name:
Title:
SCHEDULE
Date Principal Type Applicable Amount of Notation of Amount of of Interest Interest Principal Made Loan Loan Loan Rate Period Paid by ---- --------- ---- ---- ---------- ---------- --------- |
EXHIBIT C-1
COMPANY PLEDGE AGREEMENT
PLEDGE AGREEMENT, (the "Agreement") dated as of March 19, 1999 by and between 1-800-FLOWERS, INC., a Delaware corporation (the "Pledgor") and THE CHASE MANHATTAN BANK, a New York banking corporation, having an office at 395 North Service Road, Melville, New York 11747 (the "Pledgee").
RECITALS
A. The Pledgor and the Pledgee have entered into a Credit Agreement dated as of March 19, 1999 (as the same may be hereafter amended, modified, restated or supplemented from time to time, the "Credit Agreement") pursuant to which the Pledgor will receive loans and other financial accommodations from the Lender and will incur Obligations.
B. The Pledgor is the beneficial owner of that percentage of the issued and outstanding capital stock or membership or other equity interests of each Subsidiary of the Pledgor listed on Schedule A annexed hereto (collectively, the "Pledged Companies") as indicated on such Schedule A.
C. In order to induce the Lender to extend credit to the Pledgor on and after the date hereof as provided in the Credit Agreement, the Pledgor wishes to grant to the Pledgee security and assurance in order to secure the payment and performance of all Obligations, and to that effect to pledge to the Pledgee, subject to the proviso below, all of the issued and outstanding capital stock of the Pledged Companies (the "Pledged Shares") and all of the membership or other equity interests in the Pledged Companies (the "Pledged Rights", together with the Pledged Shares, collectively, the "Pledged Interests") that is owned by the Pledgor, including, without limitation, the Pledged Interests listed opposite the name of the Pledgor as more particularly described on Schedule A and, with respect to the Pledged Shares, as represented by the stock certificates referenced thereon.
Accordingly, the parties hereto agree as follows:
1. SECURITY INTEREST. As security for the Obligations, including any and all renewals or extensions thereof, the Pledgor hereby delivers, pledges and assigns to the Pledgee and creates in the Pledgee a first security interest in all of the Pledgor's right, title and interest in and to all of the Pledged Interests, together with all rights and privileges of the Pledgor with respect thereto, all proceeds, income and profits thereof and all property received with respect to the Pledged Interests in addition thereto, in exchange thereof or in substitution therefor (collectively, the "Collateral"). The Pledgor has delivered to the Pledgee, with respect to the Pledged Shares existing on the date hereof, certificates evidencing such Pledged Shares, together with undated stock powers duly executed in blank by the Pledgor.
2. STOCK DIVIDENDS, OPTIONS, OR OTHER ADJUSTMENTS. The Pledgee shall receive, as Collateral, any and all additional shares of stock, membership interests or any other property of any kind distributable on or by reason of the Collateral pledged hereunder, whether in the form of or by
way of dividends, warrants, partial liquidation, conversion, prepayments or
redemptions (in whole or in part), liquidation, or otherwise with the exceptions
of cash dividends or other cash distributions to the extent permitted under
Section 7(a). If any additional shares of capital stock, instruments, or other
property against which a security interest can only be perfected by possession
by the Pledgee, which are distributable on or by reason of the Collateral
pledged hereunder, shall come into the possession or control of the Pledgor, the
Pledgor shall, hold or control in trust and forthwith transfer and deliver the
same to the Pledgee subject to the provisions hereof.
3. DELIVERY OF SHARE CERTIFICATES; STOCK POWERS; DOCUMENTS. The Pledgor agrees to deliver all share certificates, undated stock powers duly executed in blank, documents, agreements, financing statements, amendments thereto, assignments or other writings as the Pledgee may request to carry out the terms of this Agreement or to protect or enforce the lien and security interest in the Collateral hereunder granted hereby to the Pledgee and further agrees to do and cause to be done, upon the Pledgee's request, all things reasonably determined by the Pledgee to be necessary to perfect and keep in full force the lien in the Collateral hereunder granted hereby in favor of the Pledgee, including, but not limited to, the prompt payment of all documented out-of-pocket fees and expenses incurred in connection with any filings made to perfect or continue the lien and security interest in the Collateral hereunder granted hereby in favor of the Pledgee. The Pledgor agrees to make appropriate entries upon its books and records (including without limitation its stock record and transfer books) disclosing the lien against the Collateral hereunder granted hereby to the Pledgee hereunder. The Pledgor further agrees to promptly deliver to the Pledgee, or cause the corporation or other entity issuing the Collateral to deliver directly to the Pledgee, share certificates or other documents representing Collateral acquired or received after the date of this Agreement with an undated stock power duly executed by the Pledgor in blank. If at any time the Pledgee notifies the Pledgor that additional stock powers endorsed in blank with respect to the Collateral are required, the Pledgor shall promptly execute in blank and deliver such stock powers as the Pledgee may request.
4. POWER OF ATTORNEY. The Pledgor hereby constitutes and irrevocably appoints the Pledgee, with full power of substitution and revocation by the Pledgee, as Pledgor's true and lawful attorney-in-fact, to the full extent permitted by law, at any time or times when an Event of Default has occurred and is continuing to affix to certificates and documents representing the Collateral the stock power delivered with respect thereto, to transfer or cause the transfer of the Collateral, or any part thereof on the books of the corporation or other entity issuing the same, to the name of the Pledgee or the Pledgee's nominee and thereafter to exercise as to such Collateral all the rights, powers and remedies of an owner. The power of attorney granted pursuant to this Agreement and all authority hereby conferred are granted and conferred solely to protect the Pledgee's and the Lender's interest in the Collateral and shall not impose any duty upon the Pledgee to exercise any power. Subject to Section 11, this power of attorney shall be irrevocable as one coupled with an interest.
5. INDUCING REPRESENTATIONS OF THE PLEDGOR. The Pledgor makes the following representations and warranties to the Pledgee; each and all of which shall survive the execution and delivery of this Agreement:
(a) The information concerning the Pledged Companies and the Pledgor's beneficial ownership of the Pledged Interests thereof that is contained in Schedule A is correct in all respects.
(b) The Pledgor is the sole legal and beneficial owner of, and has good and indefeasible title to, the Pledged Interests pledged by the Pledgor, free and clear of all pledges, liens, security interests and other encumbrances and restrictions on the transfer and assignment thereof, other than (i) the security interest created by this Agreement , (ii) the restrictions on transfer imposed by applicable state and federal securities laws generally, and (iii) the terms of the Stockholders Agreement with respect to the shares of stock of P&H, and has the unqualified right and authority to execute this Agreement and to pledge the Collateral to the Pledgee as provided for herein.
(c) There are no outstanding options, warrants or other agreements to which the Pledged Companies or the Pledgor is a party with respect to the Pledged Interests pledged by the Pledgor (other than the shares of stock of P&H which are subject to the terms of the Stockholders Agreement).
(d) The Pledged Shares pledged by the Pledgor have been validly issued and are fully paid and non-assessable; the holder or holders of the Pledged Interests are not and will not be subject to any personal liability as such holder under any applicable law, subject to Section 630 of the Business Corporation Law of the State of New York with respect to each Pledged Company which is a New York corporation; and (other than the shares of stock of P&H which are subject to the terms of the Stockholders Agreement) are not subject to any charter, by-law, statutory, contractual or other restrictions governing their issuance, transfer, ownership or control other than restrictions on transfer imposed by applicable state and federal securities laws generally.
(e) Any consent, approval or authorization of or designation or filing with any authority on the part of the Pledgor which is required in connection with the pledge and security interest granted under this Agreement has been obtained or effected.
(f) The execution and delivery of this Agreement by the Pledgor, and the performance by the Pledgor of its obligations hereunder, will not result in a violation of any mortgage, indenture, contract, instrument, judgment, decree, order, statute, rule or regulation to which the Pledgor is subject.
(g) The Pledgor has delivered to the Pledgee all instruments and stock certificates, if any, representing the Pledged Shares, duly endorsed in blank or accompanied by an assignment or assignments sufficient to transfer title thereto. There are neither any instruments or certificates evidencing the Pledged Rights nor registration books in which ownership of the Pledged Rights are recorded.
6. OBLIGATIONS OF THE PLEDGOR. The Pledgor hereby covenants and agrees with the Pledgee as follows:
(a) The Pledgor will not, without the prior written consent of the Lender (which
consent shall be in the Lender's sole discretion), sell, transfer or convey any interest in, or suffer or permit any lien or encumbrance to be created upon or with respect to, any of the Collateral (other than as created under this Agreement) during the term of the pledge established hereby.
(b) The Pledgor will, at its own expense, at any time and from time to time at the Pledgee's request, do, make, procure, execute and deliver all acts, things, writings, assurances and other documents as may be required by the Pledgee to further enhance, preserve, establish, demonstrate or enforce the Pledgee's rights, interests and remedies created by, provided in, or emanating from, this Agreement.
(c) The Pledgor agrees, except with respect to the Pledged Shares, that (i) it shall not permit any Pledged Company to issue certificates representing the Pledged Interests without the Lender's written consent and (ii) it shall cause each Pledged Company to issue certificates with respect to any Pledged Interests at the Lender's request.
7. RIGHTS OF THE PLEDGOR. So long as no Event of Default has occurred and is continuing, and so long as the Pledgee has not transferred the Collateral to its own name under Section 8 hereof:
(a) The Pledgor shall be entitled to receive and retain any cash dividends and other cash distributions paid on the Collateral, in each case, to the extent permitted pursuant to the Credit Agreement.
(b) The Pledgor shall be entitled to vote or consent or grant waivers or ratifications with respect to the Collateral in any manner not inconsistent with this Agreement, the Credit Agreement or any other Loan Document. The Pledgor hereby grants to the Pledgee an irrevocable proxy to vote the Collateral, which proxy shall be effective immediately upon the occurrence of and during the continuance of an Event of Default or registration of the Collateral in the name of the Pledgee pursuant to Section 8 hereof. Upon request of the Pledgee, the Pledgor agrees to deliver to the Pledgee such further evidence of such irrevocable proxy or such further irrevocable proxy to vote the Collateral during the continuance of an Event of Default as the Pledgee may reasonably request.
8. RIGHTS OF THE PLEDGEE. At any time when an Event of Default has occurred and is continuing, the Pledgee may in its sole discretion:
(a) Cause the Collateral to be transferred to its name or to the name of its nominee or nominees and thereafter exercise as to such Collateral all of the rights, powers and remedies of an owner.
(b) Collect by legal proceedings or otherwise all dividends, interest, principal payments, capital distributions and other sums now or hereafter payable on account of said Collateral, and hold the same as part of the Collateral, or apply the same to any of the Obligations in such manner and order as the Pledgee may decide in its sole discretion.
(c) Enter into any extension, subordination, reorganization, deposit, merger, or consolidation agreement, or any other agreement relating to or affecting the Collateral, and in connection therewith deposit or surrender control of the Collateral thereunder, and accept other property in exchange therefor and hold and apply such property or money so received in accordance with the provisions hereof.
(d) Discharge any taxes, liens, security interests or other
encumbrances levied or placed on the Collateral or pay for the maintenance and
preservation of the Collateral; the amount of such payments, plus any and all
fees, costs and expenses of the Pledgee (including reasonable attorneys' fees
and disbursements) in connection therewith shall, at the Pledgee's option, be
(i) reimbursed by the Pledgor on demand, with interest thereon from the date
paid by Pledgee at two percent (2%) per annum above the Alternate Base Rate or
(ii) added to the Obligations secured hereby.
9. EVENT OF DEFAULT; REMEDIES. Upon the occurrence and continuance of an Event of Default:
(a) In addition to all the rights and remedies of a secured party
under applicable law, the Pledgee shall have the right, and without demand of
performance or other demand, advertisement or notice of any kind, except as
specified below, to or upon Pledgor or any other Person (all and each of which
demands, advertisements and/or notices are hereby expressly waived to the extent
permitted by law), to proceed forthwith to collect, receive, appropriate and
realize upon the Collateral, or any part thereof and to proceed forthwith to
sell, assign, give an option or options to purchase, contract to sell, or
otherwise dispose of and deliver the Collateral or any part thereof in one or
more parcels at public or private sale or sales at any stock exchange or
broker's board or at any of the Pledgee's offices or elsewhere at such prices
and on such terms (including, without limitation, a requirement that any
purchaser of all or any part of the Collateral shall be required to purchase any
securities constituting the Collateral solely for investment and without any
intention to make a distribution thereof) as the Pledgee in its sole and
absolute discretion deems appropriate without any liability for any loss due to
decrease in the market value of the Collateral during the period held. The
Pledgee agrees that if notice of sale shall be required by law such notification
shall be deemed reasonable and properly given if mailed to the Pledgor, postage
prepaid, at least ten (10) days (or such longer period required by any provision
of applicable laws) before any such disposition, to the address indicated in
Section 13(d) below. Any disposition of the Collateral or any part thereof may
be for cash or on credit or for future delivery without assumption of any credit
risk, with the right of the Pledgee to purchase all or any part of the
Collateral so sold at any such sale or sales, public or private, free of any
equity or right of redemption in the Pledgor, which right or equity is, to the
extent permitted by applicable law, hereby expressly waived and released by the
Pledgor.
(b) All of the Pledgee's rights and remedies, including but not limited to the foregoing, shall be cumulative and not exclusive and shall be enforceable alternatively, successively or concurrently as the Pledgee may deem expedient.
(c) The Pledgee may elect to obtain (at the Pledgor's expense) the advice of any
independent investment banking firm with respect to the method and manner of sale or other disposition of any of the Collateral, the best price reasonably obtainable therefor, the consideration of cash and/or credit terms, or any other details concerning such sale or disposition. The Pledgee, in its sole discretion, may elect to sell on such credit terms which it deems reasonable. The sale of any of the Collateral on credit terms shall not relieve the Pledgor of its liability under any Loan Document until its Obligations have been paid in full. All payments received by the Pledgee in respect of a sale of Collateral shall be applied to the Obligations in the manner provided in Section 10 of this Agreement, as and when such payments are received.
(d) The Pledgor recognizes that the Pledgee may be unable to effect a public sale of all or a part of the Collateral by reason of certain prohibitions contained in any applicable securities law, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire the Collateral for their own account, for investment and not with a view for the distribution or resale thereof. The Pledgor agrees that private sales so made may be at prices and on other terms less favorable to the seller than if the Collateral were sold at public sale, and that the Pledgee has no obligation to delay the sale of any Collateral for the period of time necessary to permit the registration of the Collateral for public sale under the Securities Act of 1933, as amended. The Pledgor agrees that a private sale or sales made under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner.
(e) If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other disposition of the Collateral, or any partial disposition of the Collateral, the Pledgor will execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use its best efforts to secure such sale or other disposition of the Collateral as the Pledgee may reasonably deem necessary pursuant to the terms of this Agreement.
(f) Upon any sale or other disposition, the Pledgee shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold or disposed of. Each purchaser at any such sale or other disposition (including the Pledgee) shall hold the Collateral free from any claim or right of the Pledgor of whatever kind, including any equity or right of redemption of the Pledgor. The Pledgor specifically waives, to the extent permitted by applicable laws, all rights of redemption, stay or appraisal which it had or may have under any rule of law or statute now existing or hereafter adopted.
(g) The Pledgee shall not be obligated to make any sale or other disposition, unless the terms thereof shall be satisfactory to it. The Pledgee may, subject to applicable laws, without notice or publication, adjourn any private or public sale, and, upon five (5) days' prior notice to the Pledgor, hold such sale at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral, on credit or future delivery, the Collateral so sold may be retained by the Pledgee until the selling price is paid by the purchaser thereof, but the Pledgee and the Lender shall incur no liability in the case of the failure of such purchaser to take up and pay for the property so sold
and, in case of any such failure, such property may again be sold as herein provided.
10. DISPOSITION OF PROCEEDS.
(a) The proceeds of any sale or disposition of all or any part of the Collateral shall be applied by the Pledgee in the following order:
(i) to the payment in full of the costs and expenses of such sale or sales, collections, and the protection, declaration and enforcement of any security interest granted hereunder including the reasonable compensation of the Pledgee's agents and attorneys;
(ii) to the payment of the Obligations; and
(iii) to the payment to the Pledgor of any surplus then remaining from such proceeds, subject to the rights of any holder of a lien on the Collateral of which the Pledgee has actual notice.
(b) In the event that the proceeds of any sale or other disposition of the Collateral are insufficient to cover the principal of, and premium, if any, and interest on, the Obligations secured thereby plus costs and expenses of the sale or other disposition, the Pledgor shall remain liable for any deficiency.
11. TERMINATION. This Agreement shall continue in full force and effect until all of the Obligations shall have been indefeasibly paid in full and satisfied, and the Credit Agreement shall have been terminated. Subject to any sale or other disposition by the Pledgee of the Collateral or any part thereof pursuant to this Agreement, the Collateral (together with the undated stock powers delivered by the Pledgor to the Pledgee), shall be returned to the Pledgor upon full payment, satisfaction and termination of all of the Obligations.
12. EXPENSES OF THE PLEDGEE. All expenses (including reasonable fees and disbursements of counsel) incurred by the Pledgee in connection with the perfection and continuation of the security interest granted hereunder and any actual or attempted sale or exchange of, or any enforcement, collection, compromise or settlement respecting,the Collateral, or any other action taken by the Pledgee hereunder whether directly or as attorney-in-fact pursuant to a power of attorney or other authorization herein conferred, for the purpose of satisfaction of the liability of the Pledgor for failure to pay the Obligations or as additional amounts owing by the Pledgor to cover the Pledgee's costs of acting against the Collateral, shall be deemed an Obligation of the Pledgor for all purposes of this Agreement and the Pledgee may apply the Collateral to payment of or reimbursement of itself for such liability.
13. GENERAL PROVISIONS.
(a) All capitalized terms used in this Pledge Agreement and not defined herein shall have the respective meanings assigned to them in the Credit Agreement.
(b) The Pledgee and its assigns shall have no obligation in respect of the Collateral, except to use reasonable care in holding the Collateral and to hold and dispose of the same in accordance with the terms of this Agreement.
(c) All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing, and unless otherwise expressly provided herein, shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered to such party at the address set forth below, or if sent by registered or certified mail, on the third Business Day after the day on which mailed in the United States, addressed to such party at said address:
(i) if to the Pledgee, at
The Chase Manhattan Bank 395 North Service Road Melville, New York 11747 Attention: Relationship Manager - 1-800-Flowers, Inc.
(ii) if to Pledgor, at
1-800-Flowers, Inc. 1600 Stewart Avenue Westbury, New York 11590 Attention: Mr. William Shea Telecopy: (516) 237-6060
With a copy to
Gallagher, Walker & Bianco 98 Willis Avenue Mineola, New York 11501 Attention: Gerard M. Gallagher, Esq.
Telecopy: (516) 248-2394
(iii) As to each party at such other address as such party shall have designated to the other in a written notice complying as to delivery with the provisions of this Section 13(c).
(d) No failure on the part of the Pledgee to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Pledgee of any right, power or remedy hereunder preclude any other or future exercise thereof, or the exercise of any other right, power or remedy. The remedies herein provided are cumulative and are not exclusive of any remedies provided by law or any other agreement. The representations, covenants and agreements of the Pledgor herein contained shall survive the date hereof. Neither this Agreement nor the provisions hereof can be changed, waived or terminated orally. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and assigns except that the Pledgor may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender.
SECTION 14. APPLICABLE LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OR CHOICE OF LAWS. THE PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH FEDERAL OR STATE COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF OR THEREOF MAY NOT BE LITIGATED IN OR BY SUCH FEDERAL OR STATE COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR AGREES NOT TO (I) SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY FEDERAL OR STATE COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT AND (II) ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING UNLESS SUCH COUNTERCLAIM IS A COMPULSORY COUNTERCLAIM UNDER FEDERAL LAW OR NEW YORK LAW, AS APPLICABLE. THE PLEDGOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. THE PLEDGOR AND THE PLEDGEE EACH IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on
the date first above written.
1-800-FLOWERS, INC.
By:___________________________
Name: William E. Shea
Title: Treasurer
THE CHASE MANHATTAN BANK
By: ________________________
Name: Anthony M. Abbate
Title: Vice President
SCHEDULE A
1. Pledged Company: Fresh Intellectual Properties, Inc.
Jurisdiction of Incorporation: Delaware
Stock owned by Pledgor
Class: Common
Number of Shares: 1000
Stock Certificate No.: #1
Percentage of issued and outstanding shares: 100%
2. Pledged Company: 1-800-Flowers Retail Inc.
Jurisdiction of Incorporation: Delaware
Stock owned by Pledgor
Class: Common
Number of Shares: 1000
Stock Certificate No.: #2
Percentage of issued and outstanding shares: 100%
3. Pledged Company: 800-Flowers, Inc.
Jurisdiction of Incorporation: New York
Stock owned by Pledgor
Class: Common
Number of Shares: 10
Stock Certificate No.: #1
Percentage of issued and outstanding shares: 100%
4. Pledged Company: 800-Gifthouse, Inc.
Jurisdiction of Incorporation: New York
Stock owned by Pledgor
Class: Common
Number of Shares: 10
Stock Certificate No.: #1
Percentage of issued and outstanding shares: 100%
5. Pledged Company: The Plow & Hearth, Inc.
Jurisdiction of Incorporation: Virginia
Stock owned by Pledgor
Class: Common
Number of Shares: 95,672
Stock Certificate Nos.: 320 & 321 Percentage of issued and outstanding shares: 88.31%
EXHIBIT C-2
SUBSIDIARY PLEDGE AGREEMENT
PLEDGE AGREEMENT, (the "Agreement") dated as of March 19, 1999 by and between _____________________________, a ____________ corporation (the "Pledgor") and THE CHASE MANHATTAN BANK, a New York banking corporation having an office at 395 North Service Road, Melville, New York 11747 (the "Pledgee").
RECITALS
A. 1-800-Flowers, Inc., a Delaware corporation (the "Company") and the Pledgee, have entered into a Credit Agreement dated as of March 19, 1999 (as the same may be hereafter amended, modified, restated or supplemented from time to time, the "Credit Agreement") pursuant to which the Company will receive loans and other financial accommodations from the Lender and will incur Obligations.
B. Pursuant to a Guaranty dated the date hereof, the Pledgor has guaranteed the payment by the Company of all its Obligations (the obligations of the Pledgor under such Guaranty are hereinafter referred to as the "Guaranty Obligations").
C. The Pledgor is the beneficial owner of that percentage of the issued and outstanding capital stock or membership or other equity interests of each Subsidiary of the Pledgor listed on Schedule A annexed hereto (collectively, the "Pledged Companies") as indicated on such Schedule A.
D. In order to induce the Lender to enter into the Credit Agreement and to extend credit to the Company on and after the date hereof as provided in the Credit Agreement, the Pledgor wishes to grant to the Pledgee security and assurance in order to secure the payment and performance of all its Guaranty Obligations, and to that effect to pledge to the Pledgee, subject to the proviso below, all of the issued and outstanding capital stock of the Pledged Companies (the "Pledged Shares") and all of the membership or other equity interests in the Pledged Companies (the "Pledged Rights", together with the Pledged Shares, collectively, the "Pledged Interests") that is owned by the Pledgor, including, without limitation, the Pledged Interests listed opposite the name of the Pledgor as more particularly described on Schedule A and, with respect to the Pledged Shares, as represented by the stock certificates referenced thereon.
Accordingly, the parties hereto agree as follows:
1. SECURITY INTEREST. As security for the Guaranty Obligations, including any and all renewals or extensions thereof, the Pledgor hereby delivers, pledges and assigns to the Pledgee and creates in the Pledgee a first security interest in all of the Pledgor's right, title and interest in and to all of the Pledged Interests, together with all rights and privileges of the Pledgor with respect thereto,
all proceeds, income and profits thereof and all property received with respect to the Pledged Interests in addition thereto, in exchange thereof or in substitution therefor (collectively, the "Collateral"). The Pledgor has delivered to the Pledgee, with respect to the Pledged Shares existing on the date hereof, certificates evidencing such Pledged Shares, together with undated stock powers duly executed in blank by the Pledgor.
2. STOCK DIVIDENDS, OPTIONS, OR OTHER ADJUSTMENTS. The Pledgee shall receive, as Collateral, any and all additional shares of stock, membership interests or other property of any kind distributable on or by reason of the Collateral pledged hereunder, whether in the form of or by way of dividends, warrants, partial liquidation, conversion, prepayments or redemptions (in whole or in part), liquidation, or otherwise with the exceptions of cash dividends or other cash distributions to the extent permitted under Section 7(a). If any additional shares of capital stock, instruments, or other property against which a security interest can only be perfected by possession by the Pledgee, which are distributable on or by reason of the Collateral pledged hereunder, shall come into the possession or control of the Pledgor, the Pledgor shall, hold or control in trust and forthwith transfer and deliver the same to the Pledgee subject to the provisions hereof.
3. DELIVERY OF SHARE CERTIFICATES; STOCK POWERS; DOCUMENTS. The Pledgor agrees to deliver all share certificates, undated stock powers duly executed in blank, documents, agreements, financing statements, amendments thereto, assignments or other writings as the Pledgee may request to carry out the terms of this Agreement or to protect or enforce the lien and security interest in the Collateral hereunder granted hereby to the Pledgee and further agrees to do and cause to be done, upon the Pledgee's request, all things reasonably determined by the Pledgee to be necessary to perfect and keep in full force the lien in the Collateral hereunder granted hereby in favor of the Pledgee, including, but not limited to, the prompt payment of all documented out-of-pocket fees and expenses incurred in connection with any filings made to perfect or continue the lien and security interest in the Collateral hereunder granted hereby in favor of the Pledgee. The Pledgor agrees to make appropriate entries upon its books and records (including without limitation its stock record and transfer books) disclosing the lien against the Collateral hereunder granted hereby to the Pledgee hereunder. The Pledgor further agrees to promptly deliver to the Pledgee, or cause the corporation or other entity issuing the Collateral to deliver directly to the Pledgee, share certificates or other documents representing Collateral acquired or received after the date of this Agreement with an undated stock power duly executed by the Pledgor in blank. If at any time the Pledgee notifies the Pledgor that additional stock powers endorsed in blank with respect to the Collateral are required, the Pledgor shall promptly execute in blank and deliver such stock powers as the Pledgee may request.
4. POWER OF ATTORNEY. The Pledgor hereby constitutes and irrevocably appoints the Pledgee, with full power of substitution and revocation by the Pledgee, as Pledgor's true and lawful attorney-in-fact, to the full extent permitted by law, at any time or times when an Event of Default has occurred and is continuing to affix to certificates and documents representing the Collateral the stock
power delivered with respect thereto, to transfer or cause the transfer of the Collateral, or any part thereof on the books of the corporation or other entity issuing the same, to the name of the Pledgee or the Pledgee's nominee and thereafter to exercise as to such Collateral all the rights, powers and remedies of an owner. The power of attorney granted pursuant to this Agreement and all authority hereby conferred are granted and conferred solely to protect the Pledgee's and the Lender's interest in the Collateral and shall not impose any duty upon the Pledgee to exercise any power. Subject to Section 11, this power of attorney shall be irrevocable as one coupled with an interest.
5. INDUCING REPRESENTATIONS OF THE PLEDGOR. The Pledgor makes the following representations and warranties to the Pledgee; each and all of which shall survive the execution and delivery of this Agreement:
(a) The information concerning the Pledged Companies and the Pledgor's beneficial ownership of the Pledged Interests thereof that is contained in Schedule A is correct in all respects.
(b) The Pledgor is the sole legal and beneficial owner of, and has good and indefeasible title to, the Pledged Interests pledged by the Pledgor, free and clear of all pledges, liens, security interests and other encumbrances and restrictions on the transfer and assignment thereof, other than the security interest created by this Agreement, and restrictions on transfer imposed by applicable state and federal securities laws generally, and has the unqualified right and authority to execute this Agreement and to pledge the Collateral to the Pledgee as provided for herein.
(c) There are no outstanding options, warrants or other agreements to which the Pledged Companies or the Pledgor is a party with respect to the Pledged Interests pledged by the Pledgor.
(d) The Pledged Shares pledged by the Pledgor have been validly issued and are fully paid and non-assessable; the holder or holders of the Pledged Interests are not and will not be subject to any personal liability as such holder under any applicable law, subject to Section 630 of the Business Corporation Law of the State of New York with respect to each Pledged Company which is a New York Corporation; and are not subject to any charter, by-law, statutory, contractual or other restrictions governing their issuance, transfer, ownership or control other than restrictions on transfer imposed by applicable state and federal securities laws generally.
(e) Any consent, approval or authorization of or designation or filing with any authority on the part of the Pledgor which is required in connection with the pledge and security interest granted under this Agreement has been obtained or effected.
(f) The execution and delivery of this Agreement by the Pledgor, and the performance by the Pledgor of its obligations hereunder, will not result in a violation of any mortgage, indenture,
contract, instrument, judgment, decree, order, statute, rule or regulation to which the Pledgor is subject.
(g) The Pledgor has delivered to the Pledgee all instruments and stock certificates, if any, representing the Pledged Shares, duly endorsed in blank or accompanied by an assignment or assignments sufficient to transfer title thereto. There are neither any instruments or certificates evidencing the Pledged Rights nor registration books in which ownership of the Pledged Rights are recorded.
6. OBLIGATIONS OF THE PLEDGOR. The Pledgor hereby covenants and agrees with the Pledgee as follows:
(a) The Pledgor will not, without the prior written consent of the Lender (which consent shall be in the Lender's sole discretion), sell, transfer or convey any interest in, or suffer or permit any lien or encumbrance to be created upon or with respect to, any of the Collateral (other than as created under this Agreement) during the term of the pledge established hereby.
(b) The Pledgor will, at its own expense, at any time and from time to time at the Pledgee's request, do, make, procure, execute and deliver all acts, things, writings, assurances and other documents as may be required by the Pledgee to further enhance, preserve, establish, demonstrate or enforce the Pledgee's rights, interests and remedies created by, provided in, or emanating from, this Agreement.
(c) The Pledgor agrees, except with respect to the Pledged Shares, that (i) it shall not permit any Pledged Company to issue certificates representing the Pledged Interests without the Lender's written consent and (ii) it shall cause each Pledged Company to issue certificates with respect to any Pledged Interests at the Lender's request.
7. RIGHTS OF THE PLEDGOR. So long as no Event of Default has occurred and is continuing, and so long as the Pledgee has not transferred the Collateral to its own name under Section 8 hereof:
(a) The Pledgor shall be entitled to receive and retain any cash dividends and other cash distributions paid on the Collateral, in each case, to the extent permitted pursuant to the Credit Agreement.
(b) The Pledgor shall be entitled to vote or consent or grant waivers or ratifications with respect to the Collateral in any manner not inconsistent with this Agreement, the Credit Agreement or any other Loan Document. The Pledgor hereby grants to the Pledgee an irrevocable proxy to vote the Collateral, which proxy shall be effective immediately upon the occurrence of and during the continuance of Event of Default or registration of the Collateral in the name of the Pledgee pursuant to Section 8 hereof. Upon request of the Pledgee, the Pledgor agrees to deliver to the Pledgee such
further evidence of such irrevocable proxy or such further irrevocable proxy to vote the Collateral during the continuance of an Event of Default as the Pledgee may reasonably request.
8. RIGHTS OF THE PLEDGEE. At any time when an Event of Default has occurred and is continuing, the Pledgee may in its sole discretion:
(a) Cause the Collateral to be transferred to its name or to the name of its nominee or nominees and thereafter exercise as to such Collateral all of the rights, powers and remedies of an owner.
(b) Collect by legal proceedings or otherwise all dividends, interest, principal payments, capital distributions and other sums now or hereafter payable on account of said Collateral, and hold the same as part of the Collateral, or apply the same to any of the Guaranty Obligations in such manner and order as the Pledgee may decide in its sole discretion.
