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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED: JANUARY 1, 2000
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 000-26133
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STREAMLINE.COM, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 04-3187302
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
27 DARTMOUTH STREET, WESTWOOD, MA 02090
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(781) 407-1900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-X is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K / /
The aggregate market value of the registrant's common stock, $.01 par value
per share ("Common Stock"), held by non-affiliates of the registrant as of March
20, 2000 was approximately $51,859,600 based on 10,371,920 shares held by such
non-affiliates at the closing price of a share of Common Stock of $5.00 as
reported on the Nasdaq National Market on such date. The number of outstanding
shares of Common Stock of the Company on March 20, 2000 was 22,315,078.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of Stockholders to be held on
May 25, 2000 are incorporated by reference into Part III hereof. With the
exception of the portions of such Proxy Statement expressly incorporated into
this Annual Report on Form 10-K by reference, such Proxy Statement shall not be
deemed filed as part of this Annual Report on Form 10-K. Portions of the
Company's annual report to security holders for fiscal year ended January 1,
2000 to be delivered to the security holders are incorporated by reference into
Part II hereof. With the exception of the portions of such annual report to
security holders incorporated into this Annual Report on Form 10-K by reference,
such annual report shall not be deemed filed as part of this Annual Report on
Form 10-K.
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STREAMLINE.COM, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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ITEM NUMBER PAGE
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PART I
Item 1 Business............................................. 2
Item 2 Description of Property.............................. 10
Item 3 Legal Proceedings.................................... 11
Item 4 Submission of Matters to a Vote of Security 11
Holders...................................................
Item 4A Executive Officers of the Registrant................ 11
PART II
Item 5 Market For Registrant's Common Stock and Related 13
Stockholder Matters.......................................
Item 6 Selected Financial Data.............................. 14
Item 7 Management's Discussion and Analysis of Financial 14
Condition and Results of Operations.......................
Item 7A Quantitative and Qualitative Disclosures About 14
Market Risk...............................................
Item 8 Financial Statements................................. 14
Item 9 Changes in and Disagreements With Accountants on 14
Accounting and Financial Disclosure.......................
PART III
Item 10 Directors and Executive Officers of the 15
Registrant................................................
Item 11 Executive Compensation.............................. 15
Item 12 Security Ownership of Certain Beneficial Owners and 15
Management................................................
Item 13 Certain Relationships and Related Transactions...... 15
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports 15
on Form 8-K...............................................
Signatures.................................................. 19
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THIS FORM 10-K CONTAINS "FORWARD-LOOKING STATEMENTS" BASED ON
STREAMLINE.COM'S CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES, AND PROJECTIONS
ABOUT STREAMLINE.COM AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE
USUALLY ACCOMPANIED BY WORDS SUCH AS "LIKELY," "WILL," "SUGGESTS," "MAY,"
"WOULD," "COULD," "SHOULD," "EXPECTS," "ANTICIPATES," "ESTIMATES," "PLANS,"
"PROJECTS," "BELIEVES," OR SIMILAR EXPRESSIONS (AND VARIANTS OF SUCH WORDS OR
EXPRESSIONS). STREAMLINE.COM'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS BECAUSE OF FACTORS SUCH AS
THE RISK FACTORS DISCUSSED BELOW. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE
PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION
BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Streamline.com, Inc. (the "Company" or "Streamline.com") is a consumer
direct company that simplifies the lives of busy suburban families by providing
them with Internet-based ordering of goods and services, coupled with
direct-to-the-home delivery. The Company significantly shortens and simplifies
the traditional shopping needs of its customers who increasingly demand
timesaving lifestyle solutions. The Company delivers its products and services
to each customer through a single weekly delivery. Products that the Company
purchases at wholesale prices directly from wholesalers, distributors and
manufacturers and sells to its customers at retail prices include:
- brand-name groceries
- quality meats and seafood
- fresh produce
- dairy products, including gourmet cheeses
- sliced-to-order deli products
- organic foods
- frozen foods
- kosher foods
- fresh baked goods
- freshly prepared meals
- health and beauty care products
- cleaning supplies and other household items
- specialty pet food and supplies
- fresh flowers
- stationery supplies and postage stamps
- seasonal items, including firewood, charcoal and holiday products
The Company also offers the following services:
- dry cleaning pick-up and delivery
- clothing alteration and repair
- video and video game rental
- film processing and supplies
- bottled water and cooler delivery
- package pick-up and delivery
- bottle and can redemption
- shoe repair
- food and clothing drives
The Company's product and service offerings, combined with the frequency of
ordering and delivery, allows it to develop long-term relationships with its
customers.
INDUSTRY BACKGROUND
Consumer direct companies deliver groceries and other consumer products and
services that consumers have ordered over the Internet or by telephone or fax,
directly to their homes. International Data Corporation estimates that U.S.
consumer purchases of goods and services over the Internet will grow to
approximately $119 billion in 2003. Several converging trends are driving this
growth:
- demographic trends supporting the growth of the consumer direct industry
- growth of the Internet and e-commerce
- limitations of the traditional physical store model
DEMOGRAPHIC TRENDS SUPPORTING THE GROWTH OF THE CONSUMER DIRECT INDUSTRY
NFO Worldwide, Inc. analyzed a group of consumer direct users and profiled
such users as having the following characteristics, among others:
- 61% are dual income households
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- 75% have at least one child under 18
- 88% use personal computers
- 40% use timesaving services such as house cleaning services
- 75% use timesaving devices such as mobile phones
NFO and Andersen Consulting separately report that perceived timesaving is
one of the primary benefits driving usage of consumer direct channels. Andersen
Consulting has additionally found that consumer direct companies excel at
meeting the following needs of the busy consumer:
- simplicity
- more effective use of time
- pricing accuracy
- product quality
- minimal physical effort
GROWTH OF THE INTERNET AND E-COMMERCE
The Internet has become an increasingly significant global medium for
consumer commerce and now provides a powerful and efficient means for consumers
to order products and services. (International Data Corporation estimates that
63 million U.S. households had Internet access in 1998 and expects this number
to grow to over 177 million by the end of 2003.) Growth in Internet usage among
consumers has been fueled by a number of factors, including:
- increased awareness of the Internet among consumers
- a large and increasing number of personal computers at home
- growing e-commerce activity due to increasing availability of information
and services on the Internet
- more readily available access to the Internet due to the proliferation of
service providers
- advances in the performance and speed of personal computers and modems
- improvements in network systems and infrastructure, including increased
bandwidth
- reduced security risks in conducting commercial transactions via the
Internet
The Internet is also dramatically affecting the manner in which companies
distribute goods and services. Specifically, the Internet allows consumer direct
companies to:
- reach a large national and local audience from a central location
- process business with reduced infrastructure investment and overhead
costs, along with greater economies of scale
- provide consumers with a broad selection of products and services,
increased information and enhanced convenience
As a result of both increased consumer Internet use and this increasing
selection of products and services, a growing number of consumers are
transacting business on the Internet, including buying groceries and other
consumer products. IDC estimates that in 1997 over 36% of Internet users
purchased consumer goods or services over the Internet and that 50% of Internet
users will make on-line purchases in 2002. IDC also estimates that consumer
purchases of goods and services over the Internet will increase from $12.4
billion in 1998 to $75 billion in 2003. Jupiter Communications estimates that
consumers spent approximately $65 million in 1997 over the Internet on grocery
and health and beauty products, and that this market will increase to
approximately $7.3 billion by 2003. This estimated penetration still represents
less than one percent of the total dollars expended in 1997 on grocery and
health and beauty products through traditional U.S. retail channels.
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LIMITATIONS OF THE TRADITIONAL PHYSICAL STORE MODEL
1. LIMITED ABILITY TO MEET THE NEEDS OF BUSY CONSUMERS. Consumers are
increasingly time constrained. The increase in dual income families limits the
time available for routine activities, such as shopping, cooking and cleaning.
According to the U.S. Bureau of Labor Statistics, the number of dual income
households totaled 28.5 million in 1998, representing approximately 27.8% of the
total number of households in 1998 as reported by the U.S. Bureau of the Census.
According to Andersen Consulting, the typical consumer visits the supermarket
twice per week and each trip takes an average of 47 minutes excluding the time
required for driving to and from the store, parking, and loading and unloading
packages. The weekly time burden is even greater when one considers time spent
on other chores, such as picking up dry cleaning, returning videos and mailing
packages. According to the Food Marketing Institute ("FMI"), people with full
time jobs complete 50% of their shopping during the weekend.