(c) Enter into any extension, subordination, reorganization, deposit, merger, or consolidation agreement, or any other agreement relating to or affecting the Collateral, and in connection therewith deposit or surrender control of the Collateral thereunder, and accept other property in exchange therefor and hold and apply such property or money so received in accordance with the provisions hereof.
(d) Discharge any taxes, liens, security interests or other
encumbrances levied or placed on the Collateral or pay for the maintenance and
preservation of the Collateral; the amount of such payments, plus any and all
fees, costs and expenses of the Pledgee (including reasonable attorneys' fees
and disbursements) in connection therewith shall, at the Pledgee's option, be
(i) reimbursed by the Pledgor on demand, with interest thereon from the date
paid by Pledgee at two percent (2%) per annum above the Alternate Base Rate or
(ii) added to the Guaranty Obligations secured hereby.
9. EVENT OF DEFAULT; REMEDIES. Upon the occurrence and continuance of an Event of Default:
(a) In addition to all the rights and remedies of a secured party under applicable law, the Pledgee shall have the right, and without demand of performance or other demand, advertisement or notice of any kind, except as specified below, to or upon Pledgor or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the extent permitted by law), to proceed forthwith to collect, receive, appropriate and realize upon the Collateral, or any part thereof and to proceed forthwith to sell, assign, give an option or options to purchase, contract to sell, or otherwise dispose of and deliver the Collateral or any part thereof in one or more parcels at public or private sale or sales at any stock exchange or broker's board or at any of the Pledgee's offices or elsewhere at such prices and on such terms (including, without limitation, a requirement that any
purchaser of all or any part of the Collateral shall be required to purchase any
securities constituting the Collateral solely for investment and without any
intention to make a distribution thereof) as the Pledgee in its sole and
absolute discretion deems appropriate without any liability for any loss due to
decrease in the market value of the Collateral during the period held. The
Pledgee agrees that if notice of sale shall be required by law such notification
shall be deemed reasonable and properly given if mailed to the Pledgor, postage
prepaid, at least ten (10) days (or such longer period required by any provision
of applicable laws) before any such disposition, to the address indicated in
Section 13(d) below. Any disposition of the Collateral or any part thereof may
be for cash or on credit or for future delivery without assumption of any credit
risk, with the right of the Pledgee to purchase all or any part of the
Collateral so sold at any such sale or sales, public or private, free of any
equity or right of redemption in the Pledgor, which right or equity is, to the
extent permitted by applicable law, hereby expressly waived and released by the
Pledgor.
(b) All of the Pledgee's rights and remedies, including but not limited to the foregoing, shall be cumulative and not exclusive and shall be enforceable alternatively, successively or concurrently as the Pledgee may deem expedient.
(c) The Pledgee may elect to obtain (at the Pledgor's expense) the advice of any independent investment banking firm with respect to the method and manner of sale or other disposition of any of the Collateral, the best price reasonably obtainable therefor, the consideration of cash and/or credit terms, or any other details concerning such sale or disposition. The Pledgee, in its sole discretion, may elect to sell on such credit terms which it deems reasonable. The sale of any of the Collateral on credit terms shall not relieve the Pledgor of its liability under any Loan Document until its Guaranty Obligations have been paid in full. All payments received by the Pledgee in respect of a sale of Collateral shall be applied to the Guaranty Obligations in the manner provided in Section 10 of this Agreement, as and when such payments are received.
(d) The Pledgor recognizes that the Pledgee may be unable to effect a public sale of all or a part of the Collateral by reason of certain prohibitions contained in any applicable securities law, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire the Collateral for their own account, for investment and not with a view for the distribution or resale thereof. The Pledgor agrees that private sales so made may be at prices and on other terms less favorable to the seller than if the Collateral were sold at public sale, and that the Pledgee has no obligation to delay the sale of any Collateral for the period of time necessary to permit the registration of the Collateral for public sale under the Securities Act of 1933, as amended. The Pledgor agrees that a private sale or sales made under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner.
(e) If any consent, approval or authorization of any state, municipal or other governmental department, agency or authority should be necessary to effectuate any sale or other
disposition of the Collateral, or any partial disposition of the Collateral, the Pledgor will execute all such applications and other instruments as may be required in connection with securing any such consent, approval or authorization, and will otherwise use its best efforts to secure such sale or other disposition of the Collateral as the Pledgee may reasonably deem necessary pursuant to the terms of this Agreement.
(f) Upon any sale or other disposition, the Pledgee shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold or disposed of. Each purchaser at any such sale or other disposition (including the Pledgee) shall hold the Collateral free from any claim or right of the Pledgor of whatever kind, including any equity or right of redemption of the Pledgor. The Pledgor specifically waives, to the extent permitted by applicable laws, all rights of redemption, stay or appraisal which it had or may have under any rule of law or statute now existing or hereafter adopted.
(g) The Pledgee shall not be obligated to make any sale or other disposition, unless the terms thereof shall be satisfactory to it. The Pledgee may, subject to applicable laws, without notice or publication, adjourn any private or public sale, and, upon five (5) days' prior notice to the Pledgor, hold such sale at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral, on credit or future delivery, the Collateral so sold may be retained by the Pledgee until the selling price is paid by the purchaser thereof, but the Pledgee shall incur no liability in the case of the failure of such purchaser to take up and pay for the property so sold and, in case of any such failure, such property may again be sold as herein provided.
10. DISPOSITION OF PROCEEDS.
(a) The proceeds of any sale or disposition of all or any part of the Collateral shall be applied by the Pledgee in the following order:
(i) to the payment in full of the costs and expenses of such sale or sales, collections, and the protection, declaration and enforcement of any security interest granted hereunder including the reasonable compensation of the Pledgee's agents and attorneys;
(ii) to the payment of the Guaranty Obligations; and
(iii) to the payment to the Pledgor of any surplus then remaining from such proceeds, subject to the rights of any holder of a lien on the Collateral of which the Pledgee has actual notice.
(b) In the event that the proceeds of any sale or other disposition of the Collateral are insufficient to cover the principal of, and premium, if any, and interest on, the Guaranty Obligations
secured thereby plus costs and expenses of the sale or other disposition, the Pledgor shall remain liable for any deficiency.
11. TERMINATION. This Agreement shall continue in full force and effect until all of the Guaranty Obligations shall have been indefeasibly paid in full and satisfied, and the Credit Agreement shall have been terminated. Subject to any sale or other disposition by the Pledgee of the Collateral or any part thereof pursuant to this Agreement, the Collateral (together with the undated stock powers delivered by the Pledgor to the Pledgee) shall be returned to the Pledgor upon full payment, satisfaction and termination of all of the Guaranty Obligations.
12. EXPENSES OF THE PLEDGEE. All expenses (including reasonable fees and disbursements of counsel) incurred by the Pledgee in connection with the perfection and continuation of the security interest granted hereunder and any actual or attempted sale or exchange of, or any enforcement, collection, compromise or settlement respecting,the Collateral, or any other action taken by the Pledgee hereunder whether directly or as attorney-in-fact pursuant to a power of attorney or other authorization herein conferred, for the purpose of satisfaction of the liability of the Pledgor for failure to pay the Guaranty Obligations or as additional amounts owing by the Pledgor to cover the Pledgee's costs of acting against the Collateral, shall be deemed a Guaranty Obligation of the Pledgor for all purposes of this Agreement and the Pledgee may apply the Collateral to payment of or reimbursement of itself for such liability.
13. GENERAL PROVISIONS.
(a) All capitalized terms used in this Pledge Agreement and not defined herein shall have the respective meanings assigned to them in the Credit Agreement.
(b) The Pledgee and its assigns shall have no obligation in respect of the Collateral, except to use reasonable care in holding the Collateral and to hold and dispose of the same in accordance with the terms of this Agreement.
(c) All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing, and unless otherwise expressly provided herein, shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered to such party at the address set forth below, or if sent by registered or certified mail, on the third Business Day after the day on which mailed in the United States, addressed to such party at said address:
(i) if to the Pledgee, at
The Chase Manhattan Bank, as Lender
395 North Service Road Melville, New York 11747 Attention: Relationship Manager - 1-800-Flowers, Inc.
(ii) if to Pledgor, at
1-800-Flowers, Inc. 1600 Stewart Avenue Westbury, New York 11590 Attention: Mr. William Shea Telecopy: (516) 237-6060
With a copy to
Gallagher, Walker & Bianco 98 Willis Avenue Mineola, New York 11501 Attention: Gerard M. Gallagher, Esq.
Telecopy: (516) 248-2394
(iii) As to each party at such other address as such party shall have designated to the other in a written notice complying as to delivery with the provisions of this Section 13(d).
(d) No failure on the part of the Pledgee to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Pledgee of any right, power or remedy hereunder preclude any other or future exercise thereof, or the exercise of any other right, power or remedy. The remedies herein provided are cumulative and are not exclusive of any remedies provided by law or any other agreement. The representations, covenants and agreements of the Pledgor herein contained shall survive the date hereof. Neither this Agreement nor the provisions hereof can be changed, waived or terminated orally. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, legal representatives and assigns except that the Pledgor may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Lender.
SECTION 14. APPLICABLE LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICT OR CHOICE OF LAWS. THE PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT
AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH FEDERAL OR STATE COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF OR THEREOF MAY NOT BE LITIGATED IN OR BY SUCH FEDERAL OR STATE COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR AGREES NOT TO (I) SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY FEDERAL OR STATE COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT AND (II) ASSERT ANY COUNTERCLAIM IN ANY SUCH SUIT, ACTION OR PROCEEDING UNLESS SUCH COUNTERCLAIM IS A COMPULSORY COUNTERCLAIM UNDER FEDERAL LAW OR NEW YORK LAW, AS APPLICABLE. THE PLEDGOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. THE PLEDGOR AND THE PLEDGEE EACH IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement on the date first above written.
[PLEDGOR]
By:___________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By: ________________________
Name:
Title:
SCHEDULE A
Pledged Company:
Jurisdiction of Incorporation:
Stock owned by Pledgor
Class:
Number of Shares
Stock Certificate no.
Percentage of issued and outstanding shares:
EXHIBIT D
CORPORATE GUARANTY
THIS GUARANTY is entered into as of the 19th day of March, 1999, by EACH OF THE UNDERSIGNED (each a "Guarantor" and, collectively, the "Guarantors") in favor of and for the benefit of THE CHASE MANHATTAN BANK.
RECITALS
A. Pursuant to a Credit Agreement dated the date hereof, by and between 1-800-Flowers, Inc. (the "Company") and The Chase Manhattan Bank (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement"), the Company will receive loans and other financial accommodations from the Lender and will incur Obligations.
B. The Guarantors, being members of a group of entities affiliated with the Company and being engaged in related businesses will receive direct and indirect benefits from such loans and financial accommodations.
C. Each Guarantor wishes to grant the Lender security and assurance in order to secure the payment and performance by the Company of all of its present and future Obligations, and, to that effect, to guaranty the Obligations as set forth herein.
Accordingly, each Guarantor hereby agrees as follows:
1. GUARANTY.
(a) Each Guarantor, jointly and severally, unconditionally and irrevocably guarantees to the Lender the full and punctual payment by the Company, when due, whether at the stated due date, by acceleration or otherwise, of all Obligations of the Company, howsoever created, arising or evidenced, voluntary or involuntary, whether direct or indirect, absolute or contingent now or hereafter existing or owing to the Lender (collectively, the "Guaranteed Obligations"). This Guaranty is an absolute, unconditional, continuing guaranty of payment and not of collection of the Guaranteed Obligations and includes Guaranteed Obligations arising from successive transactions which shall either continue such Guaranteed Obligations or from time to time renew such Guaranteed Obligations after the same have been satisfied. This Guaranty is in no way conditioned upon any attempt to collect from the Company or upon any other event or contingency, and shall be binding upon and enforceable against each Guarantor without regard to the validity or enforceability of the Credit Agreement, the Notes or any other Loan Document or of any term of any thereof. If for any reason the Company shall fail or be unable duly and punctually to pay any of the Guaranteed Obligations (including, without limitation amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss. 362(a)), each Guarantor will forthwith pay the same, in cash, immediately upon demand.
(b) In the event the Credit Agreement, any Note or any other Loan Document shall be terminated as a result of the rejection thereof by any trustee, receiver or liquidating agent of the Company or any of its properties in any bankruptcy, insolvency, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar proceeding, each Guarantor's obligations
hereunder shall continue to the same extent as if the Credit Agreement, such Note or such other Loan Document had not been so rejected.
(c) Each Guarantor shall pay all costs, reasonable expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
and damages incurred in connection with the enforcement of the Guaranteed
Obligations of the Company under the Credit Agreement or the Note or any other
Loan Document to the extent that such costs, expenses and damages are not paid
by the Company pursuant to the respective documents.
(d) Each Guarantor further agrees that if any payment made by the Company or any Guarantor to the Lender on any Obligation is rescinded, recovered from or repaid by the Lender, in whole or in part, in any bankruptcy, insolvency or similar proceeding instituted by or against the Company or any Guarantor, this Guaranty shall continue to be fully applicable to such Guaranteed Obligation to the same extent as though the payment so recovered or repaid had never originally been made on such Guaranteed Obligation.
(e) If any Event of Default shall have occurred and be continuing, the Lender and any Affiliate of the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender, or any Affiliate of the Lender to or for the credit or the account of any Guarantor against any of and all the obligations of any Guarantor now or hereafter existing under this Guaranty, irrespective of whether or not the Lender shall have made any demand hereunder and although such obligations may be unmatured. The rights under this paragraph 1(e) are in addition to other rights and remedies (including other rights of set off) which the Lender may have.
2. GUARANTY CONTINUING, ABSOLUTE, UNLIMITED.
The obligations of each Guarantor hereunder shall be continuing, absolute,
irrevocable, unlimited and unconditional, shall not be subject to any
counterclaim, set-off, deduction or defense based upon any claim any Guarantor
may have against the Lender or the Company or any other person, and shall remain
in full force and effect without regard to, and, to the fullest extent permitted
by applicable law, shall not be released, discharged or in any way affected by,
any circumstance or condition (whether or not any Guarantor shall have any
knowledge or notice thereof) whatsoever which might constitute a legal or
equitable discharge or defense including, but not limited to, (a) any express or
implied amendment, modification or supplement to the Credit Agreement, any Note,
or any other Loan Document or any other agreement referred to in any thereof, or
any other instrument applicable to the Company or to the Loans, or the Letters
of Credit or any part thereof; (b) any failure on the part of the Company to
perform or comply with the Credit Agreement, any Note or any other Loan Document
or any failure of any other person to perform or comply with any term of the
Credit Agreement, any Note, or any other Loan Document or any other agreement as
aforesaid; (c) any waiver, consent, change, extension, indulgence or other
action or any action or inaction under or in respect of the Credit Agreement,
any Note, or any other Loan Document or any other agreement as aforesaid,
whether or not the Lender, the Company or any Guarantor has notice or knowledge
of any of the foregoing; (d) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceeding with
respect to the Company, or its properties or its creditors, or any action taken
by any trustee or receiver or by any court in any such proceeding; (e) any
furnishing or acceptance of additional security or any release of any security;
(f) any limitation on the liability or obligations of the Company under the
Credit Agreement, any Note or any other Loan Document or any termination,
cancellation, frustration, invalidity or unenforceability, in whole or in part,
of the Credit Agreement, any Note, this Guaranty or any other Loan Document or
any term of any thereof; (g) any lien, charge or encumbrance on or affecting any
Guarantor's or any of the Company's respective assets and properties; (h) any
act, omission or breach on the part of the Lender under the Credit Agreement,
any Note or any other Loan Document or any other agreement at any time existing
between the Lender and the Company or any law, governmental regulation or other
agreement applicable to the Lender or any Loan; (i) any claim as a result of any
other dealings among the Lender, any Guarantor or the Company; (j) the
assignment of this Guaranty, the Credit Agreement, any Note or any other Loan
Document by the Lender to any other Person; or (k) any change in the name of the
Lender, the Company or any other Person referred to herein.
3. WAIVER.
Each Guarantor unconditionally waives, to the fullest extent permitted by applicable law: (a) notice of any of the matters referred to in Section 2 hereof; (b) all notices which may be required by statute, rule of law or otherwise to preserve any rights against any Guarantor hereunder, including, without limitation, notice of the acceptance of this Guaranty, or the creation, renewal, extension, modification or accrual of the Guaranteed Obligations or notice of any other matters relating thereto, any presentment, demand, notice of dishonor, protest, nonpayment of any damages or other amounts payable under the Credit Agreement, any Note or any other Loan Documents; (c) any requirement for the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of the Credit Agreement, any Note or any other Loan Documents, including, without limitation, diligence in collection or protection of or realization upon the Guaranteed Obligations or any part thereof or any collateral thereof; (d) any requirement of diligence; (e) any requirement to mitigate the damages resulting from a default by the Company under the Credit Agreement, any Note or any other Loan Documents; (f) the occurrence of every other condition precedent to which any Guarantor or the Company may otherwise be entitled; (g) the right to require the Lender to proceed against the Company or any other person liable on the Guaranteed Obligations, to proceed against or exhaust any security held by the Company or any other person, or to pursue any other remedy in the Lender's or the Lender's power whatsoever, and (h) the right to have the property of the Company first applied to the discharge of the Guaranteed Obligations.
The Lender may, at their election, exercise any right or remedy they may have against the Company without affecting or impairing in any way the liability of any Guarantor hereunder and each Guarantor waives, to the fullest extent permitted by applicable law, any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of any Guarantor against the Company, whether resulting from such election by the Lender or otherwise. Each Guarantor waives any defense arising by reason of any disability or other defense of the Company or by reason of the cessation for any cause whatsoever of the liability, either in whole or in part, of the Company to the Lender for the Guaranteed Obligations.
Each Guarantor assumes the responsibility for being and keeping informed of the financial condition of the Company and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and agrees that the Lender shall not have any duty to advise any Guarantor of information regarding any condition or circumstance or any change in such condition or circumstance. Each Guarantor acknowledges that the Lender has not made any representations to any Guarantor concerning the financial condition of the Company.
4. REPRESENTATIONS AND COVENANTS OF EACH GUARANTOR.
(a) The representations and warranties contained in Article IV of the Credit
Agreement, to the extent they relate to a Guarantor, are true and correct as of the date hereof and the Lender is entitled to rely on such representations and warranties to the same extent as though the same were set forth in full herein.
(b) Each Guarantor hereby agrees to perform the covenants contained in Article VI and Article VII of the Credit Agreement, to the extent they relate to the Guarantor, and the Lender is entitled to rely on such agreement to perform such covenants to the same extent as though the same were set forth in full herein.
5. PAYMENTS.
Each payment by each Guarantor to the Lender under this Guaranty shall be made in the time, place and manner provided for payments in the Credit Agreement without set-off or counterclaim to the account at which such payment is required to be paid by the Company under the Credit Agreement.
6. PARTIES.
This Guaranty shall inure to the benefit of the Lender and their respective successors, assigns or transferees, and shall be binding upon the Guarantors and their respective successors and assigns. No Guarantor may delegate any of its duties under this Guaranty without the prior written consent of the Lender.
7. NOTICES.
Any notice shall be conclusively deemed to have been received by a party hereto and to be effective on the day on which delivered to such party at the address set forth below, or if sent by registered or certified mail, on the third Business Day after the day on which mailed in the United States, addressed to such party at said address:
(a) if to the Lender,
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Attention: Account Officer -
1-800-FLOWERS, INC.
Telecopy:
(b) if to a Guarantor,
1-800-Flowers, Inc.
1600 Stewart Avenue
Westbury, New York 11590
Attention: Mr. William Shea
Telecopy: (516) 237-6060
With a copy to
Gallagher, Walker & Bianco
98 Willis Avenue
Mineola, New York 11501
Attention: Gerard M. Gallagher, Esq.
Telecopy: (516) 248-2394
and
(c) as to each such party at such other address as such party shall have designated to the other in a written notice complying as to delivery with the provisions of this Section 7.
8. REMEDIES.
Each Guarantor stipulates that the remedies at law in respect of any default or threatened default by a Guarantor in the performance of or compliance with any of the terms of this Guaranty are not and will not be adequate, and that any of such terms may be specifically enforced by a decree for specific performance or by an injunction against violation of any such terms or otherwise.
9. RIGHTS TO DEAL WITH THE COMPANY.
At any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of any Guarantor hereunder, the Lender may deal with the Company in the same manner and as fully as if this Guaranty did not exist and shall be entitled, among other things, to grant the Company, without notice or demand and without affecting any Guarantor's liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of indebtedness or any part thereof contained in or arising under the Credit Agreement, any Note or any other Loan Documents, or to waive any obligation of the Company to perform, any act or acts as the Lender may deem advisable.
10. SUBROGATION.
(a) Upon any payment made or action taken by a Guarantor pursuant to this
Guaranty, such Guarantor shall, subject to the provisions of Sections 10(b) and
(c) hereof, be fully subrogated to all of the rights of the Lender against the
Company arising out of the action or inaction of the Company for which such
payment was made or action taken by such Guarantor.
(b) Any claims of such Guarantor against the Company arising from payments made or actions taken by such Guarantor pursuant to the provisions of this Guaranty shall be in all respects subordinate to the full and complete or final and indefeasible payment or performance and discharge, as the case may be, of all amounts, obligations and liabilities, the payments or performance and discharge of which are guaranteed by this Guaranty, and no payment hereunder by a Guarantor shall give rise to any claim of such Guarantor against the Lender.
(c) Notwithstanding anything to the contrary contained in this Section 10, no Guarantor shall be subrogated to the rights of the Lender against the Company until all of the Obligations of the Company have been paid finally and indefeasibly in full, and that subrogation shall be suspended upon the occurrence of the events described in Section 1(d) until the Lender is indefeasibly paid in full.
11. SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC.
All representations, warranties, covenants and agreements made herein, including representations and warranties deemed made herein, shall survive any investigation or inspection made by or on behalf of the Lender and shall continue in full force and effect until all of the obligations of the Guarantors under this Guaranty shall be fully performed in accordance with the terms hereof, and until the payment in full of the Guaranteed Obligations.
12. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK, COUNTY OF NEW YORK, COUNTY OF NASSAU OR COUNTY OF SUFFOLK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH FEDERAL OR STATE COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF
THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GUARANTOR AGREES (I) NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH FEDERAL OR STATE COURT BY ANY FEDERAL OR STATE COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT AND (II) NOT TO ASSERT ANY COUNTERCLAIM, IN ANY SUCH SUIT, ACTION OR PROCEEDING UNLESS SUCH COUNTERCLAIM IS A COMPULSORY COUNTERCLAIM UNDER FEDERAL LAW OR NEW YORK LAW, AS APPLICABLE. EACH GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT BY CERTIFIED OR REGISTERED MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN THIS GUARANTY OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. THE LENDER AND EACH GUARANTOR IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13. MISCELLANEOUS.
(a) All capitalized terms used herein and not defined herein shall have the meanings specified in the Credit Agreement.
(b) This Guaranty is the joint and several obligation of each Guarantor, and may be enforced against each Guarantor separately, whether or not enforcement of any right or remedy hereunder has been sought against any other Guarantor. Each Guarantor acknowledges that its obligations hereunder will not be released or affected by the failure of the other Guarantors to execute the Guaranty or by a determination that all or a part of this Guaranty with respect to any other Guarantor is invalid or unenforceable.
(c) If any term of this Guaranty or any application thereof shall be invalid or unenforceable, the remainder of this Guaranty and any other application of such term shall not be affected thereby.
(d) Any term of this Guaranty may be amended, waived, discharged or terminated only by an instrument in writing signed by each Guarantor and the Lender.
(e) The headings in this Guaranty are for purposes of reference only and shall not limit or define the meaning hereof.
(f) No delay or omission by the Lender in the exercise of any right under this Guaranty shall impair any such right, nor shall it be construed to be waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise of any other right.
IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be executed and delivered as of the day and year first above written.
800-FLOWERS, INC.
By:___________________________
Title:
1-800-FLOWERS RETAIL INC.
By:___________________________
Title:
FRESH INTELLECTUAL
PROPERTIES, INC.
By:___________________________
Title:
800-GIFTHOUSE, INC.
By:___________________________
Title:
1-800-FLOWERS TEAM
SERVICES, INC.
By:___________________________
Title:
TELEWAY, INC.
By:____________________________
Title:
BLOOMLINK SYSTEMS, INC.
By:____________________________
Title:
1-800-FLOWERS ACQUISITION CORP.
By:____________________________
Title:
ST. CLAIRE FLORAL CO., INC.
By:_____________________________
Title:
FLORAL WORKS, INC.
By:_____________________________
Title:
AMALGAMATED CONSOLIDATED
ENTERPRISES, INC.
By:_____________________________
Title:
THE PLOW & HEARTH, INC.
By:_____________________________
Title:
C.M. CONROY COMPANY, INC.
By:____________________________
Title:
CONROY'S ACQUISITION
CORPORATION
By:____________________________
Title:
CONROY'S, INC.
By:_____________________________
Title:
FLORISTS' CAPITAL CORPORATION
INC.
By:____________________________
Title:
EXHIBIT E
[LETTERHEAD OF COUNSEL TO THE
COMPANY AND ITS SUBSIDIARIES]
March 19, 1999
The Chase Manhattan Bank
395 North Service Road
Melville, New York 11747
Ladies and Gentlemen:
We have acted as counsel to 1-800-Flowers, Inc. (the "Company"), a Delaware corporation, and to 800-Flowers, Inc., a New York corporation, 1-800-Flowers Retail Inc., a Delaware corporation, Fresh Intellectual Properties, Inc., a Delaware corporation, 800-Gifthouse, Inc., a New York corporation, The Plow & Hearth, Inc., a Virginia corporation, 1-800-Flowers Team Services, Inc., a Delaware corporation, Teleway, Inc., a New York corporation, Bloomlink Systems, Inc., a New York corporation, St. Claire Floral Co., Inc., a New York corporation, Floral Works, Inc., a Delaware corporation, Amalgamated Consolidated Enterprises, Inc., a Nevada corporation, CM Conroy Company, Inc., a California corporation, Conroy's Acquisition Corporation, a California corporation, Conroy's, Inc., a California corporation, and Florists' Capital Corporation, a California corporation (collectively, the "Guarantors"), in connection with the Credit Agreement (the "Agreement") dated the date hereof between the Company and The Chase Manhattan Bank, pursuant to which the Lender has agreed to extend credit to the Company in an aggregate principal amount not to exceed $30,000,000. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Agreement.
In acting as such counsel, we have examined:
(a) a counterpart of the Agreement executed by the Company;
(b) the Revolving Credit Note and the Term Note, each executed by the Company in favor of the Lender;
(c) a counterpart of the Pledge Agreement executed by the Company; and
(d) a counterpart of the Guaranty executed by each Guarantor;
The documents referred to in items (a) through (d) above are hereinafter referred to collectively as the "Loan Documents".
We have assumed the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such copies. We have also examined originals, or copies certified to our satisfaction, of such corporate records, certificates of public officials, certificates of corporate officers of the Company and each Guarantor and such other instruments and documents as we have deemed necessary as a basis for the opinions hereinafter set forth. As to questions of fact, we have, to the extent that such facts were not independently established by us, relied upon such certificates.
Based upon the foregoing and subject to the qualifications set forth herein, we are of the opinion that,
1. The Company and the Guarantors are each a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of their incorporation and in good standing in each jurisdiction wherein the conduct of its business or any ownership of its properties requires it to be qualified to do business except where the failure to be so qualified could not reasonably be expected to have a Material Adverse Effect, and each has the corporate power and authority to own its assets and to transact the business in which it is now engaged and to execute and perform each of the Loan Documents to which it is a party.
2. The Company and the Guarantors each have the requisite corporate power and authority to execute, deliver and perform the Loan Documents to which it is a party, each of which has been duly authorized by all necessary and proper corporate action.
3. The Loan Documents to which the Company or the Guarantors are a party constitute the legal, valid and binding obligation of the Company and the Guarantors (to the extent they are a party thereto) enforceable against the Company and each Guarantor, as the case may be, in accordance with their respective terms subject as to enforcement by applicable bankruptcy, insolvency, reorganization or similar laws affecting the enforcement of creditors' rights generally, and by equitable principles of general application.
4. Neither the execution and delivery by the Company and the Guarantors of
the Loan Documents to which they are a party nor the performance by the Company
or the Guarantors of their respective obligations under the Loan Documents, will
(a) violate any law, rule or regulation or, to our knowledge, any order or
decree of any court or governmental instrumentality binding upon the Company or
any Guarantor, (b) contravene the Certificate of Incorporation or By-Laws of the
Company or any Guarantor or, result in a breach of or constitute a default (with
due notice or lapse of time or both) under any agreements to which the Company
or any Guarantor is bound of which we are aware,
or, to our knowledge, result in the creation or imposition of any lien, charge, or encumbrance upon any of the property or assets of the Company or any Guarantor other than the liens granted pursuant to the Loan Documents, or (c) require the consent, license, approval or authorization of any governmental or public body or authority.
5. Neither the Company nor any Guarantor is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940.
6. No consent or authorization of, filing with or other act by or in respect of any governmental authority is required to be obtained by the Company or any Guarantor for the valid execution, delivery and performance of the Loan Documents to which they are a party.
7. Assuming the proceeds of the Loans are used for the purposes set forth in Section 3.02 of the Agreement, the making of the loans contemplated therein and the application of the proceeds thereof will not violate the provisions of Regulation U or X of the Board of Governors of the Federal Reserve System.
8. To the best of our knowledge there are no actions, suits or proceedings against any of the Company or any Guarantor, pending or threatened against the Company or any Guarantor, before any court, governmental agency or arbitrator which challenges the validity or enforceability of any Loan Document or which, if adversely determined, would impair the ability of the Company or any Guarantor to perform their respective obligations under the Loan Documents to which they are a party.
9. The Company is the owner of record of all of the outstanding capital stock of each Guarantor. The authorized capital stock of each Guarantor is as set forth on Schedule A to the Pledge Agreement. All such outstanding shares of capital stock have been duly authorized and validly issued, are fully paid and non-assessable and, except for liens granted to the Lender under the Pledge Agreement are owned by the Company, free and clear of all liens, charges, claims or encumbrances or limitations on voting rights. To the best of our knowledge after due inquiry there are no existing convertible securities, options, warrants, calls, subscriptions, rights (including preemptive rights) or other similar agreements relating to the capital stock of any Guarantor, other than the Stockholders Agreement with respect to the shares of P&H.
10. Each Pledge Agreement creates a valid first priority lien and security interest in favor of the Lender in the shares of capital stock of the Pledged Companies and the Collateral (each as defined in the Pledge Agreement) and the Lender's possession of the certificates representing the shares of the Pledged Companies delivered to the Lender today results in perfection of such liens and security interest for so long as the Lender maintains such possession.
Very truly yours,
EXHIBIT F
PERMITTED ACQUISITION SUMMARY
I. TRANSACTION SUMMARY
1. Name of Seller(s):
2. Name of Purchaser(s):
(describe corporate relationship to Company)
(e.g., wholly-owned direct subsidiary)
3. Type of Transaction (asset or stock acquisition):
If stock transaction, name of acquired entity:
4. Description of Purchase Price and Financing: (amount, how and when payable, adjustments, common stock, other)
5. Description of Other Financial Aspects of Transaction:
(including, without limitation, liabilities assumed or acquired
(directly or indirectly)).
6. Description of Business which is the subject of Transaction:
II. REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to the Agent and each Lender with respect to the transaction summarized above (the "Transaction") as follows:
1. The information provided with respect to the Transaction in paragraphs 1 through 6 of paragraph I, above is true and correct.
2. The acquisition agreement governing the Transaction shall include without limitation, the following representations and warranties by the seller (and which representations shall not be waived by purchaser without the prior written consent of the Lenders); (i) the proposed transaction has been approved by all necessary corporate, partnership or limited liability company action or other action required under seller's governing instruments (or will be so approved on or prior to the date of closing) and does not require the consent or approval of any third parties including, without limitation, any governmental authority, other than consents and approvals received and in full force and effect at the time of closing of the Transaction, and (ii) the shares of stock or assets to be acquired in the Transaction will be sold free and clear of all Liens and encumbrances other than Permitted Liens.
3. No Default or Event of Default has occurred and is continuing on the date hereof or will occur after giving effect to the Transaction, including, without limitation, any Event of Default arising from the failure to comply with the covenants set forth in Section 7.13. Attached to this Certificate is a calculation demonstrating the Company's compliance with the covenants set forth in Section 7.13 as of the date of closing of the Transaction.
4. The Transaction constitutes a Permitted Acquisition.
Capitalized terms used herein are not defined, shall have the meanings set forth in the Credit Agreement dated as of March 19, 1999, between 1-800-Flowers, Inc. and The Chase Manhattan Bank (the "Credit Agreement").
IN WITNESS WHEREOF, the Company has executed this certificate as of the ___ day of _______________________, 199_.
1-800-FLOWERS, INC.
By:________________________________
Name:
Title:
EXHIBIT 10.10
1-800-FLOWERS, INC.
1997 STOCK OPTION PLAN
1. Purpose
The purpose of this plan (the "Plan") is to secure for
1-800-FLOWERS, INC. (the "Company") and its stockholders the benefits arising
from capital stock ownership by employees, officers, directors and consultants
of the Company and its subsidiary corporations who are expected to contribute to
the Company's future growth and success. Those provisions of the Plan which make
express reference to Section 422 of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code"), shall apply only to
Incentive Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors (the "Board") of the Company (or
a committee designated by the Board) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board or by
a committee consisting of two or more directors (the "Committee") appointed by
the Board of the Company in each case whose construction and interpretation of
the terms and provisions of the Plan shall be final and conclusive. The Board or
Committee may in its sole discretion grant options to purchase shares of the
Company's Class B Common Stock, $0.01 par value per share ("Common Stock"), and
issue shares upon exercise of such options as provided in the Plan. The Board or
Committee shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan; to prescribe, amend
and rescind rules and regulations relating to the Plan; to determine the terms
and provisions of the respective option agreements, which need not be identical;
and to make all other determinations in the judgment of the Board or Committee
necessary or desirable for the administration of the Plan. The Board or
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director or person acting pursuant
to authority delegated by the Board shall be liable for any action or
determination under the Plan made in good faith.
3. Eligibility
Options may be granted to persons who are, at the time of grant,
employees, officers, directors or consultants of the Company or any subsidiaries
of the Company as defined in Sections 424(e) and 424(f) of the Code, provided,
that Incentive Stock Options may only be granted to individuals who are
employees of the Company (within the meaning of Section 3401(c) of the Code). A
person who has been granted an option may, if he or she is otherwise eligible,
be granted additional options if the Board or Committee shall so determine.
4. Stock Subject to Plan
The stock subject to options granted under the Plan shall be shares
of authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 598,544. If an option
granted under the Plan shall expire, terminate or is cancelled for any reason
without having been exercised in full, the unpurchased shares subject to such
option shall again be available for subsequent option grants under the Plan.
5. Forms of Option Agreements
As a condition to the grant of an option under the Plan, each
recipient of an option shall execute an option agreement in such form not
inconsistent with the Plan as may be approved by the Board or the Committee.
Such option agreements may differ among recipients.
6. Purchase Price
(a) General. The purchase price per share of stock issuable upon the
exercise of an option shall be determined by the Board or the Committee at the
time of grant of such option, provided, however, that in the case of an
Incentive Stock Option, the exercise price shall not be less than 100% of the
Fair Market Value (as hereinafter defined) of such stock at the time of grant of
such option, or less than 110% of such Fair Market Value in the case of options
described in Section 11(b). "Fair Market Value" of a share of Common Stock of
the Company as of a specified date for the purposes of the Plan shall mean the
closing price of a share of the Common Stock on the principal securities
exchange (including The Nasdaq SmallCap Market or The Nasdaq National Market) on
which such shares are traded on the day immediately preceding the date as of
which Fair Market Value is being determined, or on the next preceding date on
which such shares are traded if no shares were traded on such immediately
preceding day, or if the shares are not traded on a securities exchange, Fair
Market Value shall be deemed to be the average of the high bid and low asked
prices of the shares in the over-the-counter market on the day immediately
preceding the date as of which Fair Market Value is being determined or on the
next preceding date on which such high bid and low asked prices were recorded.
If the shares are not publicly traded either on a
principal securities exchange or in the over-the counter market, Fair Market
Value of a share of Common Stock (including, in the case of any repurchase of
shares, any distributions with respect thereto which would be repurchased with
the shares) shall be determined in good faith by the Board. In no case shall
Fair Market Value be determined with regard to restrictions other than
restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or by any other means which the Board or the Committee determines are
consistent with the purposes of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board).
7. Exercise Option Period
Subject to earlier termination as provided in the Plan, each option
and all rights thereunder shall expire on such date as determined by the Board
or the Committee and set forth in the applicable option agreement, provided,
that such date shall not be later than ten (10) years after the date on which
the option is granted.
8. Exercise of Options
Each option granted under the Plan shall be exercisable either in
full or in installments at such time or times and during such period as shall be
set forth in the option agreement evidencing such option, subject to the
provisions of the Plan. Subject to the requirements in the immediately preceding
sentence, if an option is not at the time of grant immediately exercisable, the
Board may (i) in the agreement evidencing such option, provide for the
acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events, and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.
9. Nontransferability of Options
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee, except by will or by the laws of descent and
distribution. An option may be exercised during the lifetime of the optionee
only by the optionee. In the event an optionee dies during his employment with
the Company or any of its subsidiaries, his option shall thereafter be
exercisable within the period prescribed in Section 10 hereof, by his executors
or administrators to the full extent to which such option was exercisable by the
optionee at the time of his death during the period set forth in Section 10.
10. Effect of Termination of Employment or Other Relationship
Except as otherwise determined by the Board or Committee at the date
of grant of an option, and subject to the provisions of the Plan, an optionee
may exercise an option at any time within one (1) year (or within such lesser
period as may be specified in the applicable option agreement) following
termination of the optionee's employment or other relationship with the Company
if such termination was due to the death or permanent or total disability
(within the meaning of Section 22(e)(3) of the Code or any successor provisions
thereto) of the optionee but in no event later than the expiration date of the
option. If the termination of the optionee's employment is for any other reason
(other than upon Retirement) the option shall expire immediately upon such
termination. If the optionee's employment with the Company and its Subsidiaries
terminates as a result of the optionee's Retirement, the option shall expire
within three (3) months from the date of termination due to such Retirement. For
all purposes of the Plan and any option granted hereunder, (i) "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations); and (ii) "Retirement"
shall mean no longer being occupied in one's business or profession and
terminating active employment with the Company and its Subsidiaries after
reaching the age of 65.
11. Incentive Stock Options
Options granted under the Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) the purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market
Value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five (5) years from
the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted
to any employee under the Plan (and any other incentive stock option plans of
the Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value, as of the respective
date or dates of grant, of more than $100,000.
12. Additional Provisions
(a) Additional Option Provisions. The Board or the Committee may, in
its sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation, restrictions on
transfer, repurchase rights, rights of first refusal, commitments to pay cash
bonuses or to make, arrange for or guaranty loans or to transfer other property
to optionees upon exercise of options, or such other provisions as shall be
determined by the Board or the Committee, provided, that such additional
provisions shall not be inconsistent with any other term or condition of the
Plan and such additional provisions shall not cause any Incentive Stock Option
granted under the Plan to fail to qualify as an Incentive Stock Option within
the meaning of Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board or the Committee may, in
its sole discretion (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised, or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised, provided, however that no such extension shall
be permitted if it would cause the Plan to fail to comply with Section 422 of
the Code or with Rule 16b-3 (if applicable to such option).
13. General Restrictions
(a) Investment Representations. The Company may require any person
to whom an option is granted, as a condition of exercising such option or award,
to give written assurances in substance and form satisfactory to the Company to
the effect that such person is acquiring the Common Stock subject to the option
or award for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws, or with covenants or
representations made by the Company in connection with any public offering of
its Common Stock, including any "lock-up" or other restriction on
transferability.
(b) Compliance With Securities Law. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option or award upon any securities exchange or automated quotation system or
under any state or federal law, or the consent or approval of any governmental
or regulatory body, or that the disclosure of non-public information or the
satisfaction
of any other condition, is necessary as a condition of, or in connection with
the issuance or purchase of shares thereunder, such option or award may not be
exercised, in whole or in part, unless such listing, registration,
qualification, consent or approval or satisfaction of such condition shall have
been effected or obtained on conditions acceptable to the Board or the
Committee. Nothing herein shall be deemed to require the Company to apply for or
to obtain such listing, registration or qualification, or to satisfy such
condition.
14. Rights as a Stockholder
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, without limitation, any
right to vote or to receive dividends or non-cash distributions with respect to
such shares) until the effective date of exercise of such option and then only
to the extent of the shares of Common Stock so purchased. No adjustment shall be
made for dividends or other rights for which the record date is prior to the
date of exercise.
15. Adjustment Provisions for Recapitalizations,
Reorganizations and Related Transactions
(a) Recapitalizations and Related Transactions. If, through or as a
result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other non-cash assets are distributed with respect to
such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under or otherwise referred to in the Plan, (y) the
number and kind of shares or other securities subject to any then-outstanding
options under the Plan, and (z) the price for each share subject to any
then-outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment (A) would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 (if applicable to such option), or (B) would be
considered as the adoption of a new plan requiring stockholder approval.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board or the Committee, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, Etc.
(c) General. In the event of any sale, merger, transfer or
acquisition of the Company or substantially all of the assets of the Company in
which the Company is not the surviving corporation, provided that after the
merger, transfer or acquisition the Company shall have requested the acquiring
or succeeding corporation (or an affiliate thereof) that equivalent options
shall be substituted and such successor corporation shall have refused or failed
to assume all options outstanding under the Plan or issue substantially
equivalent options, then any or all outstanding options under the Plan shall
accelerate and become exercisable in full immediately prior to such event. The
Board or Committee will notify holders of options under the Plan that any such
options shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the options will terminate upon expiration of such
notice.
(d) Substitute Options. The Company may grant options under the Plan
in substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board considers appropriate in the circumstances.
17. No Special Employment Rights
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board.
19. Amendment, Modification or Termination of the Plan
(a) The Board may at any time modify, amend or terminate the Plan,
provided, however, that if at any time the approval of the stockholders of the
Company is required under Section 422 of the Code or any successor provision
with respect to Incentive Stock Options, or
under Rule 16b-3, the Board may not effect such modification or amendment
without such approval.
(b) The modification, amendment or termination of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board or the Committee may amend or modify outstanding option
agreements in a manner not inconsistent with the Plan. The Board shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. Withholding
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option, or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a Fair
Market Value equal to such withholding obligation as of the date that the amount
of tax to be withheld is to be determined. An optionee who has made an election
pursuant to this Section 20(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to any forfeiture,
unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the optionee
within one (1) year from the date the shares were issued to the optionee
pursuant to the exercise of the option, and (ii) if required by law, to remit to
the Company, at the time of and in the case of any such disposition, an amount
sufficient to satisfy the Company's federal, state and local withholding tax
obligations with respect to such disposition, whether or not, as to both (i) and
(ii), the optionee is in the employ of the Company or any Subsidiary at the time
of such disposition.
21. Cancellation and New Grant of Options, Etc.
The Board or the Committee shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees (i)
the cancellation of any or all outstanding options under the Plan and the grant
in substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options, or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan
(a) Effective Date. The Plan shall become effective when adopted by
the Board, but no Incentive Stock Option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, no options previously
granted under the Plan shall be deemed to be Incentive Stock Options and no
Incentive Stock Options shall be granted thereafter. Amendments to the Plan not
requiring stockholder approval shall become effective when adopted by the Board
and amendments requiring stockholder approval (as provided in Section 19) shall
become effective when adopted by the Board, but no Incentive Stock Option
granted after the date of such amendment shall become exercisable (to the extent
that such amendment to the Plan was required to enable the Company to grant such
Incentive Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve (12) months of the Board's adoption of
such amendment, any Incentive Stock Options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such option to a particular optionee.
Subject to this limitation, options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated by the Board, the Plan
shall terminate upon the close of business on the day next preceding the tenth
anniversary of the date of its adoption by the Board. After termination of the
Plan, no further options may be granted under the Plan; provided however, that
such termination will not affect any options granted prior to termination of the
Plan.
23. Governing Law
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
AMENDMENT TO 1997 STOCK OPTION PLAN
OF
1-800 Flowers, Inc.
Amended, dated as of July 1, 1998, to the 1997 Stock Option Plan (the "Plan") of 1-800 Flowers, Inc., a Delaware corporation, (the "Company").
The Board of Directors of the Company desire to amend the 1997 Stock Option Plan as follows:
1. Section 11(c) of the Plan is hereby amended and restated in its entirety to read as follows:
"(c) DOLLAR LIMITATION. For so long as the Code shall so provide, options granted to any employee under the Plan (and any other stock option plans of the Company) which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate Fair Market Value, as of the respective date or dates of grant, of more than $100,000 (the "$100,000 Limitation"). In the event the $100,000 Limitation is exceeded as a result of an acceleration of vesting or otherwise, the Option shall be deemed to be two options. The first Option shall be for the maximum number of shares subject to the Option that can comply with the $100,000 Limitation without causing the Option to be unexercisable as to vested shares. The second Option, which shall not be treated as an Incentive Stock Option, shall be for the balance of the shares subject to the Option and shall be exercised on the same terms and at the same time as set forth in the applicable option agreement. Unless the optionee specifically elects to the contrary in his or her written notice of exercise, the first option shall be deemed to be exercised first to the maximum possible extent and then the second option shall be deemed to be exercised."
2. All capitalized terms used herein which are not otherwise defined herein shall have the meanings given to such terms in the Plan.
3. This Amendment shall not constitute a waiver to or modification of any other provision, term or condition of the Plan.
EXHIBIT 10.11
STOCKHOLDERS' AGREEMENT
among
THE PLOW & HEARTH, INC.,
1-800-FLOWERS, INC.,
and
the Persons set forth on Schedule A
Dated as of the ____ day of March, 1998
TABLE OF CONTENTS
Page
1. DEFINITIONS............................................................1
1.2 ................................................................12
2. STOCK OWNERSHIP.......................................................14
2.1 Authorized Capital Stock and Current Ownership..................14 2.2 Limited Preemptive Rights.......................................14 2.3 Certain Limitations on Issuance of Options and Shares...........15 |
3. MANAGEMENT............................................................16
3.1 Management......................................................16
3.2 Election and Removal of Directors...............................16
3.3 Officers........................................................18
3.4 Quorum and Vote.................................................19
3.5 Limitation on Management Power..................................19
3.6 Certain Transactions between the Company and its
Affiliates......................................................21
3.7 Confidentiality Agreement.......................................22
3.8 Action by Stockholders..........................................22
|
3.9 Other Arrangements....................................................22
4. RESTRICTIONS ON TRANSFERABILITY OF SHARES.............................22
4.1 Restrictions Upon Transfer of Shares............................22
4.2 Restrictive Legend on Certificates..............................23
5. PERMITTED TRANSFERS...................................................23
5.1 Transfers to Permitted Transferees..............................23 5.2 Transfer by Flowers.............................................24 5.3 Additional Requirements of Transfer.............................24 |
6. PUT AND CALL OPTIONS..................................................26
6.1 Management Stockholder Put Option...............................26 6.2 Company Call Option.............................................28 6.3 Limitation on Company Obligation to Purchase Shares.............30 |
7. BRING ALONG AND TAKE ALONG............................................31
7.1 Bring Along Option..............................................31 7.2 Take Along Option...............................................32 7.3 ................................................................33 7.4 Relationship to Section 8.......................................33 |
8. LIMITED RIGHT OF FIRST OFFER..........................................33
8.1 ................................................................33 8.2 Exercise of First Offer Option..................................34 8.3 Exercise of First Offer Option..................................34 |
9. MANAGEMENT STOCKHOLDERS CONVERSION AND CASH OUT OPTIONS...............35
9.1 Conversion and Cash Out Options.................................35
9.2 Exercise of Management Stockholder Options......................36
9.3 Exercise of Issuer Conversion Option............................37
9.4 Conversion of Shares on Effective Date and
Consummation Date...............................................37
9.5 Cash Out Of Shares..............................................40
9.6 Purchase of Shares on Private Sale Consummation Date............40
|
10. PIGGYBACK REGISTRATION RIGHTS.........................................41
10.1 Registration....................................................41 10.2 Obligations of the Issuer.......................................41 10.3 Obligations of the Holder.......................................42 10.4 Expenses of Registration........................................43 |
11. TERM..................................................................43
11.1 .................................................................43
11.2 .................................................................44
12. MISCELLANEOUS.........................................................44
12.1 Expenses........................................................44
12.2 Notices.........................................................44
12.3 Entire Agreement................................................46
12.4 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies........................................46
12.5 Governing Law...................................................46
12.6 Dispute Resolution..............................................46
12.7 Consent to Jurisdiction.........................................46
|
12.8 Binding Effect; No Assignment...................................47 12.9 Further Assurances..............................................47 12.10 Severability....................................................47 12.11 Counterparts....................................................47 12.12 Headings; Interpretation........................................47 12.13 Third Parties...................................................47 |
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT dated as of the __ day of March, 1998 (the
"Agreement") among THE PLOW & HEARTH, INC., a Virginia corporation having an
address at Route 230 West, Madison, Virginia 22727 (the "Company"),
1-800-FLOWERS, INC., a Delaware corporation having an address at 1600 Stewart
Avenue, Westbury, New York 11590 ("Flowers") and the Persons set forth on
Schedule A annexed hereto and incorporated herein;
W I T N E S S E T H
WHEREAS, upon the date hereof, Flowers has acquired 88.31% of the issued
and outstanding shares of capital stock of the Company (70% of the issued and
outstanding capital stock on a fully diluted basis) ("Acquisition") pursuant to
a Stock Purchase Agreement dated as of March 9, 1998 among the Company, Flowers
and the Sellers referred to therein (the "Stock Purchase Agreement"); and
WHEREAS, the Stockholders and the Company desire to promote their mutual
interests by agreeing that the business and affairs of the Company shall, from
and after the date hereof, be conducted subject to the terms and conditions
hereof and by imposing certain restrictions on the sale or other transfer of the
Shares owned by the Stockholders.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, each of the Stockholders and the Company agree as follows:
1. DEFINITIONS
1.1 In addition to the terms defined elsewhere herein, when used
herein the following terms shall have the meanings indicated:
(a) "Affiliate" shall mean, with respect to any Person, (i)
any other Person, who directly or indirectly, is in control of, is controlled by
or is under common control with, such Person, and (ii) any natural person who is
a director or officer of such Person or of any Person described in clause (i)
above. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of capital stock, by
contract or otherwise.
(b) "Bankruptcy" of a Person shall mean (A) the filing by that
Person of a voluntary petition seeking liquidation, reorganization, arrangement
or readjustment, in any form, of its debts under Title 11 of the United States
Code or any other federal or state insolvency law, or a Person's filing an
answer or otherwise consenting to or acquiescing in any such petition, (B) the
making by a Person of any assignment for the benefit of its creditors with
respect to substantially all of the assets of such Person or (C) the expiration
of 90 days after the filing of an involuntary petition under Title 11 of the
United States Code, an application for the appointment of a receiver for
substantially all of the assets of a Person, or any involuntary petition seeking
liquidation, reorganization, arrangement or readjustment of its debts under any
other federal or state insolvency law, provided that the same shall not have
been dismissed, vacated, set aside, stayed or otherwise disposed of within such
90-day period.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Call Event" shall mean (i) the Bankruptcy of a Management
Stockholder or Optionholder; (ii) the death of a Management Stockholder or
Optionholder or the death of a Management Stockholder's or Optionholder's
Related Employee; (iii) the termination of employment of a Management
Stockholder or Optionholder or a Management Stockholder's or Optionholder's
Related Employee, with the Company and its Subsidiaries for any reason other
than without Cause, as a result of a Constructive Termination Without Cause, the
failure of the Company to offer to Renew Employment or the failure of such
Management Stockholder, Optionholder or Related Employee to accept an offer to
Renew Employment; or (iv) a breach or other violation by a Management
Stockholder or Optionholder or a Management Stockholder's or Optionholder's
Related Employee or one of their respective Affiliates of any Confidentiality
Agreement or any Non-Competition Agreement.
(e) "Call Period" shall mean (i) the sixty (60) day period
commencing on April 3, 2004 [the sixth anniversary of the date hereof] and
terminating on June 3, 2004 and (ii) in the event of the termination of
employment of a Management Stockholder, Optionholder or a Management
Stockholder's or Optionholder's Related Employee without Cause or as a result of
a Constructive Termination without Cause, or in the event of the failure of the
Company to offer to Renew Employment to a Management Stockholder, Optionholder
or Related Employee or the failure of a Management Stockholder, Optionholder or
a Management Stockholder's or Optionholder's Related Employee to accept an offer
to Renew Employment, in each case prior to the commencement of the period
referred to in clause (e)(i) above (the "Delayed Call Event"), the later of (A)
the sixty (60) day period commencing on April 3, 2002 [the fourth anniversary of
the date hereof] and terminating on June 3, 2002 or (B) the period commencing on
the occurrence of the Delayed Call Event and terminating sixty (60) days
thereafter.
(f) "Call Period Trigger Date" shall mean April 3, 2004 [the
sixth anniversary of the date hereof].
(g) "Call Price" shall mean:
(i) except as otherwise provided in clauses (ii), (iii)
and (iv) below, the product of (A) the Management Stockholder's or
Optionholder's Proportionate Interest multiplied by (B) the Company Value;
(ii) if a Call Event results from a termination of
employment for Cause, the product of (A) the Management Stockholder's or
Optionholder's Proportionate Interest multiplied by (B) 50% of the Company
Value;
(iii) in the case of Rice and any Management Stockholder
or Optionholder of whom Rice is a Related Employee, if a Call Event results from
a voluntary termination of employment by Rice other than as a result of
Constructive Termination Without Cause, the product of (A) the Management
Stockholder's or Optionholder's Proportionate Interest multiplied by (B) (1)
until April 3, 1999 [the first anniversary of the date hereof], 50% of the
Company Value; (2) from and after April 3, 1999, until April 3, 2000 [the second
anniversary of the date hereof], 75% of the Company Value; (3) from and after
April 3, 2000 until April 3, 2001, [the third anniversary of the date hereof],
90% of the Company Value; and (4) thereafter 100% of the Company Value;
(iv) in the case of any Person other than Rice or any
Management Stockholder or Optionholder of whom such other Person is a Related
Employee, if a Call Event results from a voluntary termination by the Management
Stockholder, Optionholder or Related Employee other than a Constructive
Termination Without Cause, the product of (A) the Management Stockholder's or
Optionholder's Proportionate Interest multiplied by (B)(1) until April 3, 1999
[the first anniversary of the date hereof], 50% of the Company Value and (2)
thereafter, 100% of the Company Value.
In all cases the Call Price shall be reduced by any loans, advances or similar
monetary obligations owed or otherwise outstanding from the Management
Stockholder, Optionholder, or such Management Stockholder's or Optionholder's
Related Employee or their respective Affiliates (whether or not otherwise due
and payable) to the Company or its Affiliates and any amounts owed to the
Company or its Affiliate by the Management Stockholder, Optionholder, or their
respective Related Employee with respect to the exercise of Options or other
Purchase Rights.
(h) "Cash Out Price" shall mean with respect to any Management
Stockholder or Optionholder, (i) the product of the Company Value multiplied by
such Management Stockholder's or Optionholder's Proportionate Interest, less
(ii) any loans, advances or similar monetary obligations owed or otherwise
outstanding from such Management Stockholder or Optionholder or their respective
Related Employee or Affiliates (whether or not, otherwise due and payable) to
the Company or its Affiliates, and any amounts owed by such Management
Stockholder, Optionholder or their respective Related Employee to the Company or
its Affiliates with respect to the exercise of Options or other Purchase Rights.
(i) "Cause" shall have the same meaning as in the employment
(or consultancy) agreement between the Company and the applicable employee (or
consultant), and if no such agreement shall exist or if such term is not defined
in such agreement, the term "Cause" shall mean (i) the failure of the employee
(or consultant) to perform his material duties and obligations to the Company,
which failure continues unremedied for a period of ten (10) business days after
receipt of written notice thereof from the Company; (ii) the conviction of the
employee (or consultant) of any felony, or the conviction of the employee of a
misdemeanor which involves moral turpitude, or the entering by him of a plea of
guilty or nolo contendere with respect to any of the foregoing; (iii) any
conduct by the employee (or consultant), which in the reasonable determination
of the Board is likely to adversely affect in any material respect the
reputation or public image of the Company or any Affiliate thereof, provided,
the employee (or consultant) is given the opportunity upon 5 days' prior notice
to be heard by the Board prior to such termination; (iv) the commission by the
employee (or consultant) of any act involving fraud, misappropriation of funds,
dishonesty, disloyalty, breach of fiduciary duty or other gross misconduct
injurious to the Company or any Affiliate; (v) the determination by the Board
that the employee (or consultant) is dependent upon the use of alcohol or drugs;
(vi) a breach by the employee of any Confidentiality Agreement or any
Non-Competition Agreement; or (vii) a violation or breach by the employee (or
consultant) of any material term of his employment (or consultancy) agreement
with the Company or any of its Subsidiaries, and the failure of the employee (or
consultant) to cure such violation or breach within ten (10) days after receipt
of written notice thereof from the Company.
(j) "Common Stock" shall mean the shares of common stock, par
value $.10 per share, of the Company.
(k) "Company Value" shall mean the product of (i) seven (7)
multiplied by (ii) the EBIT of the Company for the twelve-month period ending on
the last day of the calendar month preceding (A) in the case of a Put Option,
the Put Event or the Put Period Trigger Date, as the case may be; (B) in the
case of a Call Option, the Call Event, or the Call Period Trigger Date, as the
case may be; (C) in the case of a Call Option triggered by the circumstances
described in Section 1.1(e)(ii), the later of the Put Period Trigger Date or the
Delayed Call Event;
(D) in the case of a Cash Out Option, the Effective Date or the Consummation
Date, as the case may be, or (E) in the case of Section 2.2(b), the Investment
Date, or if any such date is the last day of a month, on such date.
(l) "Confidentiality Agreement" shall mean a Confidentiality
and Non-Disclosure Agreement substantially in the form of Exhibit C annexed
hereto, or any other agreement or arrangement between any member of the Flowers
Group, on the one hand, and a Management Stockholder, Optionholder, a Related
Employee of a Management Stockholder or Optionholder or one of their respective
Affiliates, on the other hand, which restricts or otherwise limits the
disclosure or use of any confidential, proprietary or other information or
material of one or more members of the Flowers Group by the Management
Stockholder, Optionholder, Related Employee or one of their respective
Affiliates, including, but not limited to, any such agreement or arrangement
included in an employment or consulting agreement.
(m) "Constructive Termination Without Cause" shall have the
same meaning as in the employment or consulting agreement between the Company
and the applicable employee (or consultant), and if no such agreement shall
exist or such term shall not be defined in such agreement, "Constructive
Termination Without Cause" shall mean a termination of the employee's (or
consultant's) employment (or consultancy) at his initiative following the
occurrence, without the employee's (or consultant's) prior written consent, of
one or more of the following events: (i) a reduction in the employee's (or
consultant's) then current base salary payable; (ii) a reduction in the
employee's (or consultant's) other material employee benefit plans and programs
maintained by the Company generally on behalf of its employees on the date
hereof; provided, however, that it shall not be deemed a Constructive
Termination Without Cause if the Company reduces or terminates a material
employee benefit plan or program because the maintenance of such plans or
program would adversely affect the tax treatment of any benefit provided to any
other employee of the Company or the Flowers Group or the tax qualified status
of any employee benefit plan or program maintained by the Company or any other
member of the Flowers Group during such period, provided that, in lieu of such
reduced or the terminated benefit plan or program, the Company shall provide the
employee with benefits that are comparable to employee benefit plans and
programs which Flowers from time to time generally makes available to its
employees; (iii) the failure to elect or reelect the employee (or consultant) to
any of the positions in the Company to which the Company has contractually
agreed to elect or reelect the employee (or consultant); (iv) an action by the
Company which results in a material diminution in employee's (or consultant's)
authority or duties as an executive of the Company (if he is serving as an
executive of the Company), excluding any isolated or inadvertent action; or (v)
if the employee (or consultant) is relocated to a Company office that is located
more than 65 miles from the Company's current headquarters located at Route 230
West, Madison, Virginia.
(n) "Consummation Date" shall mean the date as of which a Sale
(other than a Private Sale) is deemed consummated.
(o) "Consummation Time" shall mean the time on the
Consummation Date as of which a Sale (other than a Private Sale) is deemed
consummated.
(p) "Conversion Ratio" shall mean with respect to any class of
Shares held by the Management Stockholders or deemed to be held by the
Optionholders, the ratio at which such class shall be converted into a class of
capital stock of the Issuer.
(q) "Disability" shall have the same meaning as set forth in
the employment (or consultancy) agreement between the applicable employee (or
consultant) and the Company, and if no such agreement shall exist or if such
term is not defined in such agreement, the term "Disability" shall mean the
determination by a physician selected by the Company that the employee (or
consultant) is unable, by reason of physical or mental illness, to perform his
duties and responsibilities to the Company for a period of 90 consecutive days
or a period of in excess of 180 days (whether or not consecutive) during any
calendar year during the term of his employment, or if a court of competent
jurisdiction declares the employee (or consultant) is of unsound mind or
otherwise incapable of carrying out his duties and responsibilities to the
Company.
(r) "EBIT" of the Company shall mean the consolidated income
of the Company and its consolidated subsidiaries before interest and taxes and,
until the Company's bonus pool plan existing on the date hereof is terminated,
expenses incurred by the Company under the existing bonus pool plan, calculated
by the Company's independent certified public accountant in accordance with
generally accepted accounting principles, consistently applied, without giving
effect to non-recurring items.
(s) "Effective Date" shall mean the date on which the SEC
declares effective the Registration Statement.
(t) "Fully Diluted Basis" shall mean the amount of capital
stock of the Company issued and outstanding after giving effect to the exercise
of all options and other securities which may be converted into, exercised or
exchanged for, shares of capital stock of the Company.
(u) "Existing Plan" shall mean The Plow & Hearth Inc. Amended
and Restated Stock Option Plan adopted as of March __, 1998 pursuant to which
the Company has issued options to purchase 31,318 shares of Common Stock.
(v) "Flowers Group" shall mean Flowers and each of its direct
and indirect Subsidiaries and other Affiliates.
(w) "IPO" shall mean an initial public offering of equity
securities of an Issuer pursuant to a Registration Statement filed with the SEC
pursuant to the 1933 Act.
(x) "IPO Closing Date" shall mean the date on which the sale
of shares of capital stock of the Issuer registered in the IPO shall be
consummated.
(y) "Liability" shall mean any direct or indirect
indebtedness, liability, assessment, claim, loss, damage, deficiency, obligation
or responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, actual or potential,
contingent or otherwise (including any liability under any guaranties, letters
of credit, performance credits or with respect to insurance loss accruals).
(z) "Lien" shall mean any mortgage, lien, claim, pledge,
charge, security interest, preemptive right, right of first refusal, option,
judgment, title defect, or other encumbrance of any kind.