2. ECONOMIC CONSTRAINTS. Traditional physical store models face
significant economic limitations due to costs associated with real estate,
construction, store set-up, inventory, and other fixed assets. According to the
FMI, 7% of a traditional grocery store's operating costs in 1997 were related to
real estate rental costs. Traditional physical store models also have high
ongoing expenses relating to personnel. As measured by the FMI, a traditional
grocery store's labor costs in 1997 typically represented 57% of its operating
costs. In addition, traditional physical stores are limited in their ability to
track critical customer purchasing and preference information and, therefore,
cannot predict customer demand with great accuracy. ACNielsen Corporation has
found that only 55% of customers participate in scannable card programs.
Therefore, these programs do not provide complete consumer purchase data.
Consequently, traditional physical stores, especially grocery stores, must carry
more inventory and, therefore, build or lease more space to warehouse and
display this inventory and employ more people to service this larger space. The
average supermarket currently stocks over 30,000 items and has grown from 31,000
square feet to 39,260 between 1990 and 1997.
Consumers are increasingly seeking a shopping solution that helps them to
save time while providing quality goods and services. Consumer direct companies
are using the Internet to satisfy this need while traditional physical stores
face fundamental constraints that limit their ability to meet these demands.
THE STREAMLINE.COM SOLUTION
The Company has created and continues to create a lifestyle solution for
today's busy suburban family by providing an efficient means of purchasing and
receiving groceries and other related products and services. The Company
supplies consumers with a simple, informative and enjoyable Internet-based
shopping experience by offering a targeted, necessity-based range of products
and services enhanced by weekly unattended home delivery.
The principal benefits to the Company's customers include:
- convenience and simplicity
- time savings
- access to detailed information about products and services
- competitive pricing
- personalized care and service
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Through key relationships with premier national, regional and local business
partners, the Company has aggregated a wide range of products and services for
its customers, including:
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1997 ESTIMATED SAMPLE OF GEOGRAPHIC SCOPE
U.S. SALES STREAMLINE.COM'S OF PARTNER'S
PRODUCT AND SERVICE (IN BILLIONS) PRODUCT AND SERVICE PROVIDERS OPERATIONS
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Groceries, dry and $475 SuperValu Operations, Inc. National
perishable...................
Health and Beauty Care......... 49(1) Millbrook Corporation National
Prepared Meals................. 29 Legal Sea Foods, Inc. Regional Local
Specialty Pet Food and 11(1) Iams Company National
Supplies..................... Ralston Purina Company National
Video and Video Game Rentals... 10 Rocky's Video Local
Dry Cleaning................... 6(2) Zoots--The Cleaner Cleaners Local
Bergmann's Cleaner
Bottled Water and Cooler....... 4 Poland Spring Corporation Regional
Delivery
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(1) Estimated 1998 annual sales.
(2) Estimated 1996 annual sales.
The Company estimates that its process allows customers to complete an
entire order in 20 to 30 minutes per week from the comfort of their homes,
thereby reducing their need to make frequent trips to multiple traditional
stores. NFO has conducted research, which concludes that 94% of Streamline.com
customers consider the Company to be their primary provider of groceries and
other household goods and services.
STREAMLINE.COM'S VIRTUAL AND PHYSICAL CHANNELS
To deliver superior value to the consumer, Streamline.com has built two
dedicated pipelines direct to the home: a virtual channel using the Internet and
a physical channel using the Company's direct delivery system.
STREAMLINE.COM'S VIRTUAL CHANNEL
The Company's virtual channel, which refers to the ongoing two-way exchange
of information through the Internet between its customers and the Company, is a
central element of the Streamline.com experience. Because the Company's
customers order frequently, the Company can use the ordering process as a way to
gather and distribute information about the products and services it provides.
From the comfort of their homes, Streamline.com's customers can use the
Company's Internet-based ordering system to browse weekly specials, review and
compare product nutritional information and place orders. The Internet-based
ordering system also provides the Company a direct line of communication to its
customers and serves as an efficient means of collecting data on the Company's
customers ordering habits and preferences. Currently, 100% of Streamline.com's
customers order via the Internet, and the Company plans to migrate exclusively
to Internet-based ordering.