(aa) "Majority-In-Interest of Management Stockholders" shall
mean such Management Stockholders and Optionholders who, at the time in
question, own (or, in the case of Optionholders, are deemed to own) at least a
majority in the aggregate of the Voting Shares and Option Shares then held by
all Management Stockholders and Optionholders on a Fully Diluted Basis.
(ab) "Management Stockholders" shall mean (i) each of the
persons set forth on Schedule A as a Management Stockholder and any permitted
transferees of such persons (except if such transferee is Flowers or one of its
Affiliates), (ii) any other employee, director or consultant of the Company or
any of its Subsidiaries, and any permitted transferee of such persons except if
such transferee is Flowers or one of its Affiliates and, (iii) any person who is
issued Shares upon exercise of Options issued under the Existing Plan and any
permitted transferee of such persons, except if such transferee is Flowers Group
or its Affiliates; provided that in each case such person is a stockholder of
the Company and becomes a party to this Agreement.
(ac) "Non-Competition Agreement" shall mean any agreement or
arrangement between any member of the Flowers Group, on the one hand, and a
Management Stockholder, Optionholder, Related Employee of a Management
Stockholder or Optionholder or any of their respective Affiliates, on the other
hand, which restricts or otherwise limits the ability of the Management
Stockholder, Optionholder, Related Employee and/or any of Affiliates,
from directly or indirectly engaging in a business competitive with, or
otherwise similar to, the business of any member of the Flowers Group,
including, but not limited to, any of the Employment Agreements entered into
between the Company and any of the Executives (as such term is defined in the
Stock Purchase Agreement) on the date hereof or, any agreement or arrangement
which is included as part of any other employment or other agreement.
(ad) "1933 Act" shall mean the Securities Act of 1933, as
amended.
(ae) "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(af) "Option" shall mean an option to purchase Common Stock
under the Existing Plan.
(ag) "Optionholder" shall mean each person set forth on
Schedule B as an Optionholder and each other person who owns options to purchase
Common Stock pursuant to the Existing Plan and, in each case, provided that such
person is a party to this Agreement.
(ah) "Option Shares" shall mean any shares of Common Stock
which the Company shall be required to issue to an Optionholder upon exercise of
an Option issued pursuant to the Existing Plan.
(ai) "Person" or "person" shall mean an individual,
corporation, partnership, joint venture, limited liability company, association,
trust, unincorporated organization or other entity, or other organization
(whether or not a legal entity), including, but not limited to, a government or
political subdivision or an agency or instrumentality thereof.
(aj) "Proportionate Interest" with respect to any Person,
shall mean a fraction, the numerator of which is the total of number of Shares
and Option Shares being sold by such Person and the denominator of which is the
total number of Shares and Option Shares then outstanding and (in the case of
Optionholders) deemed outstanding on a Fully Diluted Basis.
(ak) "Primary Call Event" shall mean a Call Event which
results from a termination of employment for Cause or the voluntary termination
of employment by the employee other than a Constructive Termination Without
Cause.
(al) "Private Sale Consummation Date" shall mean the date as
of which a Private Sale is deemed consummated.
(am) "Purchase Rights" shall mean options, warrants and other
rights of any nature to purchase Shares of the Company, including, but not
limited to, the right to convert debt or equity securities into Shares.
(an) "Put Event" shall mean the (i) death of a Management
Stockholder or Optionholder or the death of the Management Stockholder's or
Optionholder's Related Employee, or (ii) termination of employment of the
Management Stockholder or Optionholder or a Management Stockholder's or
Optionholder's Related Employee, with the Company and its Subsidiaries by the
Company and its Subsidiaries as a result of Disability.
(ao) "Put Period" shall mean the sixty (60) day period
commencing on April 3, 2002 [the fourth anniversary of the date hereof] and
terminating on June 3, 2002.
(ap) "Put Price" with respect to any Management Stockholder's
or Optionholder's Put Shares shall mean (i) the product of (A) such Management
Stockholder's or Optionholder's Proportionate Interest multiplied by (B) the
Company Value, less (ii) any loans, advances or similar monetary obligations
owed or otherwise outstanding from such Management Stockholder or Optionholder
or a Related Employee of such Management Stockholder or Optionholder or their
respective Affiliates (whether or not, otherwise due and payable) to the Company
or its Affiliates, and any amounts owed by such Management Stockholder,
Optionholder or Related Employee to the Company or its Affiliate with respect to
the exercise of Options or other Purchase Rights.
(aq) "Put Period Trigger Date" shall mean April 3, 2002 [the
fourth anniversary of the date hereof].
(ar) "Registrable Securities" shall mean all shares of common
stock of an Issuer held by a Management Stockholder or Optionholder, and any
other common equity securities of the Issuer issued in exchange for, upon a
reclassification of, or in a distribution with respect to, such common stock. As
to any particular Registrable Securities, such securities shall cease to be
Registrable Securities (A) when (i) a registration statement (other than a
registration statement on Form S-8 or any successor form) with respect to the
sale of such securities shall have become effective under the 1933 Act and such
securities shall have been disposed of pursuant to such registration statement,
(ii) a registration statement on Form S-8 (or any successor form), or a reoffer
prospectus, with respect to such securities shall have become effective under
the 1933 Act, (iii) such securities shall be eligible for sale under rule 144
(or any successor provision) under the 1933 Act or under any other rule or
provision of the 1933 Act pursuant to which the purchaser of such securities
will receive certificates not bearing a legend restricting further transfer or
will otherwise be permitted to resell such securities on a national securities
exchange or the Nasdaq Stock Market or the Nasdaq National
Market without registration, (iv) such securities shall have been otherwise
transferred and new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company or (v) such securities
shall have been issued and then ceased to be outstanding, or (B) on or after the
third anniversary of the closing of the IPO.
(as) "Registration Statement" shall mean a registration
statement on Forms S-1, SB-1 or SB-2 or any successor form authorized by the SEC
pursuant to which the equity securities of an Issuer are registered for sale in
an IPO.
(at) "Related Employee" shall mean with respect to any
Management Stockholder or Optionholder who is not an employee or consultant of
the Company or one of its Subsidiaries, the Related Employee identified on
Schedule A or Schedule B, and generally, with respect to any Management
Stockholder or Optionholder, the employee or consultant of the Company or
Subsidiary: (i) who directly or indirectly transferred to the Management
Stockholder or Optionholder the Shares owned by the Management Stockholder or
Optionholder; or (ii) with whom such Management Stockholder or Optionholder is
otherwise Affiliated; or (iii) whose Family Entity the Management Stockholder or
Optionholder is an equity owner or beneficiary of; or (iv) of whom the
Management Stockholder or Optionholder would qualify as a Permitted Transferee
pursuant to Section 5.1(a), (b) or (c). For purposes of this Agreement (i) (A)
Peter M. Rice shall not be deemed a Related Employee of Peter G. Rice, for so
long as Peter M. Rice is employed by the Company or continues to own Shares
which he owns on the date of termination of his employment and (B) Peter G. Rice
shall not be deemed a Related Employee of Peter M. Rice, for so long as Peter G.
Rice is employed by the Company or continues to own shares which he owns on the
date of his termination of employment and (ii) Peter G. Rice and Margaret Rice
shall be deemed Related Employees of each other for so long as they are married
to each other.
(au) "Renew Employment" shall mean an offer by the Company or
one of its Subsidiaries to renew the employment (or consulting) agreement or
arrangement of a Management Stockholder, Optionholder or a Related Employee of a
Management Stockholder or Optionholder at the expiration of its term, on terms
and conditions at least as favorable to such Management Stockholder or
Optionholder or Related Employee as were provided during the expired term.
(av) "Rice" shall mean Peter G. Rice.
(aw) "Sale" shall mean (a) the disposition of all or
substantially all of the assets of Flowers for consideration to a Person which
is not an Affiliate of Flowers, as a result of which the stockholders of Flowers
at such time and their respective Affiliates will not own, in the aggregate, in
excess of 50% of the Voting Power of the shares of capital stock of the
acquiring Person as to which holders thereof are ordinarily entitled to vote in
the election of directors ("Voting Securities") of the acquiring Person; or (b)
the sale of the capital stock of Flowers for consideration to a Person who is
not an Affiliate of Flowers as a result of which the stockholders of Flower at
such time and their respective Affiliates will not own, in the aggregate, in
excess of 50% of the Voting Power of the Voting Securities of Flowers, as the
case may be; or (c) a merger, consolidation or combination for consideration of
Flowers with or into another Person who is not an Affiliate of Flowers as a
result of which the stockholders of Flowers at such time and their Affiliates,
in the aggregate, will not own in excess of 50% Voting Power of the Voting
Securities of the surviving entity of such merger, consolidation or combination.
(ax) "Shares" shall mean (i) the shares of Common Stock issued
to any of the Stockholders or any other person and (ii) any other shares of the
capital stock of the Company now owned or hereafter acquired by any Stockholder
or any other person, including capital stock issued upon conversion or exercise
of any security.
(ay) "Stockholders" shall mean, collectively, Flowers, each of
the Persons set forth on Schedule A, any other person who owns capital stock of
the Company pursuant to this Agreement and any permitted transferees of any of
the foregoing, provided that in the case of each of the foregoing such Person
owns capital stock of the Company and is a party to this Agreement.
(az) "Stockholder Option Event" shall mean the first to occur
of an IPO of Flowers or the Sale of Flowers.
(ba) "Subsidiary" of any Person shall mean any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other Persons performing similar functions
are owned directly or indirectly through one or more intermediaries, or both, by
such Person.
(bb) "SEC" shall mean the United States Securities and
Exchange Commission.
(bc) "termination of employment" of a Management Stockholder
or an Optionholder or Related Employee of a Management Stockholder or
Optionholder, shall mean the termination of such person's employment or
consultancy with or by the Company and its Subsidiaries for any reason
whatsoever, whether such employment is terminated by the Company and its
Subsidiary or by such person.
(bd) "Voting Shares" shall mean all shares of capital stock of
the Company as to which the holders thereof are ordinarily entitled to vote in
the election of directors.
(be) "Voting Power" shall mean the votes entitled to be cast
by the holder of Voting Shares and Option Shares.
1.2 The following terms are defined in the following sections of
this Agreement:
Term Section ---- ------- Bring-Along Option 7.1(a) Bring-Along Stockholder 7.1(a) By-Laws 3.1 Call Exchange Notice 6.2(a) Call Exercise Notice 6.2(a) Call Option 6.2(a) Call Shares 6.2(a) Cash-Out Documents 9.2(b) Certificate 3.1 Charitable Organization 5.1(c) Confidentiality Agreement 3.7 Conversion Documents 9.2(b) Conversion Options 9.1(b) Credit Documents 6.3(a) Delayed Call Event 1.1(e) Directors 3.2(a) Disposing Stockholder 7.2 Existing Option Plan 2.1 Family Entity 5.1(a) First Offer Assets 8.1(a) First Offer Election Period 8.2(b) First Offer Notice 8.1(a) |
Term Section ---- ------- First Offer Option 8.1(a) First Offer Shares 8.1(a) First Offer Transaction 8.1(a) Flowers 9.1(a) Flowers Director 3.2(b) Holder 10.2(c) Independent Industry Director 3.2(b) Initial Issuance 2.1 Investment Date 2.3(b) Investor 2.3(b) Issuer 9.1(a) and 10.1(a) Issuer Conversion Notice 9.3 Issuer Conversion Option 9.1(b) Management Director 3.2(b) New Plan 2.1 Offeree 7.1(a) Offering Shares 2.2(b) Permitted Transfer 5.1 Permitted Transferee 5.1 Pledge 6.1(c) Preemptive Right 2.3(b) Preemptive Right Notice 2.3(b) Primary Call Event 1.1(f) Prime Rate 6.1(c) Private Sale 9.1(a)(ii) Private Sale Put Option 9.1(a)(ii) Private Sale Put Documents 9.2(c) Proportionate Amount 2.3(b) Purchaser 7.2 Put Notice 6.1(a) Put Option 6.1(a) Put Shares 6.1(a) Qualified Offer 2.3(b) Stock Purchase Agreement Recitals Stockholder Cash Out Option 9.1(a) Stockholder Conversion Option 9.1(a) Stockholder Exercise Notice 9.2(b) Stockholder Options 9.1(a) |
Term Section ---- ------- Take-Along Trigger Notice 7.2 Third Party Offer 8.1 Transaction Notice 9.2(a) Transfer or transfer 4.1 Transferring Stockholder 7.1(a) Trigger Notice 7.1(a) Underwriting Agreement 10.2(f) Voting Securities 1.1(ao) |
2. STOCK OWNERSHIP
2.1 Authorized Capital Stock and Current Ownership. The authorized
capital stock of the Company consists of 200,000 shares of Common Stock, of
which 105,356 shares are issued and outstanding as of the date hereof. On the
date hereof there are options to purchase 31,318 shares of Common Stock issued
and outstanding under the Company's Existing Plan and, after giving effect to
the adoption of, and initial issuance of options to purchase 3,504 shares of
Common Stock, ("Initial Issuance") under the Company's 1998 Option Plan (the
"New Plan"), there will be options to purchase 34,822 shares of Common Stock
issued and outstanding under the New Plan. On the date hereof after giving
effect to the Acquisition and assuming the Initial Issuance is completed, each
(a) Stockholder set forth on Schedule A annexed hereto owns that number of
shares of Common Stock and Purchase Rights to purchase that number of Shares as
are set forth opposite its name on Schedule A and (b) each holder of options
under the Existing Plan or New Plan who is not currently a Stockholder, owns
Purchase Rights to purchase that number of Shares as are set forth next to such
person's name on Schedule B. The Shares and Purchase Rights issued to the
Stockholders and other persons as set forth on Schedules A and B are the only
Shares and Purchase Rights of the Company that are issued and outstanding on the
date hereof.
2.2 Limited Preemptive Rights. (a) The Stockholders and
Optionholders acknowledge and agree that, except as expressly set forth in
Section 2.2(b), they are not entitled to any preemptive rights in connection
with their Shares or Options.
(b) (i) If the Company proposes to issue Common Stock or
equity securities convertible into Common Stock ("collectively, Offering
Shares") pursuant to a Qualified Offer, it shall notify the Stockholders and
Optionholders in writing of such proposed issuance not later than ten (10)
business days prior to the closing of a Qualified Offer (the "Preemptive Right
Notice"). The Preemptive Right Notice shall identify the purchaser of Offering
Shares in the Qualified Offer (the "Investor") and shall set forth the material
terms of the Qualified Offer.
(ii) Each Stockholder and Optionholder shall have the option
("Preemptive Right") to purchase all or any portion of its Proportionate Amount
of Offering Shares at the same valuation and on the same payment terms as the
Investor. A Stockholder or Optionholder shall exercise its Preemptive Right by
delivering written notice to the Company not later than three (3) business days
prior to the closing of the Qualified Offer, which notice shall state what
percentage of its Proportionate Amount of Offering Shares it shall purchase and
shall be accompanied by a certified check or other immediately available funds
for the full purchase price of the Offering Shares to be purchased, together
with all other documentation reasonably requested by the Company.
(iii) The exercise of a Preemptive Right shall not obligate
the Company to consummate a Qualified Offer and, if the Company elects not to
complete a Qualified Offer, the Stockholders and Optionholders shall have no
right to purchase Offering Shares in connection with such proposed Qualified
Offer.
(iv) (A) "Qualified Offer" shall mean the issuance of Common
Stock or equity securities convertible into Common Stock in exchange solely for
cash consideration, constituting not greater than 89.9% of the outstanding
capital stock of the Company on a Fully Diluted Basis after giving effect to the
Qualified Offer, but shall expressly exclude a Stockholder Cash Out Option or
the issuance of any capital stock or securities upon exercise of any options,
stock appreciation rights, phantom stock plans or similar arrangements.
(B) "Proportionate Amount" with respect to any Person,
shall mean that number of Offering Shares such that after giving effect to the
Qualified Offer and all Preemptive Rights exercised in connection therewith,
such Person shall own (or in the case of Option Shares, shall be deemed to own)
the same aggregate percentage of Voting Shares and Option Shares of the Company
on a Fully Diluted Basis immediately after completion of the Qualified Offer as
such Person owned immediately prior to the Qualified Offer.
2.3 Certain Limitations on Issuance of Options and Shares
(a) Until the termination of the Put Period, the Company shall
not issue additional options to purchase Shares to any person except (i) options
under the New Plan which after issuance shall constitute not greater than 10% of
the outstanding Common Stock on a Fully Diluted Basis; (ii) options issued to
financial institutions or other persons who make investments in the Company or
its Subsidiaries (not otherwise prohibited by this
Agreement) after the date hereof as consideration (in whole or in part) for
their investment; or (iii) as otherwise consented to by Rice or if Rice has
died, is incompetent or no longer owns Shares or Purchase Rights, by the
Management Director;
(b)(i) The Company shall not issue Shares to Flowers or any of
its Affiliates unless such Shares are issued: (A) for consideration and based on
a valuation of the Company (prior to giving effect to the investment and
issuance in question) that is not less than the lower of (1) the Company Value
or (2) the Adjusted Book Value of the Company, or (B) for consideration and
based on a valuation which is otherwise deemed fair to the stockholders of the
Company in the opinion of an independent accounting firm, investment bank
selected by the Company which is experienced in valuing entities such as the
Company; or (C) with the consent of Rice or if Rice has died, is incompetent, is
otherwise unwilling or unable to make such determination or no longer owns Share
or Purchase Rights, by the Management Director.
(ii) For purposes of this Section 2.3, the term Adjusted
Book Value shall mean the sum of: (A) $21,000,000, plus (B) additional capital
contributions made to the Company after the date hereof (including, but not
limited to, any exercise, conversion or similar price paid or deemed paid upon
exercise of an Option or other Purchase Right), but prior to the date such
Shares are issued (the "Investment Date"), plus or minus, as the case may be,
(C) the aggregate cumulative consolidated retaining earnings or net losses of
the Company from the date hereof through the Investment Date, minus (D) the
purchase price paid by the Company for any Shares, Option Shares or other
securities of the Company purchased by the Company since Closing.
3. MANAGEMENT
3.1 Management. The management of the Company shall be conducted in
accordance with the provisions of this Agreement, which are intended to be
reflected, to the extent required by applicable law, in the Amended and Restated
Articles of Incorporation (the "Articles") and Amended and Restated By-laws (the
"By-laws") of the Company, copies of each of which are annexed hereto as Exhibit
A and Exhibit B, respectively. If there is any inconsistency between this
Agreement and the Articles and By-Laws, the provisions of this Agreement shall
govern.
3.2 Election and Removal of Directors. (a) Number of Directors. The
number of directors (the "Directors") on the Board shall be five (5); provided,
however, that the size of the Board may be changed (i) by Flowers with the
consent of the Management Director or a Majority-in-Interest of Management
Stockholders; or (ii) by Flowers if the Management Stockholders and
Optionholders in the aggregate own (or, in the case of Optionholders are deemed
to own) less than 10% of the Voting Power on a Fully Diluted Basis.
(b) Board Composition. The Board shall consist of:
(i) Not less than three natural persons designated by
Flowers (each, a "Flowers Director"). On the date hereof, Flowers has designated
James F. McCann, Christopher G. McCann and T. Guy Minetti as the initial Flowers
Directors; and
(ii) For so long as the Management Stockholders and
Optionholders, in the aggregate, (A) at any time prior to the termination of the
Put Period, own 2% or more of the aggregate Voting Power on a Fully Diluted
Basis or (B) at any time after the termination of the Put Period, own 10% or
more of the aggregate Voting Power on a Fully Diluted Basis, one natural person
designated by the Management Stockholders and approved by Flowers (the
"Management Director"). On the date hereof, the Management Stockholders have
designated Rice as the initial Management Director and Flowers hereby consents
to the designation of Rice as the Management Director; and
(iii) For so long as the Management Stockholders and
Optionholders, in the aggregate, (A) at any time prior to the termination of the
Put Period, own 2% or more of the aggregate Voting Power on a Fully Diluted
Basis or (B) at any time after the termination of the Put Period, own 10% or
more of the aggregate Voting Power on a Fully Diluted Basis, one natural person
designated by the Management Director; provided that such designee shall not be
an Affiliate of the Management Director or any Management Stockholder, shall be
or within the past three (3) years have been, engaged in the mail order catalog
industry and shall be approved by Flowers (the "Independent Industry Director").
On the date hereof, the Management Director has designated Benjamin Perez as the
initial Independent Industry Director, and Flowers hereby consents to such
designation.
(iv) If, in accordance with the terms hereof, the Board
may be comprised of more than five (5) members or the Management Stockholders
and Optionholders are not entitled to appoint a Management Director or
Independent Industry Director, such additional and/or replacement Director or
Directors shall be designated and appointed in the manner determined by Flowers
in its discretion.
(c) Removal. (i)(A) Flowers shall have the right, at any time
and for any reason (or for no reason), to remove as a Director, any or all of
the Flowers Directors or any other Director which it has designated in
accordance with the terms hereof; (B) for so long as the Management Stockholders
and Optionholders are entitled to appoint the Management Director, the
Management Stockholders and Optionholders shall have the right, at any time and
for any reason (or for no reason), to remove as a Director, the Management
Director; and (C) either Flowers or, for so long as the Management Stockholders
and Optionholders are
entitled to appoint the Management Director, the Management Director, shall have
the right, at any time and for any reason (or no reason) to remove as a
Director, the Independent Industry Director, in each case which removal shall be
made by written notice to such Director and all Stockholders and Optionholders.
The Stockholders and Optionholders agree to take such action, and to cause the
remaining Directors to take such action, as is necessary or desirable to remove,
or confirm the removal of, such persons as Directors as soon as practicable
following receipt of such notice.
(ii) Immediately upon occurrence of an event that results in the
Management Stockholders and Optionholders no longer being entitled to appoint a
Management Director or the Independent Industry Director hereunder, the
Management Director and Independent Industry Director then serving on the Board
shall automatically, without any further action on his part or on the part of
any Stockholder, Optionholder or other person, be deemed to have resigned from
the Board and the vacancies created by such resignation may be filled as
determined by Flowers in its discretion.
(d) Filling Vacancies. If at any time a vacancy is created on
the Board by reason of the death, removal or resignation of any Director or
otherwise, such vacancy shall be filled (i) by Flowers, if the natural person
who has ceased to be a Director was one of the Flowers Directors or was
otherwise designated by Flowers or if such vacancy is created as a result of an
increase in the size of the Board; or (ii) if the Management Stockholders and
Optionholders are then entitled to appoint the Management Director, by the
Management Stockholders and Optionholders (with the approval of Flowers) if the
natural person who has ceased to be a Director was the Management Director; or
(iii) if the Management Stockholders and Optionholders are then entitled to
appoint the Independent Industry Director, by the Management Director with the
approval of Flowers (provided that such person otherwise meets the criteria set
forth in Section 3.2(b)(iii)) if the natural person who has ceased to be a
Director was the Independent Industry Director or (iv) by Flowers, in the event
of a removal of a Management Director or an Independent Industry Director
pursuant to Sections 3.2(c)(ii); in each case, which election shall be made by
written notice to the remaining Directors and the Stockholders and
Optionholders. The Stockholders and Optionholders agree to take such action, and
to cause the remaining Directors to take such action, as is necessary or
desirable to elect, or confirm the election of, such persons as Directors as
soon as practicable following receipt of such notice.
3.3 Officers. (a) Promptly after the execution of this Agreement,
the Board of Directors shall elect James McCann as Chairman of the Board and
Peter G. Rice as President and Chief Executive Officer of the Company. The Board
may appoint such additional officers as it may from time to time determine.
(b) Officers shall serve at the pleasure of the Board and the
Board may remove any officer with or without cause at any time, and from time to
time, subject to the provisions of the employment agreement (if any) of such
officer, and may fill any vacancies.
3.4 Quorum and Vote. (a) (i) A quorum of directors shall consist of
a majority of the Directors, and any decision of the Board shall require the
affirmative vote of a majority of directors present at a meeting at which a
quorum is present.
(ii) Any action required or permitted to be taken at any
meeting of the Board may be taken without a meeting if all members of the Board
consent thereto in writing, and the writings are filed with the minutes of the
Board (or the committee, as the case may be); provided, that if applicable law
permits Board action to be taken without a meeting by written consent of fewer
than all Board members, then such actions may be taken by the minimum number of
Directors permitted by law, but in no event fewer than a majority of the
Directors.
(iii) Any one or more members of the Board (or any committee
thereof) may participate in a meeting of the Board (or such committee) by means
of a telephone conference or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
(b) (i) A quorum of stockholders shall consist of the holders,
present in person or by proxy, of a majority of the outstanding votes entitled
to be cast and, except as otherwise set forth herein or required by law, all
actions of the stockholders of the Company (including the election of directors)
shall require the affirmative vote of a majority of the outstanding votes cast
at a meeting at which a quorum is present.
(ii) Any action required or permitted to be taken by the
Stockholders may be taken without a meeting, without prior notice and without a
vote, pursuant to a written consent delivered to the Company setting forth the
action so taken and signed by the holders of Shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all Shares entitled to vote thereon were present and
voted.
3.5 Limitation on Management Power. Notwithstanding anything herein
or in the Certificate or By-laws and without limiting the authority of the Board
to oversee the management of the Company, no officer of the Company shall take
any of the following actions without the approval of the Board:
(i) sell, lease, encumber, lend, exchange or otherwise
transfer the assets of the Company other than in the usual and regular course of
business;
(ii) incur any Liability by or on behalf of the Company
whether actual or contingent in excess of $250,000, including, but not limited
to, any loan, guarantee, or other agreement which may result in indebtedness to
the Company; provided that such limitation shall not apply to Liability incurred
in connection with the purchase of inventory or for catalogue production and
catalogue marketing costs, in each case incurred in the ordinary course of the
Company's business consistent with past practice.
(iii) make any loan or advance to, or otherwise provide funds
or credit to or for, any other Person;
(iv) enter into any agreement not in the usual and regular
course of the Company's business;
(v) organize a Subsidiary or acquire an equity or other
interest in any other Person, or enter into a joint venture or strategic
alliance;
(vi) make any investment, by way of capital contribution or
otherwise, in or with any Person except (a) investments and direct obligations
of, or instruments unconditionally guaranteed by, the United States of America
or in certificates of deposit issued by, and time deposits with, a commercial
bank having capital and surplus in excess of one (1) billion dollars; (b)
investments in any money market account maintained with a financial institution;
(c) demand deposit accounts maintained in the ordinary course of business; (d)
commercial papers rated A-1 or better by Standard and Poor's Corporation or P-1
or better by Moody's Investor Services, Inc.
(vii) make capital expenditures in any fiscal year in excess
of the level approved by the Board in the capital budget adopted by the Board
for that fiscal year.
(viii) issue, distribute, redeem, retire, purchase, acquire or
sell any equity or debt securities of the Company or apply any of its property
to any of the foregoing except as otherwise provided in this Agreement.
(ix) declare or pay any dividends, or set apart any sum for
the payment of any dividends on, or make any other distribution or reduction of
capital otherwise in respect of, any Shares, except as otherwise provided in
this Agreement.
(x) change the Company's current line of business or enter
into any new line of business;
(xi) retain any attorney, accountant, investment banker,
financial advisor or person performing a similar function to represent or
provide services to the Company;
(xii) authorize or approve the budget for the Company;
(xiii) authorize or enter into any agreement or arrangement
(whether or not in writing) between the Company and any of its officers,
directors, shareholders or Affiliates;
(xiv) file, or consent by answer otherwise to the filing
against it, of a petition for relief or reorganization or arrangement or any
other petition in bankruptcy or insolvency under the laws of any jurisdiction,
make an assignment for the benefit of its creditors or consent to the
appointment of a custodian, receiver, trustee or other officer with similar
powers for itself or for any substantial part of its assets or take or omit any
other action which would result (with the giving of notice or passage of time or
both) in the Bankruptcy of the Company or any of its Subsidiaries; or
(xv) agree (whether or not in writing) to do any of the
foregoing.
3.6 Certain Transactions between the Company and its Affiliates.
Except as otherwise provided in this Agreement, unless (i) Flowers and (ii) the
Management Director or a Majority-in-Interest of Management Stockholders agree
otherwise:
(a) the purchase price and other economic terms and conditions
of a sale or other transfer of assets between the Company, on the one hand, and
any Affiliate of the Company or Flowers, on the other hand, shall be
substantially the same as could reasonably be bargained for in an arm's length
transaction between unrelated parties;
(b) the Company and Flowers, in good faith, shall mutually
determine the prices to be paid for, and other terms and conditions of, the
utilization by either of them of the call center equipment and services of the
other;
(c) the Company and Flowers, in good faith, shall mutually
determine the price and other terms and conditions under which other services
shall be provided by one to the other; and
(d) the Company and Flowers will provide to each other, at no
cost, customer names and addresses and any other relevant customer database
information.
3.7 Confidentiality Agreement. Concurrently with the execution of
this Agreement, each Stockholder and each Optionholder shall execute a
Confidentiality and Non-Disclosure Agreement substantially in the form of
Exhibit C annexed hereto ("Confidentiality Agreement").
3.8 Action by Stockholders. Each Stockholder and Optionholder shall
vote all of the Shares held by such stockholder and shall take all other
necessary or desirable actions within its control (including, without
limitation, attendance at meetings in person or by proxy for purposes of
obtaining a quorum and execution of written consents in lieu of meetings) to
carry out the provisions of this Agreement including, but not limited to, each
of the provisions of this Section 3.
3.9 Other Arrangements. No Stockholder or Optionholder shall appoint
any attorney-in-fact or enter into or agree to be bound by any voting trust with
respect to any Shares or Option Shares, nor shall any Stockholder or
Optionholder enter into any agreements or arrangements of any kind with any
Person with respect to any Shares, Option Shares, Options or other Purchase
Rights, in each case inconsistent with the provisions of this Agreement (whether
or not such agreements and arrangements are with other Stockholders, or
Optionholders or holders of Shares or Purchase Rights that are not bound by this
Agreement), including, but not limited to, agreements or arrangements with
respect to the acquisition, disposition or voting of Shares, or act, for any
reason, as a member of a group or in concert with any other Persons in
connection with the acquisition, disposition or voting of Shares in any manner
which is inconsistent with the provisions of this Agreement.
4. RESTRICTIONS ON TRANSFERABILITY OF SHARES
4.1 Restrictions Upon Transfer of Shares. Except as, and subject to
the provisions, hereinafter set forth, no Management Stockholder or Optionholder
shall sell, transfer, donate, give, mortgage, pledge, hypothecate, or otherwise
encumber or dispose of, whether voluntarily, by operation of law or otherwise
(each of the foregoing acts are herein referred to as a "transfer" or
"Transfer") any Shares or Options now or hereafter owned by such Management
Stockholder or Optionholder. Any transfer or attempted transfer of the Shares or
Options at any time, unless made pursuant to all of the terms and conditions
hereof, shall be absolutely null and void ab initio, of no force or effect and
may be enjoined. No dividend shall be paid or any distribution made to any
transferee of Shares transferred in violation hereof, nor shall any such
transfer of Shares or transfer of Options be registered on the books of the
Company.
4.2 Restrictive Legend on Certificates. Every certificate
representing certificated Shares of the Company shall bear the following legend
in addition to any other legend which may be required by applicable law:
"The sale, transfer, pledge, hypothecation, or other disposition or
encumbrance of the securities represented hereby is restricted by
the terms of a certain Stockholders' Agreement dated as of March __,
1998 (the "Agreement"), between the issuer of such securities and
certain of its stockholders, a copy of which is on file at the
principal place of business of such issuer and is available for
inspection by the stockholders during regular business hours of such
issuer. The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "1933
Act"), or under any applicable state securities law. These
securities may not be sold or transferred in the absence of an
effective registration statement under the 1933 Act and any
applicable state securities law or receipt by the issuer of an
opinion of counsel satisfactory to the issuer that registration
under the Act and applicable state law is not required."
5. PERMITTED TRANSFERS
5.1 Transfers to Permitted Transferees. A Management Stockholder may
transfer Shares to the following transferees (each a "Permitted Transferee") so
long as such Management Stockholder's Shares have not then become subject to the
option provisions of Sections 6, 7 or 9 and provided that Permitted Transferees
may not make any further transfers of their Shares pursuant to this Section 5.1,
except that a Family Entity which is a Permitted Transferee may make a further
transfer to its equity owners or beneficiaries. (each of the following transfer
is sometimes referred to herein as a "Permitted Transfer"):
(a) a transfer by a Management Stockholder who is a natural person
to such Stockholder's spouse, children or grandchildren or to a trust,
partnership, limited liability company or other entity the sole beneficiaries or
equity owners of which are such Management Stockholder's spouse, children and/or
grandchildren (a "Family Entity"); and; provided that any general partner,
manager, trustee, guardian, custodian, other fiduciary or other person
performing a similar function (to any of the foregoing) must be either the
transferring Management Stockholder or such Management Stockholder's spouse,
sibling or child;
(b) a transfer by a Family Entity to its equity owners or
beneficiaries; provided however, if the distribution is to such Management
Stockholder's minor child, or minor grandchild, or to a trust, partnership,
limited liability company or other entity, then any general partner, manager,
trustee, guardian, custodian, other fiduciary or other person performing a
similar function (to any of the foregoing) must be either the Management
Stockholder or such Management Stockholder's spouse, sibling or child;
(c) a transfer to an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended (a "Charitable
Organization"); provided, however, that Rice may not transfer more than 12,968
Shares [66 2/3% of the Shares he owns on the date hereof on a Fully Diluted
Basis] (subject to adjustment for stock splits and similar recapitalization
events); and, provided, further, however that any such Charitable Organization
shall enter into a voting trust agreement or other arrangement with, or shall
provide a proxy to, the transferring Management Stockholder or its Related
Employee so as to irrevocably grant all voting power with respect to the
transferred Shares to the transferring Management Stockholder or its Related
Employee, in each case in form and substance satisfactory to the Company and its
counsel; or
(d) a transfer by any Management Stockholder or any of its
transferees to Flowers or any of its assignees.
5.2 Transfer by Flowers. Except as expressly limited by Sections 6,
7, 8 and 9 or elsewhere in this Agreement, Flowers and its transferees which are
not Management Stockholders, may transfer their Shares at any time and to any
Person. Any transfer or attempted transfer of Shares in violation of Sections 6,
7, 8 or 9 shall be null and void, ab initio, of no force and effect and may be
enjoined.
5.3 Additional Requirements of Transfer. (a) Any transfer otherwise
permitted by this Agreement shall be further subject to and conditioned upon
full compliance by the transferor and transferee with each of the following
conditions (any of which may be waived by the Company in its sole discretion):
(i) each transferee shall have executed an agreement in form
and substance satisfactory to the Company, by which such transferee shall have
agreed to become a party to and bound by the terms and conditions of this
Agreement and shall have expressly assumed all of the obligations of the
transferring Stockholder or Optionholder;
(ii) each transferee shall pay all filing, publication and
recording fees, all transfer and stamp taxes, if any, and all reasonable
expenses, including,
without limitation, reasonable counsel fees and expenses, incurred by the
Company in connection with such transaction;
(iii) each transferee shall execute a certificate in form and
substance satisfactory to the Company to the effect that it is acquiring the
Shares for its own account for investment and not with a view to the resale or
distribution thereof and that it will only transfer the acquired Shares to a
Person who so similarly represents and warrants and shall include in such
certificate such other representations, warranties and covenants as the Company
or counsel to the Company may reasonably require;
(iv) the Company receives an opinion of counsel reasonably
acceptable to the Company (who may be counsel for the Company), in form and
substance satisfactory to the Company, that such transfer does not violate
federal or state securities laws or any representation or warranty of such
transferring Stockholder given in connection with the acquisition of its Shares;
(v) if the transfer is to the Company, the Company has
received such instruments of transfer which the Company shall request in order
to transfer record and beneficial ownership of such Shares to the Company;
(vi) each transferee shall execute a Confidentiality Agreement
with the Company and, if the transferor is a party to a Non-Competition
Agreement, at the request of the Company, a Non-Competition Agreement, in each
case in form and substance satisfactory to the Company; and
(vii) each transferee shall execute such other documents or
instruments as counsel to the Company may require (or as may be required by law)
in order to effect the transfer of the Shares;
(b) Notwithstanding anything in this Agreement to
the contrary, no transfer shall be made:
(i) to a Person who, in accordance with applicable law, lacks
the capacity to own, or otherwise is prohibited from owning, such Shares or
Options; or
(ii) to a Person otherwise prohibited by applicable law from
entering into such transaction or holding such Shares or Options; or
(iii) which violates any other provision of this Agreement.
(c) Upon the transfer of Shares owned by a Management
Stockholder (other than pursuant to a Permitted Transfer), such transferring
Stockholder shall and, if applicable, such transferring Stockholder shall cause
its designees and Related Employee to, submit his or her resignation as a
director and officer of the Company and any Subsidiary of the Company and as
trustee or other fiduciary of any employee benefit plan or trust of the Company
and any Subsidiary of the Company, if, as a result of such transfer, such
Management Stockholder, together with its Permitted Transferees (i) in the case
of Rice (and his Permitted Transferees), holds less than 33% of the number of
outstanding Voting Shares of the Company on a Fully Diluted Basis which Rice
owns on the date hereof; or (ii) in the case of any other Management
Stockholders, has transferred all of his Voting Shares on a fully diluted basis
of the Company.
6. PUT AND CALL OPTIONS
6.1 Management Stockholder Put Option. (a) Each Management
Stockholder shall have the right to cause the Company to purchase all (but not
less than all) of its Shares and each Optionholder shall have the right to cause
the Company to purchase all (but not less than all) of its Options Shares
(collectively, the "Put Option") upon the occurrence of a Put Event or during
the Put Period. A Management Stockholder or Optionholder shall exercise its Put
Option by delivery of written notice thereof ("Put Notice") to the Company (i)
within sixty (60) days after the occurrence of a Put Event or (ii) during the
Put Period, as the case may be. Upon receipt of a Put Notice from a Management
Stockholder or Optionholder in accordance with terms hereof, the Company shall
be obligated to purchase all of such Management Stockholder's Shares or
Optionholder's Option Shares (collectively, "Put Shares") at the Put Price in
accordance with, and subject to, the terms hereof.
(b) The closing of the purchase and sale of Put Shares shall
take place at the principal office of Flowers on a date designated by the
Company upon ten (10) days prior written notice, which date shall be not later
than seventy-five (75) business days after (i) receipt of the Put Notice in
connection with a Put Event or (ii) the end of the Put Period, as the case may
be. At the closing of the purchase and sale of Put Shares, the Management
Stockholder or Optionholder, as the case may be, shall deliver to the Company
certificates representing the Put Shares, duly endorsed or accompanied by stock
powers executed in blank, in form and substance satisfactory to the Company,
together with evidence satisfactory to the Company that such Put Shares are
being transferred to the Company free and clear of all Liens. In addition, the
Management Stockholder or Optionholder, as the case may be, shall deliver to the
Company, and cause its Related Employee to deliver to the Company, resignations
of each such person as a director, and from all officer positions, of the
Company and each of its Subsidiaries and as a fiduciary or trustee of any
benefit or other plan of the Company and any Subsidiary.
(c) Subject to the provisions of Section 6.3, at the closing,
the Company shall pay the Put Price by delivery of (i) a certified check or
immediately available funds for 25% of the Put Price; (ii) a promissory note
substantially in the form of Exhibit D annexed hereto (the "Repurchase Note")
for the balance of the Put Price, which note shall be payable in eight equal
semiannual installments together with interest accrued thereon an annual rate
equal to the "Prime Rate" on the date of the Repurchase Note, commencing on the
last business day of the earlier of June or December next following the closing
date; and (iii) a pledge agreement substantially in the form of Exhibit E
annexed hereto (the "Pledge"), pursuant to which the Company shall pledge the
Put Shares to the Management Stockholder or Optionholder, as the case may be, as
collateral security for the Company's obligations under the Repurchase Note.
Notwithstanding the foregoing, the Company and the Management Stockholder or
Optionholder exercising a Put Option may agree upon different terms for the
payment of the Put Price. For purposes of this Agreement the term "Prime Rate"
shall mean the rate announced by Chase Manhattan Bank at its New York
headquarters as its prime rate, whether or not such rate is then the most
favorable rate offered by such bank to its customers; provided, however, that
notwithstanding anything herein to the contrary, for purposes of this Agreement
in no event shall the Prime Rate be less than 7% per year or greater than 10%
per year.
(d) At the Closing, the Management Stockholder, Optionholder
and their respective Related Employees shall (to the extent not already included
in calculation of the Put Price) pay in full all loans, advances or similar
monetary obligations owing or otherwise outstanding from the Management
Stockholder, Optionholder, their respective Related Employee or any of their
respective Affiliates, to the Company or its Affiliates, and any amounts owed to
the Company or its Affiliates by the Management Stockholder, Optionholder, or
their respective Related Employees with respect to the exercise of Options or
other Purchase Rights.
(e) The Company may assign its obligation to purchase Put
Shares to Flowers or one or more Company Affiliates, in which event all
references to the Company in this Section 6.1 shall be deemed references to
Company's assignee(s); provided, however, that if the Company assigns its
obligation to purchase Put Shares to a Company Affiliate (other than Flowers)
and pays a portion of the Put Price by delivery of a Repurchase Note, the
Company shall guarantee the assignee's obligations under the Repurchase Note.
(f) Notwithstanding anything herein to the contrary,
Management Stockholders and Optionholders may not exercise Put Options at any
time during which (i) the Company is entitled to exercise a Call Option,
Take-Along Option or Issuer Conversion Option, or (ii) Management Stockholders
or Optionholders are entitled to exercise a Bring Along Option,
Stockholder Conversion Option, Stockholder Cash Out Option, First Offer Option
or a Private Sale Put Option.
6.2 Company Call Option. (a) The Company shall have the right to
cause any of the Management Stockholders or Optionholders (or their respective
estates, as the case may be) to sell all (but not less than all) of their
respective Shares and Option Shares upon occurrence of a Call Event or during
the Call Period (the "Call Option"). A Management Stockholder or Optionholder
(or their respective Related Employee) which is the subject of a Call Event
shall notify the Company in writing ("Call Event Notice") of the occurrence of
the Call Event and the details thereof, promptly after the occurrence thereof.
The Company shall exercise its Call Option by delivery of written notice thereof
(the "Call Exercise Notice") to the Management Stockholder or Optionholder, as
the case may be, at any time (i) after becoming aware of a Call Event but not
later than the (60) days after receipt of the Call Event Notice or (ii) during
the Call Period. Upon receipt of a Call Notice, the Management Stockholder or
Optionholder (or their respective estates, as the case may be) shall be
obligated to sell all of its Shares and Option Shares (the "Call Shares") to the
Company at the Call Price. If the Company exercises its Call Option, each
Optionholder shall exercise its Options so as to enable the Company to purchase
the Option Shares subject to such Call Option, which exercise shall be
conditioned upon, and shall be deemed effective immediately prior to, the
consummation of the purchase of such Option Shares by the Company.
(b) The closing of the purchase and sale of Call Shares shall
take place at the principal offices of Flowers on the date designated by the
Company upon ten (10) days prior written notice, which date shall be not later
than seventy-five (75) business days after (i) delivery of the Call Exercise
Notice or (ii) the end of the Call Period, as the case may be. At the closing of
the purchase and sale of Call Shares, the Management Stockholder or
Optionholder, as the case may be, shall deliver to the Company certificates
representing the Call Shares duly endorsed or accompanied by stock powers
executed in blank, in form and substance satisfactory to the Company together
with evidence satisfactory to the Company that such Call Shares are being
transferred free and clear of all Liens. In addition, the Management Stockholder
or Optionholder, as the case may be, shall deliver to the Company and cause
their respective Related Employees to deliver to the Company, resignations of
each such person as a director, and from all officer positions, of the Company
and each of its Subsidiaries and as a fiduciary or trustee of any benefit or
other plan of the Company and any Subsidiary.
(c) (i) Subject to the provisions of Section 6.3, at the
closing, the Company shall pay the Call Price for any Call Shares purchased as a
result of a Primary Call Event by delivery of: (A) a promissory note for the
Call Price substantially in the form of Exhibit E annexed hereto (the "Call
Note"), which note shall be payable in seven (7) equal annual payments together
with interest accrued thereon at the rate of 7% per annum, the first payment
of which shall be made on the later of the last business day of June or December
next following the closing date; and (B) a Pledge, pursuant to which the Company
shall pledge the Call Shares to the Management Stockholder, Optionholder, or
their respective estates, as the case may be, as collateral security for the
Company's obligations under the Call Note. Notwithstanding the foregoing, the
Company and the Management Stockholder or Optionholder, as the case may be,
subject to the Call Event may agree upon different terms for the payment of the
Call Price.
(ii) Subject to the provisions of Section 6.3, at the closing,
the Company shall pay the Call Price for any Call Shares not purchased as a
result of a Primary Call Event by delivery of a certified check or immediately
available funds for the entire Call Price. Notwithstanding the foregoing, the
Company and the Management Stockholder or Optionholder, as the case may be,
subject to the Call Event may agree upon different terms for the payment of the
Call Price.
(d) At the closing, the Management Stockholder, Optionholder and
their respective Related Employees shall (to the extent not already included in
calculation of that Call Price) pay in full all loans, advances or similar
monetary obligations owing or otherwise outstanding from the Management
Stockholder, the Optionholder, their respective Related Employees or any of
their respective Affiliates to the Company or its Affiliates, and any amounts
owed to the Company or its Affiliates by the Management Stockholder, the
Optionholder or their respective Related Employees with respect to the exercise
of Options or other Purchase Rights.
(e) The Company may assign its Call Option to Flowers or one or more
Company Affiliates, in which event all references to the Company in this Section
6.2 shall be deemed references to Company's assignee(s); provided, however, that
if the Company assigns its Call Option to a Company Affiliate (other than
Flowers) and pays a portion of the Call Price by delivery of a Call Note, the
Company shall guarantee the assignee's obligations under the Call Note.
(f) Notwithstanding the foregoing, the Company will not exercise its
Call Option or, alternatively, will withdraw the exercise of its Call Option, if
at the time of closing of the purchase of Call Shares it is prohibited from
purchasing such Call Shares under the terms and conditions then contemplated, by
applicable law or pursuant to applicable Credit Documents or Affiliate Credit
Documents (unless such prohibition is waived).
6.3 Limitation on Company Obligation to Purchase Shares.
(a) Notwithstanding any provisions set forth in Section 6 to
the contrary, the Company shall not be obligated to purchase any Shares or
Option Shares pursuant to this Agreement if the Company is prohibited from doing
so under applicable law, provided that the Company shall take all reasonable
steps to comply with such applicable law. In addition, the Company shall not be
obligated to make any cash payments under this Section 6 if at the time of the
proposed cash payment there is, or would be upon delivery of such cash payment
and as a consequence thereof, a default under or other violation of the terms of
any loan, credit or investment agreement or note or other instrument of
indebtedness to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound (collectively "Credit
Documents") or if there would be upon delivery of such cash payment and upon
consequence thereof a default under or other violation of the terms of any loan,
credit or investment agreement or note or other instrument or indebtedness to
which Flowers or any other Affiliate of the Company (other than a Company
Subsidiary) is a party or by which Flowers or any other Affiliate of the Company
(other than a Company Subsidiary) is bound (collectively, "Affiliate Credit
Documents"). In such event, the Company shall, in lieu of such cash payment,
issue a Repurchase Note or Call Note, as the case may be, modified so that (i)
such note shall be dated and interest thereon shall accrue from the date that
such cash payment is otherwise due, and (ii) the original principal amount of
such note shall be equal to the cash payment which was not made due to the
existing or prospective default or violation of the terms of the Credit Document
or Affiliate Credit Document and (iii) the maturity date of the note shall be
the same date as the maturity date of the initial Repurchase Note or Call Note
issued by the Company at the closing of the sale of Put Shares or Call Shares,
as the case may be. The Company shall pay such note, however, if and to the
extent the Company will not, as a consequence of such payment, be in violation
of applicable law or, if, and to the extent, there will not be, as a consequence
of such payment, a violation of the terms of any Credit Document or Affiliate
Credit Document. Notwithstanding the foregoing, the Company shall not be
obligated to make any cash payments in respect of any Repurchase Note or Call
Note if at the time of the proposed cash payment there is, or would be upon
delivery of such cash payment and as a consequence thereof, a default under or
other violation of the terms of any Credit Document or Affiliate Credit
Document.
(b) Notwithstanding anything set forth in this Section 6.3 to
the contrary, the Company shall not be obligated to deliver any Repurchase Note
or any Call Note if the Company is at the time of the proposed delivery of such
note or would be upon delivery of such note and as a consequence thereof, in
violation of applicable law or there is at the time of the proposed delivery of
such note or would be upon delivery of such note and as a consequence thereof, a
default under or other violation of the terms of any Credit Document or
Affiliate Credit Document and no payment of principal or interest due under such
note shall be made if the Company is at the time of the delivery of such
payment, or would be upon delivery of such payment and as a consequence thereof,
in violation of applicable law or if there is at the time of the proposed
delivery of such note or would be upon delivery of such note and as a
consequence thereof, a default under or otherwise in violation of the terms of
any Credit Document or any Affiliate Credit Document. In the event the Company
cannot deliver a Repurchase Note or Call Note for the reasons set forth herein,
the Company will undertake to deliver such note and to make payment of principal
and interest due under such note at such time as the Company is not in violation
of any applicable law or there is not a default under or other violation of any
Credit Agreement or any Affiliate Credit Document and the Company or any
Affiliate would not be so in default or in violation, or there otherwise would
not be a default or violation, by virtue of the delivery of such note or any
payment of principal and interest due under such note as contemplated herein.
(c) Without in any way limiting the other provisions of this
Section 6, Flowers agrees to use, and to cause the Company to use, reasonable
efforts to cause any holder of the Company's or Flower's senior indebtedness to
(a) include a provision in the appropriate Credit Documents or Affiliate Credit
Documents so as to permit the Company to deliver a Repurchase or Call Note or
make a payment thereunder or otherwise, upon exercise of a Put Option or Call
Option, in accordance with Sections 6.1 and 6.2 or (b) exclude a provision from
the appropriate Credit Documents or Affiliate Credit Documents that would have
the effect of prohibiting the Company from delivering a Repurchase Note or Call
Note, or making a payment thereunder or otherwise, upon exercise of a Put Option
or Call Option in accordance with Sections 6.1 and 6.2.
7. BRING ALONG AND TAKE ALONG
7.1 Bring Along Option. (a) If Flowers and/or its transferees,
elects to transfer for consideration Shares which it or they own (the
"Transferring Stockholder") to a third party (the "Offeree") which is not such
Transferring Stockholder's Affiliate, representing in the aggregate 50% or more
of the Voting Power, then the Transferring Stockholders shall notify the
Management Stockholders and Optionholders in writing of such proposed
transaction (the "Trigger Notice"). Subject to the provisions of Section 7, each
of the Management Stockholders, Optionholder or any of them (each, a
"Bring-Along Stockholder") may by notice to the Transferring Stockholder
delivered within fifteen (15) days of receipt of the Trigger Notice irrevocably
elect to transfer to the Offeree a proportionate amount of the Shares and Option
Shares which it owns (or in the case of Optionholders, will own after exercise
of its Options) upon transfer of the Transferring Stockholder's Shares to the
Offeree (the "Bring-Along Option").
(b) If a Bring-Along Stockholder exercises its Bring-Along
Option, it shall be entitled to transfer, and the Transferring Stockholder shall
be required to arrange for the transfer to the Offeree by such Bring-Along
Stockholder, that number of Shares and Option Shares which, in the aggregate, is
equal to the total number of Shares and Option Shares which such Bring-Along
Stockholder owns (after giving effect to the exercise of any Options which the
Bring-Along Stockholder shall exercise prior to the transfer of Shares and
Option Shares pursuant to the Bring-Along Option) multiplied by a fraction, the
numerator of which is equal to the number of Shares being transferred by the
Transferring Stockholder and the denominator of which is equal to the total
number of Shares owned by the Transferring Stockholder on a Fully Diluted Basis
without giving effect to the proposed transfer; provided, however, if the
Offeree refuses to purchase the full amount of Shares and Option Shares which
are offered for sale as a result of the exercise of Bring-Along Options
hereunder, then the Transferring Stockholder and each Bring-Along Stockholder
shall reduce the number of Shares and Option Shares they are to sell
proportionally (based on the number of Shares and Option Shares they have each
offered to sell to the Offeree) to the maximum number of Shares and Option
Shares which the Offeree is willing to purchase. If a Bring-Along Stockholder
exercises its Bring-Along Option, it shall transfer its Shares and Option Shares
to the Offeree on the same terms and conditions as the Transferring Stockholder
shall transfer its Shares to the Offeree. Notwithstanding anything herein to the
contrary, the exercise by a Bring-Along Stockholder of its Bring-Along Option
shall not obligate the Transferring Stockholder to transfer its Shares, and if
the Transferring Stockholder elects not to complete the transfer of its Shares,
the Bring-Along Stockholder shall have no rights or obligations to transfer its
Shares or Option Shares pursuant to the Bring-Along Option unless and until the
conditions of Section 7.1(a) shall again occur.
7.2 Take Along Option. If Flowers and/or its transferees (a
"Disposing Stockholder") elect to transfer for consideration Shares representing
50% or more of the Voting Power on a Fully Diluted Basis to a third party which
is not its Affiliate (the "Purchaser"), the Disposing Stockholder may by notice
to the remaining Stockholders and Optionholders (the "Take-Along Trigger
Notice") demand that the remaining Stockholders and Optionholders shall be
required to transfer a pro rata portion (based on the percentage of shares being
transferred by the Disposing Stockholder) of the Shares and Option Shares which
they own (or in the case of Optionholders, are deemed to own) on a Fully Diluted
Basis to the Purchaser upon transfer of the Disposing Stockholder's Shares to
such Purchaser (the "Take-Along Option"). If the Disposing Stockholder exercises
it Take-Along Option, the other Stockholders and Optionholders shall be required
to so transfer their Shares and Option Shares to the Purchaser on the same terms
and conditions as the Disposing Stockholder shall transfer its Shares to the
Purchaser. Notwithstanding anything herein to the contrary, the exercise by the
Disposing Stockholder of its Take-Along Option shall not obligate the Disposing
Stockholder to transfer its Shares, and if the Disposing Stockholder elects not
to transfer its Shares the other
Stockholders and Optionholders shall have no right to transfer their Shares and
Option Shares to the Purchaser hereunder.
7.3 Exercise of Options. If a Bring-Along Stockholder exercises its
Bring-Along Option or Disposing Stockholder exercises it Take-Along Options,
each Optionholder shall exercise such number of Options as shall be necessary in
order to enable such Optionholder to transfer the number of Option Shares
requested to be transferred by Bring-Along Stockholder or the Disposing
Stockholder, as the case may be, which exercise shall be conditioned upon, and
shall be deemed effective immediately prior to, the consummation of the purchase
of such Option Shares by the Offeree or Purchaser, as the case may be.
7.4 Relationship to Section 8. The provisions of this Section 7
shall be subject to the provisions of Section 8, so that any transfer of
Bring-Along Shares or Take-Along Shares which together with the Shares being
transferred by the Transferring Stockholder or Disposing Stockholder would
result in the sale of 90% or more of the Shares in a First Offer Transaction,
shall first be subject to the First Offer Option contained in Section 8;
provided, that, the time periods referred to in this Section 7 shall run
parallel with the time periods in Section 8 and shall not begin anew after
completion of the time periods in Section 8.
8. LIMITED RIGHT OF FIRST OFFER
8.1 If the Company desires to sell, assign, dispose or otherwise
convey all or substantially all of the assets of the Company ("First Offer
Assets") or if Flowers desires to enter into a transaction as a result of which
(and after giving effect to the exercise, if any, of Flowers' Take-Along Option
that would otherwise be exercised by Flowers) 90% or more of the Shares and
Option Shares on a Fully Diluted Basis will be sold, assigned, disposed or
otherwise transferred ("First Offer Shares") for consideration to a third party
other than an Affiliate of the Company in each case, at a purchase price which
is calculated based on a valuation of the Company of less than $40 million (a
"First Offer Transaction"), then the Management Stockholders and Optionholders
shall be entitled to a first right to purchase such First Offer Assets or First
Offer Shares in accordance with the provisions hereof (the "First Offer
Option"). The Company shall not be required to obtain an offer from a third
party to sell First Offer Assets or First Offer Shares (a "Third Party Offer")
as a pre-condition to the exercise of a First Offer Option. The Company shall
deliver written notice of the proposed First Offer Transaction (the "First Offer
Notice") to the Management Stockholders and Optionholders. If the Company has
received a Third Party Offer, the First Offer Notice shall describe in
reasonable detail the material terms and conditions of the Third Party Offer and
if the Third Party Offer is in writing shall include a copy thereof. If the
Company has not received a Third Party Offer, the First Offer Notice shall set
forth such terms and conditions, if any, as the Company may have set for the
First Offer Transactions.
8.2 Exercise of First Offer Option. (a) The Management Stockholders
and Optionholders may elect to purchase all (but not less than all) of the First
Offer Assets or the First Offer Shares, as the case may be, at the price and on
the terms agreed to by the Company and the Management Stockholders and
Optionholders or, if the Company has received a Third Party Offer, at the price
and on the terms of the Third Party Offer, by delivering written notice of such
election to the Company within fifteen (15) business days after the delivery of
the First Offer Notice ("First Offer Election Period"). Notwithstanding the
previous sentence, if the Third Party Offer includes non-cash consideration, the
Management Stockholders and Optionholders exercising the First Offer Option
shall, nevertheless, be required to pay the full amount of the consideration in
cash. For these purposes, the value of the non-cash component of the Third Party
Offer consideration shall be determined by mutual agreement of Flowers, on the
one hand, and Rice, or if Rice has died, is incompetent, is otherwise unwilling
or unable to make such determination or no longer owns Shares or Purchase
Rights, by the Management Director, on the other hand, or if they are unable to
agree upon such value within ten (10) business days by an independent investment
banker, accounting firm or other qualified appraiser mutually agreeable to
Flowers, on the one hand, and Rice or the Management Director, as the case may
be, on the other hand. If the parties are unable to agree on such third party
within thirty (30) days, the cash value shall be determined by one of the "Big
Six" accounting firms (or a successor firm) selected by Flowers who is not
otherwise providing service to any member of the Flowers Group or to the
Management Stockholders and Optionholders.
(b) Within forty-five (45) days after the termination of the
First Offer Election Period (the "Financing Commitment Period"), the Management
Stockholders and Optionholders shall provide to the Company written evidence,
reasonably satisfactory to the Company, that the Management Stockholders and
Optionholders have obtained, or received a firm commitment to obtain, all of the
financing necessary to enable the Management Stockholders and Optionholders to
pay the full cash purchase price for the First Offer Assets or First Offer
Shares (the "Financing Commitment").
(c) If the Management Stockholders and Optionholders do not
elect to purchase all of the First Offer Assets or First Offer Shares, as the
case may be, during the First Offer Period, or if the Company does not receive
the Financing Commitment prior to the termination of the Financing Commitment
Period, the Company shall have the right to transfer the First Offer Assets and
First Offer Shares, (subject to the provisions of Section 7) to any Person;
provided, however, that such transfer is for a purchase price which is equal to
95% or more of the purchase price set forth in the First Offer Notice.
8.3 Exercise of First Offer Option. If the Management Stockholders
and/or Optionholders have exercised their First Offer Option, the purchase of
First Offer Shares or First
Offer Assets by the Management Stockholders and Optionholders shall be closed at
Flowers' principal offices on a date specified by the purchaser(s) upon at least
ten (10) business days' notice, which is not later than forty-five (45) days
after the termination of the Financing Commitment Period. If the closing does
not occur within such period Flowers or the Company shall have the right to sell
the First Offer Shares or the First Offer Assets, as the case may be, to a third
party subject to Section 8.2(c). At the closing, the purchasers shall pay the
Company the purchase price for the First Offer Assets or First Offer Shares set
forth in the First Offer Notice, and the Company shall deliver to the
purchaser(s) the First Offer Assets or certificate or certificates evidencing
the First Offer Shares, together with stock transfer form(s) duly executed in
favor of the purchaser.
9. MANAGEMENT STOCKHOLDERS CONVERSION AND CASH OUT OPTIONS
9.1 Conversion and Cash Out Options. (a) Management Stockholder
Options. (i) Upon the occurrence of the first to occur of an IPO of Flowers
(Flowers is sometimes referred to in this Section 9 as an "Issuer"), or the Sale
of Flowers, each of the Management Stockholders and Optionholders shall have the
option to cause (A) all (but not less than all) of its Shares and Option Shares
to be converted into that number of shares of capital stock of the Issuer to be
determined by applying the Conversion Ratio to the Shares and the Option Shares
of such Management Stockholders and Optionholders (the "Stockholder Conversion
Option") or (B) in the event of an IPO and subject to approval of the managing
underwriter of the IPO in its sole discretion, the Issuer to purchase for cash,
all of its Shares and Option Shares at the Cash Out Price (the "Stockholder Cash
Out Option" and, collectively, together with the Stockholder Conversion Option,
the "Stockholder Options"), in each case in accordance with the provisions
hereof.
(ii) Upon the occurrence of a "Private Sale" prior to the
termination of the Put Period, each Management Stockholder and Optionholder
shall have the right to cause the Company to purchase all (but not less than
all) of its Shares and Option Shares (the "Private Sale Put Option") at the Put
Price. A "Private Sale" shall mean the Sale of the Issuer as a result of which
Management Stockholders and Optionholders would receive in consideration for
their Shares or Option Shares (or securities of the Issuer into which such
Shares or Option Shares would be converted) equity securities of the acquiring
or surviving entity which are not traded on a United States or foreign
securities exchange or traded or reported on the Nasdaq National Market or the
Nasdaq Stock Market or substantially equivalent foreign automated quotation
system.
(iii) If an Optionholder exercises a Stockholder Option or
Private Sale Put Option, it shall exercise all of its Options so that the
Options Shares thereunder may be converted or sold in accordance with the
provisions hereof, which exercise shall be
conditioned upon, and shall be deemed effective immediately prior to, the
consummation of the conversion or sale, as the case may be, of such Option
Shares.
(b) Issuer Option. If any Management Stockholder or
Optionholder has elected not to exercise its Stockholder Conversion Option,
Stockholder Cash Out Option or Private Sale Put Option in connection with a
Stockholder Option Event, then the Issuer shall have the option to cause all
(but not less than all) of the Shares and Option Shares of such Management
Stockholder or Optionholder to be converted into capital stock of the Issuer in
accordance with the provisions hereof (the "Issuer Conversion Option"; and,
collectively together with the Stockholder Conversion Options, the "Conversion
Options"). If the Issuer exercises its Issuer Conversion Option, each
Optionholder shall exercise all of its Options so that the Option Shares
thereunder may be converted into Issuer Shares in accordance with the provisions
hereof, which exercise shall be conditioned upon, and shall be deemed effective
immediately prior to, the consummation of the conversion of the Option Shares.