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- ordering products and services
- browsing offerings by category and searching for particular items
- customizing a PERSONAL SHOPPING LIST of frequently ordered items
- customizing a DON'T RUN OUT list to Automatically reorder items on a
preset schedule
- providing feedback on customer service and products and services
- downloading and analyzing details of past purchases
- collecting data on customer purchasing behavior
- promoting new products and services
- alerting customers to special offers and other
- time-sensitive information
- conducting market research
- responding to customer inquiries
Streamline.com's virtual channel enables the Company to create and manage
high-value, sustainable and long-term customer relationships. On average, the
Company receives weekly feedback from approximately 40% of its customers and the
Company routinely collects and analyzes customer feedback and satisfaction
levels to continually improve customer satisfaction from approximately 50% of
its customers. The Company uses this information to more efficiently serve its
customers by refining its understanding of the customer's product preferences,
cross-category purchasing behavior, attitudes and lifestyle.
The Company's virtual channel also creates a unique opportunity to market on
a one-to-one basis to a highly specific and demographically attractive group of
consumers and to encourage increased spending through the Company's channel. The
Company's virtual channel can be used to deliver interactive, information-rich
multimedia messages targeted specifically to the consumer. The Company also
promotes its virtual channel to consumer packaged goods companies and other
strategic partners as a means of delivering targeted marketing programs,
including Internet advertising and sampling programs. Historically, consumer
packaged goods companies have garnered much of their market information through
traditional grocery store purchase data. Streamline.com, however, can more
comprehensively track purchasing data and can provide consumer packaged goods
companies with information on the effectiveness of their marketing programs,
without ever disclosing an individual customer's personal information.
STREAMLINE.COM'S PHYSICAL CHANNEL
The Company has created its own efficient, direct-to-the-customer
distribution channel comprised of:
- THE CONSUMER RESOURCE CENTER. Streamline.com's model consumer resource
center is a strategically located, multi-temperature zone,
warehouse-based, dedicated fulfillment center of approximately 100,000
square feet that is designed to serve approximately 10,000 to 12,000
customers within a 20 to 30 mile radius.
- STREAMLINE.COM'S DELIVERY FLEET. Streamline.com's uniformed drivers, or
field service representatives, deliver goods and services in leased
refrigerated trucks bearing Streamline.com's logo. Within these vehicles,
secure containers separate different types of products and services to
ensure quality during transport.
- THE STREAMLINE BOX. The Streamline Box is a refrigerator/freezer with a
compact storage unit that is located in a secure area at the customer's
home, such as in a garage. The Streamline Box allows us to maintain the
separation of different types of products within proper temperature zones
even after delivery.
- TOTE DELIVERY SERVICE. Additionally, the Company has initiated a pilot
tote delivery program in the Washington D.C. market using protein gel
packs and dry ice to maintain products.
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CUSTOMER USES
- aggregating multiple shopping trips
- avoiding crowded stores
- eliminating stress of waiting for a delivery person
- maintaining chill chain for product quality
- providing additional storage space
STREAMLINE.COM USES
- lowering facility operating costs
- optimizing fleet utilization and time per stop
- promoting a weekly shopping pattern
- increasing order size and frequency
- providing back haul capability that allows for an expanded product
offering
The Streamline.com solution also addresses some of the limitations of the
traditional physical store model:
REDUCED REAL ESTATE, LABOR AND ADMINISTRATIVE EXPENSES. Streamline.com's
model consumer resource center is located in an industrial setting, as opposed
to a more expensive location, such as a strip mall or other retail location
typical of a traditional physical store. Additionally, the Company's facilities
do not require display cases, cash registers, customer parking lots or other
space-consuming elements associated with the traditional physical store.
Streamline.com further reduces real estate, labor and administrative expenses by
consolidating goods and services within a single operation, thereby eliminating
much of the overhead that would otherwise be required to provide similar
products and services through separate grocery stores, dry cleaners, video
stores, pet supply stores, and other similar stores.
MORE EFFECTIVE INVENTORY MANAGEMENT. Streamline.com has aggregated a
targeted offering of products and services that promote purchasing in high
frequency because of their consumable, renewable or disposable nature. By
focusing on busy suburban families, Streamline.com is able to tailor its
assortment of products and services so as to meet customer demand while reducing
the number of stock- keeping units, or SKUs, that it provides. Currently, the
Company maintains approximately 10,000 of the SKUs most commonly ordered by busy
suburban families, as opposed to a typical grocery store's offering of 30,000
SKUs. The Company's targeted SKU assortment allows the Company to reduce
inventory carrying costs, lower operating costs, more accurately forecast demand
and provide customers with a more efficient ordering process.