9.2 Exercise of Management Stockholder Options. (a) The Issuer shall
notify the Management Stockholders and Optionholders of a proposed IPO or Sale
not later than thirty (30) days prior to the anticipated Effective Date or
Consummation Date, as the case may be ("Transaction Notice") and shall set forth
in such notice (i) the Conversion Ratio; (ii) to the extent known, the estimated
range of the public offering price of the Issuer's securities to be sold in the
IPO, or the purchase price of, and the terms of payment of the purchase price
of, the Sale, as the case may be; and (iii) whether the managing underwriter of
the IPO will permit Management Stockholders to exercise Stockholder Cash Out
Options. In addition, in connection with an IPO, the Issuer shall provide to the
Management Stockholders and Optionholders together with the Transaction Notice a
copy of the latest preliminary prospectus filed by the Issuer with the SEC in
connection with the IPO. If the estimated range of the public offering price of
the IPO or the purchase price and/or terms of payment of the purchase price of
the Sale are not known at the time the Transaction Notice is sent, or if a
preliminary prospectus has not yet been filed with the SEC, the Issuer shall
notify the Management Stockholders and Optionholders of such range or such price
and terms, as the case may be, within a reasonable period of time after such
information is known to the Issuer and/or shall deliver to the Management
Stockholders and Optionholders a copy of such preliminary prospectus within a
reasonable period of time after it has been filed with the SEC.
(b) Within fifteen (15) business days after receipt of the
Transaction Notice, each Management Stockholder and Optionholders shall notify
the Issuer in writing whether it shall elect irrevocably to exercise its
Stockholder Conversion Option or (if available) its Stockholder Cash Out Option
or (if available) its Private Sale Put Option with respect to all of its Shares
and Option Shares (the "Stockholder Exercise Notice").
(c) If a Management Stockholder or Optionholder has elected to
exercise a Stockholder Option or a Private Sale Put Option, it shall deliver to
the Issuer, together with the Stockholder Exercise Notice, the exercise price
due and payable for the purchase of each Option Shares (to the extent such
Option exercise price is required to, or otherwise will, be paid in cash)
certificates representing all of its Shares and Option Shares together with such
other documents as the Issuer shall reasonably request so as to effect the
conversion of the Shares and Option Shares into shares of capital stock of the
Issuer (collectively, the "Conversion Documents") or so as to effect the cash
out of the Management Stockholder and Optionholders Shares and Option Shares,
including but not limited to, evidence that the Shares and Option Shares shall
be purchased free and clear of all Liens (collectively, the "Cash-Out
Documents"), or so as to effect the sale of the Shares and Option Shares to the
Company pursuant to the Private Sale Put Option free and clear of all Liens (the
"Private Sale Put Documents"), as the case may be. Any Management Stockholder
who fails to exercise a Stockholder Option in accordance with the foregoing
provisions, shall be deemed to have elected to waive its right to exercise
Stockholder Options.
9.3 Exercise of Issuer Conversion Option. The Issuer shall have the
right at any time up to five (5) business days prior to the Effective Date or
Consummation Date, as the case may be, to exercise its Issuer Conversion Option
with respect to any Shares and Option Shares for which Management Stockholders
and Optionholders have not properly exercised Stockholder Conversion Options,
Stockholder Cash Out Options or Private Sale Put Options hereunder. The Issuer
shall exercise its Issuer Conversion Option by delivery of written notice
thereof to the Management Stockholders and Optionholders with respect to whom
the Issuer is exercising its option (the "Issuer Conversion Notice"). Promptly
upon receipt of the Issuer Conversion Notice, Management Stockholder and
Optionholders shall deliver to the Issuer certificates representing all of its
Shares and Option Shares together with the Conversion Documents.
9.4 Conversion of Shares on Effective Date and Consummation Date (a)
On the IPO Closing Date, all Shares and Option Shares with respect to which
either Stockholder Conversion Options or Issuer Conversion Options have been
properly exercised, automatically, without any further action on the part of the
Management Stockholders or Optionholders, the Issuer or any other Person, shall
be converted into the type and number of shares of capital stock of the Issuer
as shall be calculated by applying the Conversion Ratio for each class of Shares
and Option Shares, to the total number of Shares and Option Shares in such class
held by the Management Stockholders and Optionholders.
(b) On the Consummation Date, all Shares and Option Shares
with respect to which either Stockholder Conversion Options or Issuer Conversion
Options have been properly exercised, automatically, without any further action
on the part of the
Management Stockholders, Optionholders, the Issuer or any other Person, shall be
converted into the type and number of shares of capital stock of the Issuer as
shall be calculated by applying the Conversion Ratio for each class of Shares
and Option Shares, to the total number of Shares and Option Shares in such class
held by the Management Stockholders and Optionholders. Such conversion shall be
deemed to occur on the Consummation Date immediately prior to the Consummation
Time or at such earlier time so as to enable such converting Management
Stockholders and Optionholders to participate in the Sale as a stockholder of
the Issuer. In the event that subsequent to such conversion it is determined
that the Sale shall not be consummated, then automatically and without any
action on the part of the Management Stockholders or the Optionholders, the
Issuer or any other Person, the conversion of the Shares and Option Shares into
capital stock of the Issuer shall be deemed null and void ab initio and of no
force and effect, and each of the Issuer, the Stockholders, the Optionholder and
the Company shall take all such actions as the Company shall deem necessary or
desirable to nullify such conversion.
(c) In the case of a conversion of Shares or Option Shares
into capital stock of Flowers, the Shares and Option Shares shall be converted,
into such class of capital stock of Flowers as is being registered in the IPO or
being sold in the Sale.
(d) (iv) In connection with an IPO, the Conversion Ratio shall
be determined by the managing underwriter of the IPO, or if the managing
underwriter, in its discretion, shall permit, and the Management Director shall
so request, by such other investment bank, financial advisor or appraiser as the
Issuer shall select and the Management Director shall approve, which approval
shall not be unreasonably withheld, and such determination shall be binding upon
the Issuer, the Management Stockholders and the Optionholders.
(v) In the event of an IPO, the determination of the
Conversion Ratio shall be made by valuing the Company, on the one hand, and the
Issuer, on the other hand, as separate entities. Although the Issuer is the
entity actually engaged in the IPO, in valuing the Company, the managing
underwriter shall also value the Company as if the Company itself were being
valued in connection with an initial public offering of its own equity
securities pursuant to a Registration Statement filed with the SEC pursuant to
the 1933 Act. In valuing the Company and the Issuer, the managing underwriter
shall take into account, among other factors: (A) the historical and projected
earnings and cash flow (as measured by EBIT or other appropriate measurement
standards) of each of the Company and Issuer respectively; (B) multiples or
other formulas typically used in valuing public companies that are comparable
(by virtue of the nature of business, size, years of operations and/or other
appropriate characteristics) to the Company, on the one hand, and Issuer, on the
other hand, (notwithstanding the fact that the Company is then a privately held
company); and (C) to the
extent not already included in the calculations made pursuant to clauses (A) and
(B) above, the impact on the value of each of the Company and Issuer of the
synergies and economies of scale which have resulted and are projected to result
from the affiliation of the Company and the Issuer. In addition, in valuing the
Company, the managing underwriter shall ignore any discount that might otherwise
apply as a result of the Issuer's control of the Company or the lack of
liquidity or transferability of the Shares created by such control or this
Agreement.
(e) (i) In connection with a Sale, the Conversion Ratio shall
be determined by the Issuer's investment banker or other financial advisor
retained in connection with such Sale, or if there is no such banker or advisor,
or if such banker or advisor, in its discretion, shall permit, and the
Management Director shall so request, by such other investment banker or
financial advisor or appraiser as the Issuer shall select and the Management
Director shall approve, which approval shall not be unreasonably withheld, and
such determination shall be binding upon the Issuer and the Management
Stockholders and the Optionholders.
(ii) In the event of a Sale, the determination of the
Conversion Ratio shall be made by valuing the Company, on the one hand, and the
Issuer, on the other hand, as separate entities. In valuing the Company and the
Issuer, the investment banker shall take into account, among other factors: (A)
the historical and projected earnings and cash flow (as measured by EBIT or
other appropriate measurement standards) of each of the Company and Issuer
respectively; (B) multiples or other formulas typically used in transactions of
this nature to value companies that are comparable (by virtue of the nature of
business, size, years of operations and/or other appropriate characteristics) to
the Company, on the one hand, and Issuer, on the other hand; and (C) to the
extent not already included in the calculations made pursuant to clauses (A) and
(B) above, the impact on the value of each of the Company and Issuer of the
synergies and economies of scale which have resulted and are projected to result
from the affiliation of the Company and the Issuer. In addition, in valuing the
Company, the investment banker shall ignore any discount that might otherwise
apply as a result of the Issuer's control of the Company or the lack of
liquidity or transferability of the Shares created by such control or this
Agreement.
(f) The Issuer shall bear the cost of determining the
Conversion Ratio.
(g) (i) The Issuer shall issue to the Management Stockholders
and Optionholders who are the subject of Conversion Options in connection with
an IPO, stock certificates representing the Issuer capital stock into which
their Shares and Option Shares have been converted within fifteen (15) business
days following the IPO Closing Date provided
that the Management Stockholders and Optionholders have provided to the Issuer
all required Conversion Documents.
(ii) The Issuer shall issue to Management Stockholders and
Optionholders who are the subject of Conversion Options in connection with a
Sale, stock certificates representing the Issuer capital stock into which their
Shares and Option Shares have been converted within such time as is necessary to
enable the Management Stockholders and Optionholders to participate in the Sale
as stockholders of the Issuer; provided, however, that the Issuer shall not be
required to issue any such certificates if (A) such certificates shall not be
required to enable the Management Stockholders and Optionholders to so
participate in the Sale or (B) a Management Stockholder or Optionholders has not
provided the Issuer with all required Conversion Documents.
9.5 Cash Out Of Shares. If a Management Stockholder or Optionholders
has properly elected to exercise its Stockholder Cash Out Option in connection
with an IPO, within fifteen (15) business days after the IPO Closing Date, the
Issuer shall pay to such Management Stockholder or Optionholders the Cash Out
Price by check against delivery to the Issuer of all Cash Out Documents.
9.6 Purchase of Shares on Private Sale Consummation Date. If a
Management Stockholder or Optionholder has properly exercised its Private Sale
Put Option in connection with a Private Sale, within forty-five (45) days after
the Private Sale Consummation Date, the Issuer shall pay to the Management
Stockholder or Optionholder the Put Price in accordance with the provisions of
Section 6.1(c), (d), and (e) each of which shall be applicable fully to the
exercise and closing of the Private Sale Put Option.
10. PIGGYBACK REGISTRATION RIGHTS
10.1 Registration. (a) If, at any time after Flowers, Flowers or the
Company (for purposes of this Section 10, the "Issuer") has completed an IPO,
the Issuer determines to register any of its securities for its own account
under the 1933 Act, (other than pursuant to a registration on form S-4 or S-8 or
any successor form) in connection with the public offering of such securities,
the Issuer shall, at each such time, promptly give each Stockholder and its
transferees who then holds Registrable Securities written notice of such
determination. Subject to Section 9, upon the written request of a Stockholder
and/or its transferees received by the Issuer within thirty (30) days after the
giving of any such notice by the Issuer, the Issuer shall use its best efforts
to cause to be registered under the 1933 Act all of the Registrable Securities
that have been requested to be registered. If the total amount of Registrable
Securities that are to be included by the Issuer for its own account and at the
request of holders thereof exceeds the amount of securities that the managing
underwriter of the offering believes compatible with the success of the
offering, then the Issuer will include in such registration only the number of
securities which in the opinion of the managing underwriter can be sold, in the
following order:
(i) first, the securities of the Company;
(ii) then the Registrable Securities requested to be
included by any stockholder of the Issuer which has exercised a demand
registration right in connection with such offering; and
(iii) then the Registrable Securities requested to be
included by all other Stockholders and their transferees and any other Person
exercising piggyback registration rights with respect to such Offering pro rata
based on the number of Registrable Securities owned by each of them which each
of them requested be included in such registration or in such different
proportion as all such Persons shall agree upon.
(b) The Issuer shall retain the right to withdraw its
registration statement from filing prior to the effective date thereof, in which
event the holders of Registrable Securities who have elected to have their
Registrable Securities included therein shall have no further rights to register
their Registrable Securities under such registration statement pursuant to this
Section 10.1.
10.2 Obligations of the Issuer. Whenever required under Sections
10.1 hereof to use its best efforts to effect the registration of any shares,
the Issuer shall: (a) prepare and file with the SEC, a registration statement
with respect to the Registrable Securities and use its
best efforts to cause such registration statement to become effective; (b)
furnish to every holder of Registrable Securities included in the registration
statement ("Holder") and its permitted transferees such numbers of copies of
such registration statement, prospectuses and preliminary prospectuses as they
may reasonably request; and (c) use its best efforts to register and qualify the
securities covered by the registration statement under such securities or blue
sky laws of such jurisdictions and with such other governmental agencies or
authorities and take such other actions that may be reasonably requested to
enable Holders and their permitted transferees to consummate the disposition in
such jurisdictions of the Registrable Securities; and (d) if requested by the
managing underwriter for any underwritten registration enter into an
underwriting agreement with the underwriters for such offering ("Underwriting
Agreement") (i) satisfactory in substance and form to the Issuer and the
underwriters, and (ii) containing such representations and warranties by the
Issuer and such other terms as are customarily used in agreements of this type,
including, without limitation, indemnification and contribution obligations
customarily required by such underwriters in such agreement and indemnification
and contribution rights customarily provide to selling securityholders in such
agreement.
10.3 Obligations of the Holder. Each holder selling Registrable
Securities in any registration pursuant to Section 10.1 shall, as a condition
for inclusion of such Registrable Securities in such registration:
(a) execute and deliver an Underwriting Agreement (i)
satisfactory in substance and form to the Issuer and the underwriters, and (ii)
containing such representations and warranties and such other terms as are
customarily used in agreements of this type, including, without limitation,
indemnification and contribution obligations customarily required by such
underwriters in such agreement. Notwithstanding the foregoing, no underwriting
agreement (or other agreement in connection with such offering) shall require
any Holder to make any representations or warranties to or agreements with the
Issuer or the underwriters other than representations, warranties or agreements
regarding such Holder, such Holder's Registrable Securities and such Holder's
intended method of distribution and any other representation required by law;
(b) furnish to the Issuer such information regarding them, the
Registrable Securities held by it, and the intended method of disposition of
such securities as the Issuer shall reasonably request and as shall be required
in connection with any action to be taken by the Issuer hereunder; and
(c) to the fullest extent permitted by law, indemnify and hold
harmless the Issuer, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls the Issuer within
the meaning of the 1933 Act, and
each agent and any underwriter for the Issuer and any Person who controls any
such agent or underwriter and each other Holder and any person who controls such
Holder (within the meaning of the 1933 Act) against any losses, claims, damages
or liabilities (or actions in respect thereto) which arise out of or are based
upon an untrue statement of any material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, that such untrue statement or omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration; provided,
however, that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Issuer or any underwriter or
other indemnitee from whom the person asserting any such losses, claims,
damages, liabilities and judgments purchased Shares, or any person controlling
such Issuer or underwriter or other indemnitee, if the Issuer shall have
furnished any amendments or supplements to such preliminary prospectus and a
copy of such preliminary prospectus as so amended or supplemented was not sent
or given by or on behalf of such underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the prospectus as so amended and
supplemented by the Issuer would have cured the defect giving rise to such loss,
claim, damage, liability or judgment. Such Holder will reimburse any legal or
other expenses reasonably incurred by the Issuer or any such director, officer,
control person, agent, underwriter, or other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action.
10.4 Expenses of Registration. All expenses incurred in connection
with the registration pursuant to this Section 10 (excluding underwriter's
discounts and commissions attributable to the Holder's Registrable Securities,
and fees and expenses of Holders' counsel, all which shall be borne by Holders)
shall be borne by the Issuer.
11. TERM
11.1 This Agreement shall terminate with respect to the Company and
all Stockholders upon the occurrence of any of the following events:
(a) any Stockholder becoming the owner of all of the Shares
which are then subject to this Agreement;
(b) the merger, consolidation or combination of the Company
with or into, or the acquisition of the stock or assets of the Company by,
another person (other than an
Affiliate of the Company or Flowers) as a result of which the Stockholders and
Optionholders and their permitted transferees own less than fifty percent (50%)
of the Voting Power on a Fully Diluted Basis of such entity;
(c) the execution of a written instrument by the Company and
each of the Stockholders terminating this Agreement; or
(d) the completion of an IPO of Flowers or the Company (except
that in the event of an IPO of Flowers the provisions of Sections 9 and 10 shall
survive the termination of the Agreement).
11.2 This Agreement shall automatically terminate with respect to a
Stockholder or Optionholder in the event that his interest in his Shares and
Options completely terminates and, upon such complete termination, such
Stockholder or Optionholders shall have no further rights or obligations
hereunder other than those rights and obligations arising prior to such
termination. If such Stockholder or Optionholders subsequently acquires or
reacquires Shares or Options, he shall automatically become bound once again by
the terms of this Agreement. This Section in no event shall be interpreted so as
to relieve a Stockholder or Optionholders of liability for his breach of or
failure to comply with any term or provision hereof arising or existing prior to
or at the time of the termination of this Agreement.
12. MISCELLANEOUS
12.1 Expenses. Except as otherwise specifically provided in this
Agreement, each of the parties hereto shall bear their respective expenses
incurred in connection with the preparation, execution and performance of this
Agreement including, without limitation, all fees and expenses of the respective
parties' attorneys and other representatives. This Section 12.1 shall survive
the termination of this Agreement.
12.2 Notices. (a) Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally by
hand or by recognized overnight courier, telecopied or mailed (by registered or
certified mail, postage prepaid return receipt requested) if addressed to the
Stockholders or Optionholders at the addresses set forth on Schedule A hereto,
and as follows:
(i) If to Flowers, one copy to:
1-800-Flowers, Inc.
1600 Stewart Avenue
Westbury, New York 11590
Telecopier: (516) 237-6060
Attn: William Shea
with a copy to:
Gallagher Walker & Bianco
98 Willis Avenue
Mineola, New York 11501
Telecopier: (516) 248-2394
Attn: Gerard M. Gallagher, Esq.
(ii) If to the Company, one copy to:
The Plow & Hearth, Inc.
Route 230 West
Madison, Virginia 22727
Telecopier: (540) 948-5369
Attn: Peter G. Rice
with a copy to:
LeClair Ryan, a Professional Corporation
707 East Main Street, 11th Floor
Richmond, Virginia 23219
Telecopier: (804) 783-2294
Attn: Steven J. Keeler, Esq.
(b) Each such notice or other communication shall be effective
(i) if given by telecopier, when such telecopy is transmitted to the telecopier
number specified on Schedule A hereto (with confirmation of transmission); or
(ii) if given by any other means, when delivered at the address specified on
Schedule A hereto. Any party by notice given in accordance with this Section
12.2 to the other party may designate another address (or telecopier number) or
person for receipt of notices hereunder. Notices by a party may be given by
counsel to such party.
12.3 Entire Agreement. This Agreement (including the Schedules and
Exhibits) contains the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements, written or oral, with
respect thereto.
12.4 Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies. This Agreement may be amended upon the prior written consent of (i)
Flowers and its transferees other than Management Stockholders and Optionholders
and (ii) holders of at least a Majority-in-Interest of Management Stockholders.
This Agreement may be waived, only by a written instrument signed by the party
hereto waiving compliance. No failure or delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof. Nor shall any waiver on the part of any party of any such right, power
or privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any other or further exercise thereof or the exercise of any
other such right, power or privilege. Except as otherwise provided herein, the
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies that any party may otherwise have at law or in equity.
12.5 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State (except to the extent that
corporate governance matters set forth herein are required as a matter of law,
to be governed by the laws of the Commonwealth of Virginia), without regard to
the conflict of laws rules thereof.
12.6 Dispute Resolution. Any and all disputes, controversies or
claims arising out of or relating to this Agreement, or the enforcement or the
breach thereof, shall be settled by arbitration in Garden City, New York
administered by the American Arbitration Association under its Commercial
Arbitration Rules and the Supplementary Procedures for Large, Complex Disputes,
and judgment on the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
12.7 Consent to Jurisdiction. Subject to Section 12.6, each of the
parties hereto irrevocably and voluntarily submits to personal jurisdiction in
the State of New York and in the Federal and state courts in such state located
in the Eastern District of New York in any action or proceeding arising out of
or relating to this Agreement and agrees that all claims in respect of such
action or proceeding may be heard and determined in any such court. Each of the
parties hereto further consents and agrees that such party may be served with
process in the same manner as a notice may be given under Section 12.2. Each of
the parties hereto agrees that any action or proceeding instituted by any of
them against any other party with respect to this Agreement will be instituted
exclusively in the state courts located in, and in the United States District
Court for, the Eastern District of New York. The parties hereto irrevocably
and unconditionally waive and agree not to plead, to the fullest extent
permitted by law, any objection that they may now or hereafter have to the
laying of venue or the convenience of the forum of any action or proceeding with
respect to this Agreement in any such courts.
12.8 Binding Effect; No Assignment. This Agreement and all of its
provisions, rights and obligations shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors, heirs, legal
representatives and permitted assigns.
12.9 Further Assurances. Each of the parties shall do, execute,
acknowledge and deliver, or cause to be done, executed, acknowledged or
delivered, all such further documents, instruments or assurances, as may be
necessary, desirable or proper to carry out the intent and accomplish the
purposes of this Agreement.
12.10 Severability. If any provision of this Agreement for any
reason shall be held to be illegal, invalid or unenforceable, such illegality
shall not affect any other provision of this Agreement, this Agreement shall be
amended so as to enforce the illegal, invalid or unenforceable provision to the
maximum extent permitted by applicable law, and the parties shall cooperate in
good faith to further modify this Agreement so as to preserve to the maximum
extent possible the intended benefits to be received by the parties.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
12.12 Headings; Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The use of the neuter gender herein
shall be deemed to include the masculine and feminine genders wherever necessary
or appropriate, the use of the masculine gender shall be deemed to include the
neuter and feminine genders and the use of the feminine gender shall be deemed
to include the neuter and masculine genders wherever necessary or appropriate.
12.13 Third Parties. Except as specifically set forth or referred to
herein, nothing herein express or implied is intended or shall be construed to
confer upon or give to any person other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Stockholders
Agreement as of the date first above written.
THE PLOW & HEARTH, INC.
By:_____________________________________
1-800 FLOWERS, INC.
By:_____________________________________
MANAGEMENT STOCKHOLDERS:
Donald C. Beck
Michael E. Burns
Carol A. Cate
Dawn M. Cottrell, as Joint Tenant with
Right of Survivorship
Ronald J. Cottrell, as Joint Tenant with
Right of Survivorship
James K. Kepchar
IN WITNESS WHEREOF, the parties have executed this Stockholders Agreement
as of the date first above written.
LASAHANE INVESTMENTS
By: Frank Borden Hanes, Jr., its
Managing Partner
By:_______________________________
Name:
Title:
Peter G. Rice
THE PETER VAN S. RICE FAMILY TRUST
By:_____________________________________
Name:
Title: as Trustee
Steven R. Wagner
TUCKER ANTHONY, INC., CUSTODIAN FBO/C.
CARTER WALKER, JR. IRA
By:_____________________________________
Name:
Title: as Trustee
IN WITNESS WHEREOF, the parties have executed this Stockholders Agreement
as of the date first above written.
OPTIONHOLDERS:
Anna M. Allen
Caroline C. Busick
Dawn M. Cottrell
Thomas M. Freshwater
Norman D. Hensel
Robert G. Kohler
Margaret S. Rice
Peter M. Rice
Richard N. VanSantvoord
John H. Whitlow
Schedule A
% of
Outstanding
Options to Shares giving
Related No. of Purchase effecting to Options to % of Out-
Employee Shares of % of Common Stock Exercise of Purchase Common standing
Stockholder/ of Owned Outstanding under the Options under Stock under the Shares
Optionholder Common Stock Shares Existing Plan Existing Plan New Plan Fully Diluted
------------ ------- ------------ ------ ------------- ------------- -------- -------------
Name:
Address:
Tel No.:
Fax No.:
|
STEVE: PLEASE HAVE THE COMPANY BEGIN TO PREPARE THIS SCHEDULE]
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated effective as of
January 4, 1999, is entered into by and between 1-800-FLOWERS, INC., a Delaware
corporation ("Company"), and JOHN W. SMOLAK, residing at 158 Brewster Road,
Wyckoff, New Jersey 07481 ("SMOLAK").
WHEREAS, Company deems Smolak's services and experiences useful and
necessary; and
WHEREAS, Smolak is willing to provide services and experiences as an
employee of Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. EMPLOYMENT. Company hereby employs Smolak, and Smolak hereby accepts
such employment, upon the terms and conditions set forth herein.
2. DUTIES. Smolak is employed in the position of Senior Vice President of
Finance and Administration. Smolak shall perform faithfully and diligently the
duties customarily performed by persons in the position for which Smolak is
employed and such other duties as the Board of Directors or the President of
Company shall designate to Smolak from time to time. Smolak shall devote
Smolak's full business time and efforts to the rendition of all services and to
the performance of such duties as are set forth herein or as may be designated
in the future, and shall at all times be in compliance with, and ensure that
Company is in compliance with, any and all laws, rules and regulations
applicable to Company or its business. Smolak's principal place of employment
shall be the Company's headquarters, currently in Westbury, New York, subject to
travel as may be required for the rendering of services hereunder.
3. COMPENSATION/BENEFITS.
3.1 Base Salary. As compensation for the proper and satisfactory
performance of all duties to be performed by Smolak hereunder, Company shall pay
to Smolak a base annual salary of $260,000 payable in equal biweekly
installments, payable in arrears, less required deductions for state and federal
withholding tax, Social Security and other employee taxes, and such other and
further deductions required by law or lawful order and other permissible
deductions authorized or requested by Smolak. Such base salary shall be reviewed
on an annual basis by the Company as provided for herein and shall be subject to
such increases, if any, as the Company, in its own discretion, from time to time
may determine. Notwithstanding anything to the contrary herein, the first review
of the base salary shall occur subsequent to the end of fiscal year 2000.
3.2 Health Insurance. Smolak shall be covered under the Company's
Health Insurance Plan under the terms, conditions, and rates as offered to other
officers of the Company. In the event Smolak incurs any health insurance premium
expenses for the continuation of health insurance benefits for the period
between the effective date of this Agreement and the date his health insurance
coverage commences under the Company's Health Insurance Plan, then the Company
will reimburse Smolak the difference between the premium cost of his coverage
under COBRA and the Company's coverage.
3.3 Vacation and Sick Leave. Company shall grant three (3) weeks of
paid vacation per year and five (5) days of paid sick/personal leave per year,
prorated for any portion of a year to the date of termination. The timing and
duration of any vacation shall be subject to the prior written approval of
Company.
3.4 Employee Benefits. The Company shall offer Smolak such other
fringe benefits which, in the Company's sole discretion, it determines and is
consistent with those offered by the Company to its full time officers.
3.5 Stock Options. Attached is a copy of the Stock Option Agreement
to be executed simultaneously with this Employment Agreement.
3.6 Bonus Compensation. Smolak shall be entitled to an annual bonus
up to thirty percent (30%) of base salary pursuant to the Company's approved
Bonus Plan, provided both Smolak and the Company each attain the performance
goals established for Smolak and the Company in the sole discretion of the
President of the Company. The first review for this annual bonus shall occur
following the end of the Company's fiscal year ending on or about June 30, 1999,
and shall be pro-rated for the time Smolak was employed by the Company up to the
end of said fiscal year.
3.7 No Accumulation. Smolak shall not be entitled to accumulate
unused vacation, sick leave, or other fringe benefits from year to year, without
the prior written consent of Company. Further, Smolak shall not be entitled to
receive payments in lieu of any compensation or payment for or in lieu of said
benefits prorated to the date of termination of this Agreement.
3.8 Payment of Compensation Upon Termination. Upon termination,
Smolak shall be entitled to the compensation set forth as "base salary" herein,
prorated to the effective date of such termination, plus any unused vacation
accrued prior to the date of termination. Furthermore, and provided termination
is pursuant to Section 4.1, and that Smolak was employed by the Company for a
minimum of 180 days in the fiscal year during which his employment is so
terminated, then and in that event, Smolak shall be entitled to receive Bonus
Compensation as provided for in Section 3.6 above, prorated for the time Smolak
was employed by the Company during such fiscal year.
3.9 Expenses. Company shall reimburse Smolak for all documented and
reasonable out of pocket expenses incurred on behalf of Company by Smolak. Until
such date that Smolak has completed relocation to New York, he shall be
reimbursed for commuting expenses, including the cost of gasoline and tolls for
the commute from New Jersey to Westbury.
3.10 Relocation Expenses. As full reimbursement for Smolak's
relocating to New York, the Company will pay to Smolak a reasonable amount
towards his relocation costs actually incurred, including such costs related to
the sale of his New Jersey home, purchase of new home, packing, shipment and
unpacking of household goods, temporary storage not to exceed thirty (30) days,
temporary living expenses not to exceed thirty (30) days and incidental expenses
not to exceed $1,000.00. All costs require the prior approval of the Company.
The parties agree that the total costs hereunder shall in no event exceed the
sum of $79,350 plus gross-up of said actual approved costs
based upon Smolak's applicable federal, state and local income tax rates.
4. TERMINATION
4.1 Termination Without Cause. The death of Smolak shall
automatically terminate this Agreement and Smolak's employment. This Agreement
and Smolak's employment shall be terminated should Smolak resign from his
position with the Company as a result of (i) James F. McCann and his affiliates,
owning less than fifty percent (50%) of the outstanding common stock of the
Company, or (ii) the Company relocates its corporate headquarters outside of the
Tri-State metropolitan area within the first two (2) years following Smolak's
commencement of employment.
4.2 Termination With Cause. The Company shall have the right to
terminate this Agreement and Smolak's employment upon the occurrence of any one
of the following events:
(a) Smolak fails to perform faithfully, diligently and
expeditiously his duties under this Agreement, which failure continues
unremedied for a period of fifteen (15) days after his receipt of written notice
from the Company specifying in reasonable detail the nature of the failure and
the manner in which the Company reasonably requires the failure to be corrected;
or
(b) Smolak is disabled, mentally or physically or both, for
four (4) or more consecutive months or an aggregate of six (6) months in any
nine (9) month period (as used in this Section 4, "disabled" shall have the
meaning specified in the Company's disability insurance policy, or if no such
policy is then maintained by the Company, shall mean the inability of Smolak to
diligently and expeditiously perform, in all essential respects, Smolak's
ordinary functions and duties as an employee of the Company on a full-time basis
by reason of physical or mental illness or injury); or
(c) Smolak engages in any conduct which is unethical, illegal
or which otherwise brings adverse notoriety to the Company or which has a
substantial adverse effect on the name, public image or reputation of the
Company; or
(d) Smolak (i) is declared of unsound mind by an order of
court, (ii) is convicted of or pleads guilty or nolo contendere to a felony or
(iii) fraudulently or intentionally commits an act which is directly and
substantially detrimental to the Company; or
(e) Resignation by Smolak except for reasons set forth in
Section 4.1.
4.3 (a) If Smolak's employment is terminated at any time under
Section 4.1 or 4.2, Smolak shall not be entitled to any compensation whatsoever
from the Company effective as of the date of termination except as specifically
provided for in Section 3.8.
(b) In the event that Smolak's employment is terminated during
the first twelve (12) months following the effective date of this Agreement
under Section 4.2 (excluding 4.2(b) and 4.2(d)(i)), then Smolak shall repay to
the Company a pro rata share of the relocation expenses paid to him pursuant to
Section 3.10.
(c) In the event that Smolak's employment is terminated
pursuant to Section 4.1 during the first twelve (12) months following his
commencement of employment, then the Company's sole obligation to Smolak shall
be to continue paying Smolak's base salary as provided for in Section 3.1 for
the balance of said initial twelve (12) months and any benefits due Smolak under
Sections 3.2, 3.4 and 3.8 hereof for the balance of said initial twelve (12)
months. The Company's obligation under this section shall terminate upon Smolak
obtaining other employment. The President, in his sole and absolute discretion,
may, but is not obligated to, increase the amounts payable under Section 4.3(c)
at the time of Smolak's termination from employment hereunder.
4.4 The parties hereto acknowledge that Smolak's employment is "at
will", meaning either party may terminate the employment relationship at any
time and for any reason not prohibited by law.
5. CONFIDENTIALITY.
5.1 Acknowledgment of Proprietary Interest. Smolak recognizes the
proprietary interest of Company in any Confidential Information of Company. As
used herein, the term "Confidential Information" means all information relating
to Company and any of Company's subsidiary corporations and affiliates and their
respective customers, operations, products, sales, finances, trade secrets, and
business, including, without limitation, any information encompassed in any
reports, investigations, customer lists (whether or not written) and customer
information, business plans and business relationships, information on suppliers
and fulfilling florists, experiments, research or developmental work,
experimental work, work in progress, drawings, designs, plans, proposals, codes,
marketing and sales programs, financial projections, financial data including
sales and pricing information and all other financial data, cost summaries,
pricing formula and trademarks, service marks, and all concepts or ideas,
materials or information related to the business of Company, its subsidiary
corporations and affiliates. Confidential Information also includes, without
limitation, all information Smolak received from third parties in the course of
his employment which was provided to him in connection with his duties for the
Company. Smolak acknowledges and agrees that any and all Confidential
Information learned by Smolak during the course of his employment by Company or
otherwise, whether developed by Smolak alone or in conjunction with others or
otherwise, shall be and is the sole property of Company.
5.2 Covenant Not to Divulge Confidential Information. Smolak
acknowledges and agrees that Company is entitled to prevent the disclosure of
Confidential Information. As a portion of the consideration for the employment
of Smolak and for the compensation being paid to Smolak by Company, Smolak
agrees at all times during his employment by Company and thereafter to hold in
strictest confidence, and not to disclose or allow to be disclosed to any
person, firm or corporation, other than to persons engaged by Company to further
the business of Company, and not to use except in the pursuit of the business of
Company, the Confidential Information, without the prior written consent of
Company, including Confidential Information developed by Smolak. Information
shall not be subject to the foregoing restrictions to the extent such
information (i) is or becomes public knowledge other than by means of a breach
of confidentiality by Smolak or (ii) which Smolak is required to disclose
pursuant to applicable law provided Smolak immediately notifies the Company and
uses reasonable and lawful efforts to resist making any disclosure not approved
by the Company.
5.3 Return of Materials at Termination. In the event of any
termination of Smolak's employment, Smolak will promptly deliver to Company all
materials, property, documents, data and other information belonging to Company
or pertaining to Confidential Information. Smolak shall not take any materials,
property, documents or other information, or any reproduction or excerpt
thereof, belonging to Company or containing or pertaining to any Confidential
Information.
5.4 Remedies Upon Breach. As a result of the position which Smolak
has occupied and will continue to occupy, Smolak was and will be trusted with
Confidential Information. Smolak represents that he has not and shall not
divulge to any person or entity, any Confidential Information, nor has he nor
shall he utilize any Confidential Information on his own behalf or on behalf of
any other person or entity. Smolak agrees that his violation of any term,
provision, covenant, or condition of this Section 5 of this Agreement shall
result in irreparable injury and damage to the Company which will not be
adequately compensated in money damages and that the Company will have no
adequate remedy at law therefore. In such event, the Company and Smolak agree
that, in addition to any other legal and equitable remedies which the Company
may have, the Company shall be entitled to such temporary, preliminary or
permanent restraining orders, decrees or injunctions as may be deemed necessary
to protect the Company against, or on account of, such violation or threatened
violation. However, nothing in this Agreement shall be construed to limit the
Company's remedies for or defenses to any action, suit or controversy arising
out of this Agreement or otherwise.
6. COVENANT NOT TO COMPETE
6.1 During the term of Smolak's employment with the Company, and for
a period of one (1) year following termination of his employment, Smolak shall
not do any of the following, within the United States, directly or indirectly,
without the prior written consent of the Company:
(a) Engage or participate, in any manner, in a Competitive
Business. As used herein, the term "Competitive business" means (i) the retail,
mass marketing, franchise, wholesale, catalog, supermarket, wholesale club,
internet or telemarketing floral businesses, (ii) any Floral Wire Service
business, (iii) any business which receives five percent (5%) or more of its
gross revenues from the sale of floral products, or (iv) any business which is
primarily engaged in the selling of gift baskets.
(b) Become interested in (as owner, stockholder, lender,
partner, coventurer, director, officer, employee, agent, consultant or
otherwise) any person, firm, corporation, association or other entity engaged in
any business that is the same as or similar to the business of the Company or
become interested in (as owner, stockholder, lender, partner, coventurer,
director, officer, employee, agent, consultant or otherwise) any portion of the
business of any person, firm, corporation, association, or other affiliate where
such portion of such business is the same as or similar to the business of the
Company. Notwithstanding the foregoing, Smolak may hold not more than 5% of the
outstanding securities of any class of any publicly-traded company that is so
engaged;
6.2 During the term of Smolak's employment with the Company, and for
a period of two (2) years following termination of his employment, Smolak shall
not do any of the following, within the United States, directly or indirectly,
without the prior written consent of the Company:
(a) Influence or attempt to influence any person to either (i)
terminate or modify his employment with the Company or (ii) employ, directly or
indirectly, any person employed by the Company as an employee;
(b) Influence or attempt to influence a supplier or customer
of the Company or any other person or entity with whom the Company shall have
dealt, to terminate or modify any written or oral agreement or course of dealing
with the Company; or
(c) Influence, or attempt to influence any customer of the
Company or any other person or entity with whom the Company shall have dealt,
for the purpose of offering or selling any products or services which are
identical, substantially similar or comparable to the services or products
offered by the Company.
6.3 For purposes of this Paragraph 6, the term "Company" includes
all subsidiary corporations and affiliates. The term Floral Wire Service
business includes, without limitation, FTD, AFS, Carik, Teleflora, and Florafax.
6.4 Smolak acknowledges and agrees that (i) this Section 6 is
necessary for the protection of the legitimate business of the Company; (ii) the
restricted covenants set forth in this Section 6 are reasonable and valid in
geographical and temporal scope and in all other respects; and (iii) Smolak has
received adequate consideration for the execution, delivery and performance of
this Agreement.
6.5 In the event any court decides that the specific provisions of
Paragraph "6", or any part thereof, are not enforceable, COMPANY shall petition
that court to determine to what extent such provision, or part thereof, must be
modified in order to be considered enforceable and, for purposes of the case in
which the issue arose and thereafter in the territorial jurisdiction of that
court, such provision or part thereof shall be interpreted as that court or
panel so determines. Failure by Smolak to fully perform his obligations under
this Section 6 will be deemed a breach of this Agreement, upon which the Company
will be entitled to seek injunctive relief and money damages including
reasonable attorneys' fees, in addition to any other legal and equitable
remedies which the Company may have available to it.
7. INSURANCE. Company may, at its election and for its benefit, insure
Smolak against accidental loss or death and Company shall be entitled to any and
all insurance proceeds in the event of any such accidental loss or death. Smolak
shall submit to such physical examination and supply such information as may be
required in connection therewith.
8. GOVERNING LAW/DISPUTE RESOLUTION. This Agreement shall be interpreted,
construed, governed and enforced according to the laws of the State of New York
without regard to the choice of law rules thereof.
IN CONSIDERATION AND AS A MATERIAL CONDITION OF THE EMPLOYMENT AND
CONTINUATION OF EMPLOYMENT OF SMOLAK, SMOLAK AND THE COMPANY AGREE TO SUBMIT TO
BINDING ARBITRATION FOR RESOLUTION
ANY EMPLOYMENT DISPUTE (AS THIS TERM IS DEFINED BELOW), AND FURTHER AGREE THAT
BINDING ARBITRATION IS THE EXCLUSIVE MEANS FOR RESOLUTION OF SUCH DISPUTE AND
THAT BOTH SMOLAK AND COMPANY HEREBY WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO
RESOLVE ANY DISPUTE THROUGH ANY OTHER MEANS, INCLUDING A JURY TRIAL OR A COURT
TRIAL IN A LAWSUIT.
The term "Dispute," whether in the singular or plural, means (a) all
claims, disputes or issues of which Smolak is or should be aware during the
employment relationship or after termination thereof, and which relate to or
arise out of the employment of Smolak by the Company (including without
limitation any claim of constructive termination, any benefits-related claims or
any related claims against an individual employee), and (b) all Company
counterclaims against Smolak. The term "Dispute" further includes without
limitation all contractual, statutory and common law claims. Notwithstanding
anything to the contrary contained herein, Company retains the right to seek
injunctive relief and/or commence suit for money damages for any such claim
which relate to or arise out of the confidentiality or non-competition
conditions of employment and the parties hereby irrevocably consent to the
jurisdiction of the Supreme Court of the State of New York, County of Nassau for
any such action or proceeding.
Arbitration shall be held in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect and the
Dispute will be heard by a panel of three (3) arbitrators. Arbitration shall be
held at the office of the American Arbitration Association located in Garden
City, New York, or, in the event no such office exists in Garden City, then the
Arbitration shall be held in an office of the American Arbitration Association
in Nassau County, New York. If none, then at their offices in New York, New
York. Judgment upon any arbitration award rendered may be entered in any court
having jurisdiction thereof.
9. ATTORNEYS' FEES. In the event of any litigation or arbitration
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the losing party
reasonable expenses, attorneys' fees and costs incurred therein or in the
enforcement or collection of any judgment or award rendered therein. The
"prevailing party" means the party determined by the court or arbitrators to
have most nearly prevailed, even if such party did not prevail in all matters,
not necessarily the one in whose favor a judgment is rendered.
10. AMENDMENTS. No amendment or modification of the terms or conditions of
this Agreement shall be valid unless in writing and signed by the parties
hereto.
11. SUCCESSORS AND ASSIGNS. The rights and obligations of the parties
under this Agreement shall inure to the benefit of and shall be binding upon
their successors and assigns. Smolak shall not be entitled to assign any of
Smolak's rights or obligations under this Agreement.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the employment of Smolak.
13. NOTICE. Any notice, statement, report, request or demand required or
permitted
to be given by this Agreement shall be effective only if in writing, delivered
personally against receipt therefore or mailed by certified mail, return receipt
requested, or by private overnight delivery to the parties at the addresses
hereafter set forth, or at such other places that any party may designate by
written notice to the other.
Notices to the Company shall be sent to:
1-800-FLOWERS, INC.
1600 Stewart Avenue
Westbury, NY 11590
Attention: James F. McCann
with a copy to:
GALLAGHER,WALKER, BIANCO & PLASTARAS
98 Willis Avenue
Mineola, New York 1101
Attention: Gerard M. Gallagher, Esq.
Notice to Smolak shall be sent to:
John W. Smolak
158 Brewster Road
Wyckoff, New Jersey 07481
All such notices, statement, reports, requests, or demands shall be
effective upon:
(i) At the time of service, if personally served.
(ii) Upon the earlier of actual receipt or three (3) calendar days
after deposit in the United States mail, properly addressed and postage prepaid,
return receipt requested, if served by certified mail.
(iii) Twenty-four (24) hours after delivery by the party giving the
notice, statement or demand if by private overnight delivery.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
1-800-FLOWERS, INC.
By:________________________________
John W. Smolak
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of April 3, 1998,
between THE PLOW & HEARTH, INC., a Virginia corporation (the "Company"), and
PETER G. RICE (the "Executive").
W I T N E S E T H:
WHEREAS, the Executive is the President and Chief Executive Officer of the
Company;
WHEREAS, the Executive possesses an intimate knowledge of the business and
affairs of the Company;
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the Executive's contribution as President and Chief Executive Officer to
the growth and success of the Company has been substantial and desires to assure
the Company the continued employment of the Executive as President and Chief
Executive Officer of the Company and to compensate him therefor, on the terms
and conditions set forth below; and
WHEREAS, the Executive desires to continue to serve as President and Chief
Executive Officer of the Company, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations
and warranties set forth herein, and for other good and valuable consideration,
it is hereby agreed as follows:
1. Certain Definitions. As used herein, the following terms shall have the
following meanings:
"Affiliate" shall mean, with respect to any Person, (i) any other
Person, who directly or indirectly, is in control of, is controlled by or is
under common control with, such Person, and (ii) any natural person who is a
director or officer of such Person or of any Person described in clause (i)
above. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of capital stock, by
contract or otherwise.
"Base Salary" shall have the meaning provided in Section 5(a).
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean (i) the conviction of the Executive of any
felony, or the conviction of the Executive of a misdemeanor which involves moral
turpitude, or the entering by him of a plea of guilty or nolo contendere with
respect to any of the foregoing; (ii) any conduct by the Executive which in the
reasonable determination of the Board is likely to adversely affect in any
material respect the reputation or public image of the Company or any Affiliate
thereof, provided, the Executive is given the opportunity upon five (5) days'
prior notice to be heard by the Board prior to such termination; (iii) the
commission by the Executive of any act involving fraud, misappropriation of
funds, dishonesty, disloyalty, breach of fiduciary duty or other gross
misconduct injurious to the Company or any Affiliate; (iv) the determination by
the Board that the Executive is dependent upon the use of alcohol or drugs; (v)
a breach by the Executive of Sections 10 and 11 of this Agreement or a breach by
the Executive of any other Confidentiality Agreement between the Executive and
the Company or any other Non-Competition Agreement between the Executive and the
Company; or (vi) a violation or breach by the Executive of any material term of
this Agreement and the failure of the Executive to cure such violation or breach
within ten (10) days after receipt of written notice thereof from the Company.
"Confidentiality Agreement" shall mean any agreement or arrangement
between any member of the Flowers Group and the Executive, which restricts or
otherwise limits the disclosure or use of any confidential, proprietary or other
information or material of one or more members of the Flowers Group by the
Executive, including, but not limited to, this Agreement or, any other agreement
or arrangement which is included as part of any other employment or other
agreement.
"Constructive Termination Without Cause" shall mean a termination of
the Executive's employment at his initiative as provided in Section 9(b) hereof
following the occurrence during the Term, without the Executive's prior written
consent, of one or more of the following events: (i) a reduction in the
Executive's then current Base Salary payable to him under Section 5(a); (ii)
failure to provide the Executive with any material employee benefit required to
be provided pursuant to Section 6 below; (iii) the failure to elect or reelect
the Executive as President and Chief Executive Officer of the Company; (iv) the
failure to permit the Executive to serve on the Senior Planning Team of Flowers
and the Executive Committee of the Senior Planning Team of Flowers, provided
that such groups continue to exist; (v) an action by the Company which results
in a material diminution in the Executive's authority or duties as the President
and Chief Executive Officer of the Company, excluding any isolated or
inadvertent action; (vi) if the Executive is relocated to a Company office that
is located more than 65 miles from the Company's current headquarters located at
State Route 230 West, Madison, Virginia; or (vii) if Flowers has violated or
breached the commitments and principles set forth on Exhibit A annexed hereto
and has failed to cure such violation or breach within ten (10) days after
receipt of written notice thereof from the Executive.
"Disability" shall mean the determination by a physician selected by
the Company that the Executive is unable, by reason of physical or mental
illness, to perform his duties and responsibilities under this Agreement for a
period of 90 consecutive days or a period of in excess of 180 days (whether or
not consecutive) during any calendar year during the Term or the determination
of a court of competent jurisdiction that the Executive is of unsound mind or
otherwise is incapable of carrying out his duties and responsibilities as
President and Chief Executive Officer of the Company.
"Flowers" shall mean 1-800-Flowers, Inc., a Delaware corporation.
"Flowers Group" shall mean Flowers, any of its Affiliates and its
Subsidiaries.
"Non-Competition Agreement" shall mean any agreement or arrangement
between any member of the Flowers Group and the Executive, which restricts or
otherwise limits the ability of the Executive from directly or indirectly
engaging in a business competitive with, or otherwise similar to, the business
of any member of the Flowers Group, including, but not limited to, this
Agreement or, any other agreement or arrangement which is included as part of
any other employment or other agreement.
"Person" or "person" shall mean an individual, corporation,
partnership, joint venture, limited liability company, association, trust,
unincorporated organization or other entity, or other organization (whether or
not a legal entity), including a government or political subdivision or an
agency or instrumentality thereof.
"Stockholders' Agreement" shall mean that certain Stockholders'
Agreement dated the date hereof, among the Company, Flowers and the management
stockholders and optionholders listed on Schedule A thereto, as the same may be
amended, modified or supplemented from time to time.
"Subsidiary" of any Person shall mean any entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the Board or other Persons performing similar functions are owned directly or
indirectly through one or more intermediaries, or both, by such Person.
2. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, upon the terms and conditions set
forth herein.
3. Term. The term of the Executive's employment under this Agreement shall
commence on the date hereof and shall end on the earlier of (i) the later of the
third anniversary of the date hereof or the Scheduled Expiration Date (as
defined below), or (ii) the date the Executive's employment under this Agreement
terminates (together with any extensions as provided in the following sentence,
the "Term"). The third anniversary of the date hereof, or in the event of any
extension, the next succeeding anniversary thereof, is
sometimes referred to herein as the "Scheduled Expiration Date." The Term shall
be automatically extended for additional, successive one-year terms unless
either the Company or the Executive gives the other written notice of its
intention to terminate this Agreement no less than ninety (90) days prior to the
Scheduled Expiration Date.
4. Position and Duties. (a) During the Term, the Executive shall serve as
the President and Chief Executive Officer of the Company and, subject to the
supervision of the Chairman of the Board of the Company, and the Board, and
subject to the terms and provisions of the Stockholders' Agreement, the
Executive shall have general and active charge, control and supervision of the
business, property and affairs of the Company. The Executive shall faithfully
and diligently perform such duties, as well as such other services and duties as
from time to time may be prescribed by the Board. The Executive agrees, subject
in each case to his election as such and without additional compensation, to
serve during the Term in such additional offices to which he may be elected from
time to time in the Company's Affiliates and to serve as a director and as a
member of any committee of the Board and as a director and as a member of any
committee of the board of directors of any of the Company's Affiliates.
(b) During the Term and subject to the provisions of Section 10(a),
(i) the Executive's services shall be rendered on a full-time, exclusive basis,
(ii) the Executive will apply on a full-time basis all of his skill and
experience to the performance of his duties in such employment, and (iii) the
Executive shall have no other employment or outside business activities. The
foregoing provisions shall not, however, prohibit the Executive from (i)
acquiring, solely as an investment, securities of any person which are
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and which are publicly traded, so long as he is
not part of any group required to make any filing under Section 13(d) of the
Exchange Act (or any successor rule) in respect of such person and such
securities do not constitute 2% or more of any class of outstanding securities
of such person or (ii)(A) serving on the boards of a reasonable number of trade
associations and/or charitable organizations, (B) engaging in charitable
activities and community affairs and (C) managing his personal investments and
affairs; provided that the foregoing activities do not in the aggregate
interfere in any material respect with the proper performance of his duties and
responsibilities hereunder.
5. Compensation. (a) Base Salary. The Company shall pay or cause to be
paid to the Executive during the Term a base salary (the "Base Salary") at the
rate of $200,000 per annum, which Base Salary may be increased from time to time
at the discretion of the Board. In determining the amount of any increase in the
Base Salary, the Board shall consider, among other factors, the Company's
profitability, the Executive's contribution to that profitability, and the base
salaries paid to executives at the same level as the Executive in comparable
companies in the same industry as the Company is then engaged, as indicated in
reliable industry publications. The Base Salary shall be payable in monthly or
more frequent installments in accordance with the Company's regular payroll
practices for senior executives.
(b) Bonus. In addition to the Base Salary, through the earlier of
December 31, 1998 or the expiration of the Term, the Company shall maintain for
the benefit of the Executive, the annual profit sharing bonus program (the
"Profit Sharing Plan") currently in effect on the date hereof. The amount of the
Profit Sharing Plan shall be determined at the discretion of the Board, using
substantially similar criteria as in effect for the determination of the amount
of the Profit Sharing Plan for the year ended December 31, 1997. The Executive's
percentage participation in the Profit Sharing Plan shall be determined by the
Board in its discretion, after considering, among other factors, the
recommendations of the Executive. For the period beginning January 1, 1999
through the expiration of the Term, the Executive shall be eligible to
participate in an annual bonus pool established by the Company based upon the
Company's annual performance. The amount of and the Executive's percentage
participation in such bonus pool, if any, shall be determined at the discretion
of the Board. In making any such determination, the Board shall consider, among
other factors, the Company's profitability, the Executive's contribution to that
profitability, and the bonus compensation paid to executives at the same level
as the Executive in comparable companies in the same industry as the Company is
then engaged, as indicated in reliable industry publications.
(c) Automobile. During the Term, the Company shall provide the
Executive with the use of a Company-owned or leased automobile of a type to be
agreed upon by the Executive and the Company. The Company will bear all
insurance, gasoline, registration, maintenance and repair costs incident to the
Executive's use of such automobile in the performance of his duties hereunder.
6. Employee Benefit Programs. Subject to applicable law, through the
expiration of the Term, the Company agrees to provide the Executive the
following:
(a) the Company shall pay on the Executive's behalf all premiums,
not in excess of $27,081 per year, that become due on or after the date hereof
that are required to maintain in effect in its current form and "face amount"
that certain split dollar insurance policy designated policy number #N02720072
(the "Split Dollar Policy") issued to the Rice Family Trust (the"Trust") by the
Life Insurance Company of Virginia (the "Insurance Company"); provided, however,
that the Trust executes an irrevocable split dollar agreement in a form
prescribed by the Company and filed with the Insurance Company assigning to the
Company the right to recover, from the cash value and any death proceeds of the
Split Dollar Policy, any and all amounts paid by the Company with respect to the
Split Dollar Policy;
(b) the Company shall pay on the Executive's behalf all premiums,
not in excess of $5,500 per year, that become due on or after the date hereof
that are required to maintain in effect in its current form that certain long
term disability policy designated policy number #P448961 issued for the benefit
of the Executive by the Principal Mutual Life Insurance Company (the "Long Term
Disability Policy") (and the Company shall treat and report all such payments as
additional taxable compensation paid to the Executive); and
(c) the Company shall maintain for the benefit of the Executive all
other employee benefits plans and programs not otherwise described herein
maintained by the Company generally on behalf of its employees on the date
hereof; provided that in the event that the Company's maintenance of such plans
and programs would adversely affect the tax treatment of any benefit provided to
any other employee of the Company or any other person included in the Flowers
Group or the tax qualified status of any employee benefit plan or program
maintained by the Company or any other person included in the Flowers Group,
during such period, the Company may instead provide the Executive with benefits
that are comparable to those generally provided to employees of Flowers from
time to time.
7. Reimbursement of Expenses. During the Term, the Company shall pay or
reimburse the Executive for all reasonable travel, entertainment and other
business expenses actually incurred or paid by the Executive in the performance
of his duties hereunder upon presentation of expense statements or vouchers or
such other supporting documentation as the Company may reasonably require.
8. Vacations. The Executive shall be entitled to all such paid holidays as
are made available to the Company's senior level executives. In addition, the
Executive shall be entitled to four (4) weeks of paid vacation during each year
of the Term (and a pro rata portion thereof for any portion of the Term that is
less than a full year). Any unused vacation days during any year shall not be
carried forward to subsequent years, nor shall the Executive receive any
additional compensation for such unused vacation days.
9. Termination of Employment.
(a) Termination Due to Death; Disability or Cause.
(i) Death. The Executive's employment shall immediately
terminate upon his death.
(ii) Disability. The Company may terminate the Executive's
employment, by written notice delivered to him, due to his Disability.
(iii) Cause. The Company may terminate the Executive's
employment for Cause upon written notice to the Executive specifying the
particulars of the conduct of the Executive forming the basis for such
termination.
(iv) Payment Upon Termination. Upon termination of Executive's
employment due to death, Disability or for Cause, the Company shall pay to the
Executive or his estate:
(A) any amounts earned, accrued or owing but not yet
paid as of the date of the Executive's death or termination of the Executive's
employment under Sections 5, 6 or 7 above. Without in any way obligating the
Company to provide a long-term disability income plan or policy to its employees
(a "Disability Plan") (except as may be required pursuant to Section 6 (b)), in
the case of Disability, if the Company shall then maintain a Disability Plan,
the Company shall pay the Executive's Base Salary until the earlier of (i) the
commencement of payments, if any, under a Disability Plan or (ii) six months
after the termination of the Executive's employment with the Company as a result
of such Disability; and
(B) such other benefits, if any, as are payable to or
for the benefit of the Executive or his estate as of the date of the Executive's
death or termination in accordance with applicable plans and programs of the
Company.
(b) Termination Without Cause or Constructive Termination Without
Cause.
(i) Resignation. The Executive may terminate his employment
due to a Constructive Termination Without Cause upon ten (10) days prior written
notice to the Company specifying the particulars of the conduct, action or
circumstance forming the basis for such resignation.
(ii) Payment Upon Termination. In the event the Executive's
employment is terminated by the Company without Cause, other than due to his
Disability or death, or is terminated by the Executive due to a Constructive
Termination Without Cause, the Executive shall be entitled to:
(A) an amount equal to his Base Salary (at the applicable rate
in effect at the date of such termination of his employment) through the
Scheduled Expiration Date;
(B) any amounts earned, accrued or owing but not yet paid as
of the date of the termination of the Executive's employment under Sections 5, 6
or 7 above;
(C) such other benefits, if any, as are payable to or for the
benefit of the Executive as of the date of the Executive's termination in
accordance with applicable plans and programs of the Company;
(D) substantially the same health and life insurance coverages
provided to the Executive immediately prior to such termination through the
Scheduled Termination Date; and
(E) continued payment of the premiums required to be paid
pursuant to Sections 6(a) and 6(b) with respect to the Split Dollar Policy and
the Long Term Disability Policy through the Scheduled Termination Date.
10. Covenant Not-to-Compete. During the Term and for a period of two years
immediately following the termination of the Executive's employment with the
Company for any reason other than as a result of a Constructive Termination
Without Cause or a termination without Cause (the "Covenant Period"):
(a) The Executive agrees that he will not, directly or indirectly,
as a partner, officer, employee, director, stockholder, proprietor, other equity
owner, consultant, representative, agent or otherwise own or operate any
business or person, or otherwise become or be interested in, or associate with
or render assistance to any person (other than the Company or the other persons
included in the Flowers Group), engaged in the United States in (i) the business
of selling, whether by means of catalogue, direct solicitation, telemarketing,
retail marketing, mass marketing, marketing through wholesale clubs,
supermarkets or otherwise, any products or services which are the same or
substantially similar to any of the products and services offered for sale by
the Company or the other persons included in the Flowers Group or any products
or services which the Company or any person in the Flowers Group has developed
or is actively developing at the time of the termination of the Executive's
employment or (ii) a business which is otherwise in competition with the
business of the Company or any of the other persons included in the Flowers
Group. The foregoing provisions shall not, however, prohibit the Executive from
(i) acquiring, solely as an investment, securities of any person which are
registered under Section 12(b) or 12(g) of the Exchange Act and which are
publicly traded, so long as he is not part of any group required to make any
filing under Section 13(d) of the Exchange Act (or any successor rule) in
respect of such person and such securities do not constitute 2% or more of any
class of outstanding securities of such person or (ii)(A) serving on the boards
of a reasonable number of trade associations and/or charitable organizations,
(B) engaging in charitable activities and community affairs and (C) managing his
personal investments and affairs; provided that the foregoing activities do not
in the aggregate interfere in any material respect with the proper performance
of his duties and responsibilities hereunder.
(b) The Executive agrees that he will not, directly or indirectly,
during the Covenant Period, for his own benefit or for the benefit of any other
person:
(i) (A) influence or attempt to influence any person to either
terminate or modify his employment or other professional relationship with the
Company or any other person included in the Flowers Group or (B) employ, consult
or otherwise retain, directly or indirectly, any person who is (or during the
twelve months prior thereto was) employed, consulting to, or otherwise retained
by the Company or any other person included in the Flowers Group;
(ii) Influence or attempt to influence a supplier or customer
of the Company or any other person included in the Flowers Group or any other
person with whom the Company or any other person included in the Flowers Group
shall have dealt, to terminate
or modify any written or oral agreement or course of dealing with the Company or
any other person included in the Flowers Group; or
(iii) Influence or attempt to influence a supplier or customer
of the Company or any other person included in the Flowers Group or any other
person with whom the Company or any other person included in the Flowers Group
shall have dealt, for the purpose of offering or selling any products or
services which are identical, substantially similar or comparable to the
services or products offered by the Company or any other person included in the
Flowers Group.
(c) The Executive recognizes and acknowledges that, in connection
with his employment with the Company, he has had and will continue to have
access to valuable trade secrets and confidential information of the Company and
the other persons included in the Flowers Group, including, but not limited to,
the Flowers Management Reports (as defined on Exhibit A), and customer, supplier
and mailing lists, business methods and processes, advertising, marketing,
promotional, pricing and financial information and data relating to officers,
employees, agents and consultants (collectively, "Confidential Information") and
that such Confidential Information is being made available to the Executive only
in connection with the furtherance of his employment with the Company and/or the
other persons in the Flowers Group. The Executive agrees that he will not at any
time, directly or indirectly, use for any purpose, disclose or make available to
any person any of such Confidential Information, except that disclosure of
Confidential Information will be permitted: (i) to the Flowers Group or any
person included therein and their respective advisors; (ii) if such Confidential
Information has previously become available to the public through no fault of
the Executive; (iii) if required by any court or governmental agency or body or
is otherwise required by law; (iv) if necessary to establish or assert the
rights of the Executive hereunder; (v) if expressly consented to in writing by
the Company; or (vi) if necessary to carry on the Company's business in the
ordinary course or to perform the Executive's duties hereunder. In the event
that the Executive is requested or required to disclose any of the Confidential
Information pursuant to subsection (iii) above, he shall provide the Company
with prompt written notice of any such request or requirement so that the
Company or any other person included in the Flowers Group will have a reasonable
period of time in which to seek a stay or other protective order or other
appropriate remedy prior to disclosure by the Executive or such other Person
and, if the Executive provides the Company with such prompt written notice, the
Company shall not cause the Executive to delay any required disclosure beyond
any date or time which would reasonably be likely to result in a violation by
the Executive of any court or governmental order or law or subject the Executive
to any sanctions, prosecution or other action of any court or governmental
agency. Notwithstanding anything to the contrary contained herein, the Executive
shall only be permitted to disclose information contained in the Flowers
Management Reports (i) upon receipt of the prior written consent of the
Chairman, the President, the Treasurer or Corporate Comptroller of Flowers; (ii)
if required by any court or governmental agency or body or otherwise required by
law; provided, however, that the Executive complies with the provisions of the
immediately preceding sentence; or (iii) if
necessary to establish or assert the rights of the Executive hereunder.
(d) The Executive agrees that any and all publications, inventions,
software, formulae, reports or other work product directly or indirectly
produced, created, developed or otherwise prepared by the Executive while
employed by the Company (or any other person in the Flowers Group) and related
to the business of the Company or any other person in the Flowers Group
(collectively, "Materials") and any copyrights, patents, trademarks, trade
names, service marks or similar registrations or any applications therefore
(collectively, "Intellectual Property Rights") obtained or made at any time
during the Term or thereafter with respect to such Materials shall be the sole
and exclusive property of the Company (or applicable persons in the Flowers
Group). Upon request of the Board or an officer of the Company, the Executive
promptly shall execute any and all applications, assignments or other
instruments which the Board or such officer shall deem necessary or advisable in
order to apply for and obtain an Intellectual Property Right for the Materials
in the United States and throughout the world and to assign to the Company (or
any applicable persons in the Flowers Group) all right, title and interest in
and to such Materials and Intellectual Property Rights. The Company (or
applicable other persons in the Flowers Group) shall bear the cost of
preparation and filing of all such applications, assignments and instruments in
the appropriate governmental offices in the United States and any foreign
country.