MORE EFFECTIVE CUSTOMER INTERACTION. Customers place their orders via the
Internet or by telephone or fax. The Internet-based ordering technology used by
the majority of the Company's customers allows Streamline.com to deliver product
information rapidly and conveniently while removing the need to physically
display products in a costly and inefficient manner. In addition to saving
customers from having to visit a number of different traditional physical
stores, the Company also provides its customers with a more efficient method of
purchasing.
Streamline.com's objective is to become the leading national consumer direct
supplier of groceries and other related products and services to busy suburban
families. The Company intends to achieve this objective through the following
principal strategies:
EXPAND NATIONALLY BY REPLICATING THE COMPANY'S BUSINESS
MODEL. Streamline.com seeks to expand its business by establishing consumer
resource centers in selected markets across the country. The Company estimates
that the top 20 markets in the U.S. provide access to approximately 40% of the
population. Eventually, the Company intends to serve busy suburban families in
nearly all of these markets by establishing local operations based on its
existing model of offering weekly unattended deliveries from a consumer resource
center.
The Company's strategy is to be among the first consumer direct provider of
groceries and other related products and services in many of its target markets,
which the Company believes will provide it an opportunity to obtain as customers
a considerable portion of the busy suburban families in those areas. As the
Company expands, it intends to focus on increasing its brand recognition through
targeted promotional and marketing programs, individually and with existing and
future strategic partners. The Company expects that the increased brand
awareness will accelerate its customer acquisition rate as the Company enters
into new markets and expands within existing markets.
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In October 1999, the Company entered into its second market, in the
Washington, D.C. area. The Company entered its third market, the Chicago area
when it completed its acquisition of Scotty's Home Market in January 2000. The
Company has also announced the fourth major market of its national expansion
plan, Northern New Jersey. The Company is also scouting locations in additional
target markets. Additionally, the Company will consider opportunities to acquire
or invest in products, services or technologies complementary to the Company's
business if any such opportunities arise.
DEVELOP AND STRENGTHEN THE COMPANY'S CUSTOMER ACQUISITION CAPABILITIES. The
ability to rapidly acquire customers while maintaining service quality is
essential to achieving and maintaining consumer resource center profitability as
the Company implements its expansion plans. The Company's strategy is to
supplement its existing customer acquisition programs by forming relationships
with strategic partners with whom the Company will be able to engage in joint
marketing and other directed sales efforts. The goal of these programs, coupled
with the Company's current advertising and customer referral programs, is to
reduce the Company's customer acquisition costs and facilitate rapid customer
acquisition in new and existing markets.
INCREASE REVENUE PER CUSTOMER. The Company seeks to increase the average
size of its customers' weekly orders by fulfilling a greater portion of their
needs. The Company's strategy is to increase penetration of the existing
products and services it offers and to introduce new product and service
offerings. Streamline.com's technology allows it to track customer purchasing
data, both individually and in the aggregate, to determine the types of products
and services that a busy suburban family is most likely to appreciate. The
Company expects to use this data to help it determine which new products and
services should be added to its offerings and whether to provide them directly
or through strategic relationships with other companies. By increasing the size
and scope of the Company's offerings, it seeks to expand its role as an
aggregator and to capture the economic benefits associated with providing
products and services through a single consolidated operation, rather than
through a traditional multiple store format. Additionally, by maintaining a high
level of customer satisfaction with the Company's offerings, the Company expects
that its customers will increasingly use Streamline.com as the primary supplier
of many of the products and services they require.
MAINTAIN AND DEVELOP RELATIONSHIPS WITH CONSUMER PACKAGED GOODS COMPANIES,
E-COMMERCE COMPANIES AND STRATEGIC INVESTORS. The spending habits of the
Company's customers and the level of interaction that they have with the
Company, both via the Internet and through the Company's physical channel, makes
the Company an effective conduit for accessing a customer base that is
attractive to other providers of goods and services. Consumer packaged goods
companies compensate Streamline.com for the opportunity to gain insight into
consumer purchase behavior and to conduct merchandising programs, such as
Internet advertising and new product testing with targeted demographic groups.