(e) The Executive acknowledges and agrees that: (i) this Section 10
is necessary for the protection of the legitimate business of the Company and
the other persons included in the Flowers Group; (ii) the restrictive covenants
set forth in this Section 10 (the "Restrictive Covenants") are reasonable and
valid in geographical and temporal scope and in all other respects; and (iii)
the Executive has received adequate consideration for the execution, delivery
and performance of this Agreement.
(f) If a court of competent jurisdiction finally determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable
for any reason, such court shall have the power to modify such Restrictive
Covenant, or any part thereof, and, in its modified form, such Restrictive
Covenant shall then be valid and enforceable and the remainder of the
Restrictive Covenants shall not thereby be affected and shall be given full
force and effect, without regard to the invalid or unenforceable parts.
(g) The provisions of this Section 10 shall survive the termination
of this Agreement.
(h) The parties agree that a violation of this Section 10 will cause
irreparable damage to the Company, and the Company shall be entitled (without
any requirement of posting a bond or other security), in addition to any other
rights and remedies which it may have, at law or in equity, to an injunction
enjoining and restraining the Executive from doing or continuing to do any such
act or any other violations or threatened violations of this Section 10.
11. Return of Property. In the event of the termination of the Executive's
employment with the Company, regardless of the reason for such termination, the
Executive shall immediately: (i) return to the Company all documents, Materials,
information and other property of the Company and the other persons included in
the Flowers Group (including, but not limited to, keys, records, notes, data,
memoranda, models and equipment) whether or not such property constitutes
Confidential Information and (ii) purge or destroy any computerized, duplicated,
copied or other records, extracts or summaries of any such information. The
provisions of this Section 11 shall survive the termination of this Agreement.
12. Withholding. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to withholding taxes, social
security and other payroll deductions in accordance with the Company's policies
applicable to senior executives of the Company and the provisions of any
applicable employee benefit plan or program of the Company.
13. Insurance. The Company may, at its election and for its benefit,
insure the Executive against disability or death and the Company shall be
entitled to any and all insurance proceeds in the event of any such disability
or death. The Executive agrees to submit to such physical examination, supply
such information and take such other action as may be reasonably required in
connection therewith.
14. Severability. If any provision of this Agreement for any reason shall
be held to be illegal, invalid or unenforceable, such illegality shall not
affect any other provision of this Agreement, but this Agreement shall be
amended so as to enforce the illegal, invalid or unenforceable provision to the
maximum extent permitted by applicable law, and the parties shall cooperate in
good faith to further modify this Agreement so as to preserve to the maximum
extent possible the intended benefits to be received by the parties.
15. Successors and Assigns. (a) This Agreement and all rights under this
Agreement are personal to the Executive and shall not be assignable other than
by will or the laws of descent. All of the Executive's rights under the
Agreement shall inure to the benefit of his heirs, personal representatives,
designees or other legal representatives, as the case may be.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
16. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws rules thereof.
17. Dispute Resolution. Any and all disputes, controversies or claims
arising out of or relating to this Agreement, or the enforcement or the breach
thereof, shall be settled by arbitration in Garden City, New York administered
by the American Arbitration Association
under its Commercial Arbitration Rules and the Supplementary Procedures for
Large, Complex Disputes, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof; provided, however that
any dispute, controversy or claim with respect to Sections 10 or 11, may not be
submitted to arbitration and shall only be submitted to a court in accordance
with Section 18.
18. Consent to Jurisdiction. Subject to Section 17, the Company and the
Executive irrevocably and voluntarily submit to personal jurisdiction in the
State of New York and in the Federal and state courts in such state located in
the Eastern District of New York in any action or proceeding arising out of or
relating to this Agreement and agree that all claims in respect of such action
or proceeding may be heard and determined in any such court. The Company and the
Executive further consent and agree that the parties hereto may be served with
process in the same manner as a notice may be given under Section 19. The
Company and the Executive agree that any action or proceeding instituted by one
party against the other party with respect to this Agreement will be instituted
exclusively in the state courts located in, and in the United States District
Court for the Eastern District of New York. The Company and the Executive
irrevocably and unconditionally waive and agree not to plead, to the fullest
extent permitted by law, any objection that they may now or hereafter have to
the laying of venue or the convenience of the forum of any action or proceeding
with respect to this Agreement in any such courts.
19. Notices. (a) Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally by hand or by
recognized overnight courier, telecopied or mailed (by registered or certified
mail, postage prepaid return receipt requested) as follows:
(i) If to the Company, one copy to:
1-800-Flowers, Inc.
1600 Stewart Avenue
Westbury, New York 11590
Telecopier: (516) 237-6060
Attn: William E. Shea
with a copy to:
Gallagher Walker & Bianco
98 Willis Avenue
Mineola, New York 11501
Telecopier: (516) 248-2394
Attn: Gerard M. Gallagher, Esq.
(ii) If to the Executive, one copy to:
Mr. Peter G. Rice
Route 1, Box 90-B
Madison, Virginia 22727
Telephone: (540) 948-6415
with a copy to:
LeClair Ryan, a Professional Corporation
707 East Main Street, 11th Floor
Richmond, Virginia 23219
Telecopier: (804) 783-2294
Attn: Steven J. Keeler, Esq.
(b) Each such notice or other communication shall be effective (i) if
given by telecopier, when such telecopy is transmitted to the telecopier number
specified in Section 19(a) (with confirmation of transmission); or (ii) if given
by any other means, when delivered at the address specified in Section 19(a).
Any party by notice given in accordance with this Section 19 to the other party
may designate another address (or telecopier number) or person for receipt of
notices hereunder. Notices by a party may be given by counsel to such party.
20. Complete Understanding. This Agreement supersedes any prior contracts,
understandings, discussions and agreements relating to employment between the
Executive and the Company and constitutes the complete understanding between the
parties with respect to the subject matter hereof. No statement, representation,
warranty or covenant has been made by either party with respect to the subject
matter hereof except as expressly set forth herein.
21. Modification; Waiver; Non-Contractual Remedies; Preservation of
Remedies. This Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company and the Executive or in the case of a waiver, by the party against
whom the waiver is to be effective. Any such waiver shall be effective only to
the extent specifically set forth in such writing. No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. Except as otherwise provided herein, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity.
22. Mutual Representations. (a) The Executive represents and warrants to
the Company that the execution and delivery of this Agreement and the
fulfillment of the terms hereof (i) will not constitute a default under or
conflict with any agreement or other instrument to which he is a party or by
which he is bound and (ii) do not require the consent of any person.
(b) The Company represents and warrants to the Executive that this
Agreement has been duly authorized, executed and delivered by the Company and
that such execution and delivery and the fulfillment of the terms hereof (i)
will not constitute a default under or conflict with any agreement or other
instrument to which it is a party or by which it is bound and (ii) do not
require the consent of any person.
(c) Each party hereto represents and warrants to the other that this
Agreement constitutes the valid and binding obligation of such party enforceable
against such party in accordance with its terms.
23. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
24. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
25. No Third Party Beneficiaries. This Agreement is not intended to, and
shall not be construed to, confer upon any third Person any right, remedy or
benefit nor is it intended to be enforceable by any third Person, and shall only
be enforceable by the parties, and their respective successors, permitted
assigns, heirs, designees, personal representatives or other legal
representatives.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name, and the Executive has manually signed his name
hereto, all as of the day and year first above written.
THE PLOW & HEARTH, INC.
By:_____________________________________
Name:
Title:
Peter G. Rice
EXHIBIT A
1. The Executive generally will be invited to attend meetings of the Board
of Directors of Flowers (the "Flowers' Board") and will be provided with the
appropriate advance notice. Notwithstanding the foregoing, the Executive will
not be present during (a) "executive sessions" of the Flowers' Board or (b) at
such times when other items deemed appropriate by the Flowers' Board for review
only by board members are being discussed. In addition there may be other
limited occasions when the Flowers' Board or its Chairman may determine that it
is inappropriate for the Executive to be present at board meetings, in which
event the Executive will not attend. The Company will reimburse the Executive
for all reasonable expenses incurred in connection with the Executive's
participation at such meetings in a manner consistent with reimbursement
policies for other senior executives.
2. The Executive will receive copies of regularly prepared management
reports presented to the Flowers' Board, which include financial statements and
operating reports of Flowers ("Flowers Management Reports").
3. The Company will constitute and be operated as the catalogue subsidiary
of Flowers. Accordingly, the Company (or its Subsidiaries) will be the entity
through which Flowers will acquire and operate (i) other catalogue, direct mail
and telemarketing businesses in the home and light garden category, (ii)
interactive businesses in the home and light garden category, and (iii) retail
businesses in which substantially all of the products are in the home and light
garden category.
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated effective as of
January 18, 1999, is entered into by and between 1-800-FLOWERS, INC., a Delaware
corporation ("Company"), and KERRY W. COIN, residing at 1215 Key West, Corona
Del Mar, CA 92625 ("COIN").
WHEREAS, Company deems COIN's services and experiences useful and
necessary; and
WHEREAS, COIN is willing to provide services and experiences as an
employee of Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. EMPLOYMENT. Company hereby employs COIN, and COIN hereby accepts such
employment, upon the terms and conditions set forth herein.
2. DUTIES. COIN is employed in the position of Vice President of Store
Operations. COIN shall perform faithfully and diligently the duties customarily
performed by persons in the position for which COIN is employed including,
without limitation, to develop and execute strategies, plans and tactics for the
retail stores, both company-owned and franchised (exclusive of Real Estate and
construction and Merchandising), Bloomnet, St. Claire Floral, commissaries, and
such other duties as the Board of Directors or the President of Company shall
designate to COIN from time to time. COIN shall devote COIN's full business time
and efforts to the rendition of all services and to the performance of such
duties as are set forth herein or as may be designated in the future, and shall
at all times be in compliance with, and ensure that Company is in compliance
with, any and all laws, rules and regulations applicable to Company or its
business. COIN's principal place of employment shall be the Company'S
headquarters, currently in Westbury, New York, subject to travel as may be
required for the rendering of services hereunder. During his employment with the
Company he shall report to the President of the Company, or such other person as
may be designated from time to time by James F. McCann.
3. COMPENSATION/BENEFITS.
3.1 Base Salary. As compensation for the proper and satisfactory
performance of all duties to be performed by COIN hereunder, Company shall pay
to COIN a base annual salary of $170,000 payable in equal biweekly installments,
payable in arrears, less required deductions for state and federal withholding
tax, Social Security and other employee taxes, and such other and further
deductions required by law or lawful order and other permissible deductions
authorized or requested by COIN. Such base salary shall be reviewed on an annual
basis by the Company as provided for herein and shall be subject to such
increases, if any, as the Company, in its own discretion, from time to time may
determine. Notwithstanding anything to the contrary herein, the
first review of the base salary shall occur subsequent to the end of fiscal year
2000.
3.2 Health Insurance. COIN shall be covered under the Company's
Health Insurance Plan under the terms, conditions, and rates as offered to other
officers of the Company. In the event COIN incurs any health insurance premium
expenses for the continuation of health insurance benefits for the period
between the effective date of this Agreement and the date his health insurance
coverage commences under the Company's Health Insurance Plan, then the Company
will reimburse COIN the difference between the premium cost of his coverage
under COBRA and the Company's standard coverage.
3.3 Vacation and Sick Leave. Company shall grant two (2) weeks of
paid annual vacation and five (5) days of paid sick/personal leave annually,
prorated for any portion of a year to the date of termination. The timing and
duration of any vacation shall be subject to the prior written approval of
Company.
3.4 Employee Benefits. The Company shall offer COIN such other
fringe benefits which, in the Company's sole discretion, it determines and is
consistent with those offered by the Company to its full time officers.
3.5 Stock Options. Attached is a copy of the Stock Option Agreement
to be executed simultaneously with this Employment Agreement.
3.6 Bonus Compensation. COIN shall be entitled to an annual bonus up
to twenty-five percent (25%) of base salary pursuant to the Company's approved
Bonus Plan, provided both COIN and the Company each attain the performance goals
established for COIN and the Company in the sole discretion of the President of
the Company. The first review for this annual bonus shall occur following the
end of the Company's fiscal year ending on or about June 30, 2000, and shall be
pro-rated for the time COIN was employed by the Company up to the end of said
fiscal year.
3.7 No Accumulation. COIN shall not be entitled to accumulate unused
vacation, sick leave, or other fringe benefits from year to year, without the
prior written consent of Company. Further, COIN shall not be entitled to receive
payments in lieu of any compensation or payment for or in lieu of said benefits
prorated to the date of termination of this Agreement.
3.8 Payment of Compensation Upon Termination. Except as provided in
Section 4.3(c), upon termination, COIN shall be entitled to the compensation set
forth as "base salary" herein, prorated to the effective date of such
termination, plus any unused vacation accrued prior to the date of termination.
3.9 Expenses. Company shall reimburse COIN for all documented and
reasonable out of pocket expenses incurred on behalf of Company by COIN pursuant
to standard Company policy. It is understood that the Company shall reimburse
COIN for the cost of one personal trip
per month to California during the first six (6) months of his employment and
expenses for temporary local living quarters for COIN until COIN'S relocation to
New York is completed, or July 18, 1999; whichever first occurs. All expenses
for said temporary local living quarters shall be paid directly by the Company
to the Landlord or other supplier of said temporary local living quarters. At
the end of COIN'S first six (6) months of employment, the Company will consider,
at its discretion, a three (3) month extension of the reimbursement for
temporary local living quarters as provided for herein should the facts and
circumstances warrant such an extension at that time.
3.10 Relocation and Relocation Expenses. (a) COIN agrees to relocate
himself and his family to New York within six (6) months from his commencement
of employment with the Company. As full reimbursement for COIN's relocating to
New York, the Company will reimburse COIN his reasonable and documented out of
pocket relocation expenses actually incurred for customary closing costs and
standard real estate commissions related to the sale of his California home and
customary closing costs (including up to one percent (1%) mortgage origination
fee) on the purchase of new home in New York; packing, shipment and unpacking of
household goods; temporary storage not to exceed thirty (30) days; reasonable
costs for two visits by COIN'S spouse to New York for house-hunting; and
incidental relocation related expenses, which incidental expenses shall not
exceed $1,000.00. The parties agree that "relocation expenses" reimbursed to
COIN shall include gross-up of such actual approved relocation expenses based
upon COIN'S applicable federal, state and local income tax rates.
(b) The parties hereto agree to consider alternatives to
COIN'S selling his California home in order to relocate and will explore other
methods of relocation provided such alternatives are more advantageous to both
parties.
4. TERMINATION
4.1 Termination Without Cause. The death of COIN shall automatically
terminate this Agreement and COIN's employment.
4.2 Termination With Cause. The Company shall have the right to
terminate this Agreement and COIN's employment upon the occurrence of any one of
the following events:
(a) COIN fails to perform faithfully, diligently and
expeditiously his duties under this Agreement, which failure continues
unremedied for a period of fifteen (15) days after his receipt of written notice
from the Company specifying in reasonable detail the nature of the failure; or
(b) COIN is disabled, mentally or physically or both, for two
(2) or more consecutive months or an aggregate of four (4) months in any six (6)
month period (as used in this Section 4, "disabled" shall have the meaning
specified in the Company's disability insurance policy, or if no such policy is
then maintained by the Company, shall mean the inability of COIN to
diligently and expeditiously perform, in all essential respects, COIN's ordinary
functions and duties as an employee of the Company on a full-time basis by
reason of physical or mental illness or injury); or
(c) COIN engages in any conduct which is unethical, illegal or
which otherwise brings adverse notoriety to the Company or which has a
substantial adverse effect on the name, public image or reputation of the
Company; or
(d) COIN (i) is declared of unsound mind by an order of court,
(ii) is convicted of or pleads guilty or nolo contendere to a felony or (iii)
fraudulently or intentionally commits an act which is directly and substantially
detrimental to the Company; or
4.3 (a) If COIN's employment is terminated at any time due to his
resignation or under Section 4.1 or 4.2, COIN shall not be entitled to any
compensation whatsoever from the Company effective as of the date of termination
except as specifically provided for in Section 3.8 and reimbursement for
expenses as provided for in Section 3.9.
(b) In the event that COIN's employment is terminated during
the first twelve (12) months following the effective date of this Agreement due
to his resignation or under Section 4.2, then COIN shall repay to the Company a
pro rata share of the relocation expenses paid to him pursuant to Section 3.10.
(c) In the event that COIN's employment is terminated during
the first twelve (12) months following his commencement of employment, except,
due to his resignation, or pursuant to Section 4.1 or 4.2, then the Company
shall continue paying COIN'S base salary as provided for in Section 3.1, for a
period of six (6) months following the date of termination, and the Company
shall have no further obligation to COIN whatsoever arising from his employment
with the Company or the termination thereof.
4.4 The parties hereto acknowledge that COIN's employment is "at
will", meaning either party may terminate the employment relationship at any
time and for any reason not prohibited by law. Nothing herein is intended to
deprive or relieve either party of any of its rights or obligations as may be
otherwise provided for in this Agreement.
5. CONFIDENTIALITY.
5.1 Acknowledgment of Proprietary Interest. COIN recognizes the
proprietary interest of Company in any Confidential Information of Company. As
used herein, the term "Confidential Information" means all information relating
to Company and any of Company's subsidiary corporations and affiliates and their
respective customers, operations, products, sales, finances, trade secrets, and
business, including, without limitation, any information encompassed in any
reports, investigations, customer lists (whether or not written) and customer
information, business plans and business relationships, information on suppliers
and fulfilling florists,
experiments, research or developmental work, experimental work, work in
progress, drawings, designs, plans, proposals, codes, marketing and sales
programs, financial projections, financial data including sales and pricing
information and all other financial data, cost summaries, pricing formula and
trademarks, service marks, and all concepts or ideas, materials or information
related to the business of Company, its subsidiary corporations and affiliates.
Confidential Information also includes, without limitation, all information COIN
received from third parties in the course of his employment which was provided
to him in connection with his duties for the Company. COIN acknowledges and
agrees that any and all Confidential Information learned by COIN during the
course of his employment by Company or otherwise, whether developed by COIN
alone or in conjunction with others or otherwise, shall be and is the sole
property of Company.
5.2 Covenant Not to Divulge Confidential Information. COIN
acknowledges and agrees that Company is entitled to prevent the disclosure of
Confidential Information. As a portion of the consideration for the employment
of COIN and for the compensation being paid to COIN by Company, COIN agrees at
all times during his employment by Company and thereafter to hold in strictest
confidence, and not to disclose or allow to be disclosed to any person, firm or
corporation, other than to persons engaged by Company to further the business of
Company, and not to use except in the pursuit of the business of Company, the
Confidential Information, without the prior written consent of Company,
including Confidential Information developed by COIN. Information shall not be
subject to the foregoing restrictions to the extent such information (i) is or
becomes public knowledge other than by means of a breach of confidentiality by
COIN or (ii) which COIN is required to disclose pursuant to applicable law
provided COIN immediately notifies the Company and uses reasonable and lawful
efforts to resist making any disclosure not approved by the Company.
5.3 Return of Materials at Termination. In the event of any
termination of COIN's employment, COIN will promptly deliver to Company all
materials, property, documents, data and other information belonging to Company
or pertaining to Confidential Information. COIN shall not take any materials,
property, documents or other information, or any reproduction or excerpt
thereof, belonging to Company or containing or pertaining to any Confidential
Information.
5.4 Remedies Upon Breach. As a result of the position which COIN has
occupied and will continue to occupy, COIN was and will be trusted with
Confidential Information. COIN represents that he has not and shall not divulge
to any person or entity, any Confidential Information, nor has he nor shall he
utilize any Confidential Information on his own behalf or on behalf of any other
person or entity. COIN agrees that his violation of any term, provision,
covenant, or condition of this Section 5 of this Agreement shall result in
irreparable injury and damage to the Company which will not be adequately
compensated in money damages and that the Company will have no adequate remedy
at law therefore. In such event, the Company and COIN agree that, in addition to
any other legal and equitable remedies which the Company may have, the Company
shall be entitled to such temporary, preliminary or permanent restraining
orders, decrees or injunctions as may be deemed necessary to protect the Company
against, or on account of, such violation or threatened violation. However,
nothing in this Agreement shall be construed to limit
the Company's remedies for or defenses to any action, suit or controversy
arising out of this Agreement or otherwise.
6. COVENANT NOT TO COMPETE
6.1 During the term of COIN's employment with the Company, and for a
period of one (1) year following termination of his employment, COIN shall not
do any of the following, within the United States, directly or indirectly,
without the prior written consent of the Company:
(a) Engage or participate, in any manner, in a Competitive
Business. As used herein, the term "Competitive business" means (i) the retail,
mass marketing, franchise, wholesale, catalog, supermarket, wholesale club,
internet or telemarketing floral businesses, (ii) any Floral Wire Service
business, (iii) any business which receives five percent (5%) or more of its
gross revenues from the sale of floral products, or (iv) any business which is
primarily engaged in the selling of gift baskets.
(b) Become interested in (as owner, stockholder, lender,
partner, coventurer, director, officer, employee, agent, consultant or
otherwise) any person, firm, corporation, association or other entity engaged in
any business that is the same as or similar to the business of the Company or
become interested in (as owner, stockholder, lender, partner, coventurer,
director, officer, employee, agent, consultant or otherwise) any portion of the
business of any person, firm, corporation, association, or other affiliate where
such portion of such business is the same as or similar to the business of the
Company. Notwithstanding the foregoing, COIN may hold not more than 5% of the
outstanding securities of any class of any publicly-traded company that is so
engaged;
6.2 During the term of COIN's employment with the Company, and for a
period of two (2) years following termination of his employment, COIN shall not
do any of the following, within the United States, directly or indirectly,
without the prior written consent of the Company:
(a) Influence or attempt to influence any person to either (i)
terminate or modify his employment with the Company or (ii) employ, directly or
indirectly, any person employed by the Company as an employee;
(b) Influence or attempt to influence a supplier or customer
of the Company or any other person or entity with whom the Company shall have
dealt, to terminate or modify any written or oral agreement or course of dealing
with the Company; or
(c) Influence, or attempt to influence any customer of the
Company or any other person or entity with whom the Company shall have dealt,
for the purpose of offering or selling any products or services which are
identical, substantially similar or comparable to the services or products
offered by the Company.
6.3 For purposes of this Paragraph 6, the term "Company" includes
all subsidiary corporations and affiliates. The term Floral Wire Service
business includes, without limitation, FTD, AFS, Carik, Teleflora, and Florafax.
6.4 COIN acknowledges and agrees that (i) this Section 6 is
necessary for the protection of the legitimate business of the Company; (ii) the
restricted covenants set forth in this Section 6 are reasonable and valid in
geographical and temporal scope and in all other respects; and (iii) COIN has
received adequate consideration for the execution, delivery and performance of
this Agreement.
6.5 In the event any court decides that the specific provisions of
Paragraph "6", or any part thereof, are not enforceable, COMPANY shall petition
that court to determine to what extent such provision, or part thereof, must be
modified in order to be considered enforceable and, for purposes of the case in
which the issue arose and thereafter in the territorial jurisdiction of that
court, such provision or part thereof shall be interpreted as that court or
panel so determines. Failure by COIN to fully perform his obligations under this
Section 6 will be deemed a breach of this Agreement, upon which the Company will
be entitled to seek injunctive relief and money damages including reasonable
attorneys' fees, in addition to any other legal and equitable remedies which the
Company may have available to it.
7. INSURANCE. Company may, at its election and for its benefit, insure
COIN against accidental loss or death and Company shall be entitled to any and
all insurance proceeds in the event of any such accidental loss or death. COIN
shall submit to such physical examination and supply such information as may be
required in connection therewith.
8. GOVERNING LAW/DISPUTE RESOLUTION. This Agreement shall be interpreted,
construed, governed and enforced according to the laws of the State of New York
without regard to the choice of law rules thereof.
IN CONSIDERATION AND AS A MATERIAL CONDITION OF THE EMPLOYMENT AND
CONTINUATION OF EMPLOYMENT OF COIN, COIN AND THE COMPANY AGREE TO SUBMIT TO
BINDING ARBITRATION FOR RESOLUTION ANY EMPLOYMENT DISPUTE (AS THIS TERM IS
DEFINED BELOW), AND FURTHER AGREE THAT BINDING ARBITRATION IS THE EXCLUSIVE
MEANS FOR RESOLUTION OF SUCH DISPUTE AND THAT BOTH COIN AND COMPANY HEREBY WAIVE
THEIR RESPECTIVE RIGHTS, IF ANY, TO RESOLVE ANY DISPUTE THROUGH ANY OTHER MEANS,
INCLUDING A JURY TRIAL OR A COURT TRIAL IN A LAWSUIT.
The term "Dispute," whether in the singular or plural, means (a) all
claims, disputes or issues of which COIN is or should be aware during the
employment relationship or after termination thereof, and which relate to or
arise out of the employment of COIN by the Company (including without limitation
any claim of constructive termination, any benefits-related claims or
any related claims against an individual employee), and (b) all Company
counterclaims against COIN. The term "Dispute" further includes without
limitation all contractual, statutory and common law claims. Notwithstanding
anything to the contrary contained herein, Company retains the right to seek
injunctive relief and/or commence suit for money damages for any such claim
which relate to or arise out of the confidentiality or non-competition
conditions of employment and the parties hereby irrevocably consent to the
jurisdiction of the Supreme Court of the State of New York, County of Nassau for
any such action or proceeding.
Arbitration shall be held in accordance with the commercial
arbitration rules of the American Arbitration Association then in effect and the
Dispute will be heard by a panel of three (3) arbitrators. Arbitration shall be
held at the office of the American Arbitration Association located in Garden
City, New York, or, in the event no such office exists in Garden City, then the
Arbitration shall be held in an office of the American Arbitration Association
in Nassau County, New York. If none, then at their offices in New York, New
York. Judgment upon any arbitration award rendered may be entered in any court
having jurisdiction thereof.
9. ATTORNEYS' FEES. In the event of any litigation or arbitration
concerning any controversy, claim or dispute between the parties hereto, arising
out of or relating to this Agreement or the breach hereof, or the interpretation
hereof, the prevailing party shall be entitled to recover from the losing party
reasonable expenses, attorneys' fees and costs incurred therein or in the
enforcement or collection of any judgment or award rendered therein. The
"prevailing party" means the party determined by the court or arbitrators to
have most nearly prevailed, even if such party did not prevail in all matters,
not necessarily the one in whose favor a judgment is rendered.
10. AMENDMENTS. No amendment or modification of the terms or conditions of
this Agreement shall be valid unless in writing and signed by the parties
hereto.
11. SUCCESSORS AND ASSIGNS. The rights and obligations of the parties
under this Agreement shall inure to the benefit of and shall be binding upon
their successors and assigns. COIN shall not be entitled to assign any of COIN's
rights or obligations under this Agreement.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the employment of COIN.
13. NOTICE. Any notice, statement, report, request or demand required or
permitted to be given by this Agreement shall be effective only if in writing,
delivered personally against receipt therefore or mailed by certified mail,
return receipt requested, or by private overnight delivery to the parties at the
addresses hereafter set forth, or at such other places that any party may
designate by written notice to the other.
Notices to the Company shall be sent to:
1-800-FLOWERS, INC.
1600 Stewart Avenue
Westbury, NY 11590
Attention: James F. McCann
with a copy to:
GALLAGHER, WALKER, BIANCO & PLASTARAS
98 Willis Avenue
Mineola, New York 1101
Attention: Gerard M. Gallagher, Esq.
Notice to COIN shall be sent to:
KERRY W. COIN
1215 Key West
Corona Del Mar, CA 92625
All such notices, statement, reports, requests, or demands shall be
effective upon:
(i) At the time of service, if personally served.
(ii) Upon the earlier of actual receipt or three (3) calendar days
after deposit in the United States mail, properly addressed and postage prepaid,
return receipt requested, if served by certified mail.
(iii) Twenty-four (24) hours after delivery by the party giving the
notice, statement or demand if by private overnight delivery.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.
1-800-FLOWERS, INC.
By: ___________________________
KERRY W. COIN
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1-800 FLOWERS Team Services, Inc. (Delaware)
1-800 FLOWERS Team Acquisition Corp. (Delaware)
1-800 FLOWERS Retail, Inc. (Delaware)
800-FLOWERS, Inc. (New York)
800-Gifthouse, Inc. (New York)
Amalgamated Consolidated Enterprises, Inc. (Nevada)
Bloomlink Systems, Inc. (New York)
C.M. Conroy Company, Inc. (California)
Conroy's Acquisition Corporation (California)
Conroy's Inc. (California)
Floral Works, Inc. (Delaware)
Flores de Exito, Inc. (California)
Florists Capital Corporation, Inc. (California)
Fresh Intellectual Properties, Inc. (Delaware)
Gerber Gardens/1-800-Flowers, L.L.C. (New York)
P&H, L.P. (Virginia)
The Plow & Hearth, Inc. (Virginia)
St. Claire Floral Co., Inc. (New York)
Teleway, Inc. (New York)
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated May 20, 1999, in the Registration Statement (Form S-1 No. 333- ) and related Prospectus of 1-800-FLOWERS.COM, Inc. dated May 21, 1999.
/s/ Ernst & Young LLP
Melville, New York
May 21, 1999
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EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Board of Directors
1-800-FLOWERS.COM, Inc.
We consent to the use of our report on the consolidated financial statements of The Plow & Hearth, Inc., included herein and to the reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Roanoke, Virginia
May 20, 1999
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | JUN 28 1998 |
| PERIOD START | JUN 30 1997 |
| PERIOD END | JUN 28 1998 |
| CASH | 8,873 |
| SECURITIES | 5,034 |
| RECEIVABLES | 9,216 |
| ALLOWANCES | 784 |
| INVENTORY | 4,971 |
| CURRENT ASSETS | 29,973 |
| PP&E | 30,420 |
| DEPRECIATION | 11,041 |
| TOTAL ASSETS | 81,746 |
| CURRENT LIABILITIES | 28,023 |
| BONDS | 0 |
| PREFERRED MANDATORY | 17,692 |
| PREFERRED | 0 |
| COMMON | 49 |
| OTHER SE | 623 |
| TOTAL LIABILITY AND EQUITY | 81,746 |
| SALES | 220,592 |
| TOTAL REVENUES | 220,592 |
| CGS | 136,966 |
| TOTAL COSTS | 136,966 |
| OTHER EXPENSES | 76,828 |
| LOSS PROVISION | 383 |
| INTEREST EXPENSE | 1,177 |
| INCOME PRETAX | 8,069 |
| INCOME TAX | 3,181 |
| INCOME CONTINUING | 5,074 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 5,074 |
| EPS PRIMARY | .79 |
| EPS DILUTED | .74 |
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | JUN 27 1999 |
| PERIOD START | JUN 29 1998 |
| PERIOD END | MAR 28 1999 |
| CASH | 2,632 |
| SECURITIES | 0 |
| RECEIVABLES | 12,222 |
| ALLOWANCES | 1,256 |
| INVENTORY | 8,060 |
| CURRENT ASSETS | 27,368 |
| PP&E | 40,532 |
| DEPRECIATION | 15,700 |
| TOTAL ASSETS | 86,599 |
| CURRENT LIABILITIES | 36,858 |
| BONDS | 0 |
| PREFERRED MANDATORY | 19,020 |
| PREFERRED | 0 |
| COMMON | 49 |
| OTHER SE | (7,968) |
| TOTAL LIABILITY AND EQUITY | 86,559 |
| SALES | 203,668 |
| TOTAL REVENUES | 203,668 |
| CGS | 123,738 |
| TOTAL COSTS | 123,738 |
| OTHER EXPENSES | 88,751 |
| LOSS PROVISION | 231 |
| INTEREST EXPENSE | 1,863 |
| INCOME PRETAX | (10,181) |
| INCOME TAX | (2,926) |
| INCOME CONTINUING | 0 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (7,354) |
| EPS PRIMARY | (1.97) |
| EPS DILUTED | (1.97) |