Additionally, the Company provides direct links to websites maintained by select
e-commerce companies offering items that may be of interest to busy suburban
families.
MAXIMIZE OPERATIONAL EFFICIENCY. The Company's consumer resource center,
located in an industrial setting, allows the Company to create efficient
operational processes. For example, the Company uses customer purchasing data to
maximize the efficiency of its internal operations. By understanding the
ordering patterns of its customers, the Company is better able to capture and
forecast real demand for its products and services, which enables it to maintain
lower inventory levels and decrease inventory carrying costs. Additionally, the
Company's unattended delivery system, through which it delivers orders to its
customers at a fixed delivery time, allows the Company to maximize fleet
utilization and create routing efficiencies. The Company is in the process of
implementing route planning software to gain further efficiencies in its
physical channel. As the Company expands its operations, its strategy is to
centralize many functions such as customer acquisition, Internet-based order
taking, customer service and general administrative functions and to consider
outsourcing other functions in order to lower overall operating expenses and
reduce operating risks.
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DETAILS OF THE STREAMLINE.COM PROCESS
The Company's process focuses on the ordering and delivery of quality goods
and services to the busy suburban family in a simple and efficient manner:
INITIAL CUSTOMER INSTALLATION. A Streamline.com representative visits each
new customer's home to install a Streamline Box, consisting of a
refrigerator-freezer, for perishable and frozen items, and a shelving unit, used
for delivery and pick-up of dry goods, dry cleaning, video rentals and other
products. The Streamline Box is located in the customer's garage or in another
secure location that does not give access to the interior of the customer's
home. Access to these secure locations is obtained through a keypad entry system
provided, installed and maintained by Streamline.com.
TAKING THE ORDER. Customers can place and modify their orders via the
Internet, or by telephone or fax, until 11:00 p.m. the evening before their
scheduled delivery day. Currently 100% of the Company's customers order via the
Internet due to the convenience and broader functionality offered through an on-
line experience. The Company plans to migrate to exclusively Internet-based
ordering due to the accuracy and cost efficiencies gained by using such
technology.
In addition, customers can order from an on-line personal shopping list, a
list of approximately 200 items tailored to their specific purchase behavior
that represents a substantial majority of the items included in a typical weekly
order. The customer can also simply select from any of the other products and
services the Company offers. A customer can add or delete items from the
personal shopping list at any time through the Company's website. A customer can
also be prompted to order through the Company's DON'T RUN OUT automatic
replenishment program which allows the customer to automatically order items on
a pre-defined cycle. For example, a customer can indicate once through this
program and have a half-gallon of milk delivered every week or a five-pack of
razor blades delivered every six weeks.
The Company has designed the website to be intuitive, fun and easy to use.
Customers can easily locate products by using the SHOP function which
categorizes products into groups, such as BAKERY, PET FOOD or PAPER GOODS, or by
using a robust, key-word search capability to locate items without knowing full
product descriptions. The customer shopping experience is further enhanced by an
interactive marketing capability in the Company's website that provides targeted
and relevant advertising.
ASSEMBLING THE ORDER AT THE CONSUMER RESOURCE CENTER. Streamline.com's
model consumer resource center is outlined below.
THE CONSUMER RESOURCE CENTER
Operations within the consumer resource center include:
- receiving, quality-checking and stocking of products
- preparing and picking customer orders and placing them in appropriate
containers
- loading the delivery fleet
- providing back haul services, such as videotape returns, dry cleaning,
film processing, shoe repair and bottle and can redemption
The Company receives inventory on a frequent basis to ensure availability
and freshness. Additionally, quality assurance personnel examine each perishable
item before order fulfillment to ensure that the Company provides only
top-quality goods to its customers. The Company also maintains quality and
improves picking efficiency by segregating products into a number of different
areas in the consumer resource center based on product characteristics, such as
perishability, fragility, temperature zone, odor and purchase frequency.
Refrigerated and frozen goods are maintained at appropriate temperatures, while
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household items, such as soap and cleaning supplies, and service items, such as
dry cleaning, are kept separate from food items.
Since orders are received until 11:00 p.m. for delivery the next day, order
picking takes place overnight. The Company optimizes the picking process by
employing traditional logistical techniques, such as segregating fast-and
slow-moving items. To maximize efficiency, Company employees pick multiple
customer orders at one time, aided by a hand-held computerized device that
directs them to pick orders in the most efficient pattern while maintaining
accuracy through bar coding. Once the order is picked and consolidated in each
customer's delivery bins, the Company's employees stage it for delivery in the
morning. At that point, the Company assembles each customer's grocery products
with other items to be delivered, including products that the Company receives
each morning such as fresh baked goods and prepared meals.
ORDER FULFILLMENT AND DELIVERY. Once the Company has filled, assembled and
staged customer orders at the consumer resource center, the Company places them
in refrigerated trucks specially designed to ensure quality during delivery.
Customers receive their orders on a weekly schedule on a fixed day at any time
from 9:00 a.m. to 6:00 p.m. As a result, the delivery system allows for
geographic concentration, better load balancing and optimized route efficiency.
To maintain proper temperature and to properly separate incompatible items, such
as a carton of eggs and a frozen turkey, the Company separates its products and
services in delivery containers designated for certain types of items.
EMPLOYEES
As of February 29, 2000, Streamline.com had approximately 350 full-time and
part-time employees, working in corporate, selling, general and administrative
functions and in merchandise processing, picking and delivery. Of these
employees, approximately 182 were located in our suburban Boston consumer
resource center and corporate headquarters, approximately 25 were located in our
Washington, D.C. area facility and approximately 143 were located in our Chicago
area facility. Streamline.com also employs a limited number of independent
contractors and temporary employees on a periodic basis. None of
Streamline.com's employees are represented by a labor union and Streamline.com
considers its labor relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
Streamline.com is headquartered in Westwood, Massachusetts, where the
Company leases approximately 67,000 square feet of commercial space under a term
lease that expires on October 31, 2000, subject to a five-year renewal at
Streamline.com's option. These facilities are used for executive office space,
including sales and marketing and finance and administration, and for the
operation of our initial consumer resource center. The Company also maintains a
facility in Gaithersburg, Maryland where it leases an aggregate of approximately
93,000 square feet of commercial space under a term lease that expires on
October 1, 2007 with respect to 56,000 square feet and on July 22, 2009 with
respect to 37,000 square feet.
In 2000, the Company began serving the Chicago market from a new, highly
automated fulfillment center in Lake Zurich, Illinois. The new facility contains
a total of approximately 94,000 square feet of space, with 74,000 square feet
dedicated to the Company's fulfillment center for the region and 20,000 square
feet of office space. The Company also maintains a fulfillment center of
approximately 12,250 square feet in Lake Zurich under a term lease that expires
on August 31, 2001.
The Company believes that its current facility will be adequate to meet its
current needs in the Boston area through the end of 2000, although additional
premises may be required prior to that time to support current growth
expectations. The Company expects that its facilities in the Washington, D.C.
and Chicago areas will be adequate to meet its needs for the foreseeable future.
In addition, in October 1999,
10
<PAGE>
Streamline.com signed a lease for a 102,000 square foot build-to-suit
distribution facility in Carlstadt, New Jersey, which is expected to be
completed and ready for occupancy in the second quarter of 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 5, 2000, at a Special Meeting of Shareholders, the Company's
shareholders met to consider and vote upon the following two proposals:
1. A proposal to approve the Agreement and Plan of Merger and Reorganization,
dated as of October 18, 1999, among Streamline.com, Streamsub, Inc., Beacon
Home Direct, Inc. d/b/a Scotty's Home Market and certain other parties.
2. A proposal to approve an increase in the number of shares of Streamline.com
common stock authorized for issuance under Streamline.com's 1993 Employee
Stock Option Plan, as amended, from 2,500,000 to 3,000,000.
Results with respect to the voting on each of the above proposals were as
follows
<TABLE>
<S> <C> <C>
Proposal 1:
9,688,011 Votes For
4,495 Votes Against
485 Abstentions
3,398,366 Broker Non-Votes
Proposal 2:
12,254,157 Votes For
808,625 Votes Against
2,175 Abstentions
6,400 Broker Non-Votes
</TABLE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Streamline.com are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- -------------------------------------------------
<S> <C> <C>
Timothy A. DeMello....................... 41 Chairman and Chief Executive Officer
Edward Albertian......................... 46 President and Chief Operating Officer
J. Gregory Ambro......................... 47 Senior Vice President and Chief Financial Officer
John Cagno............................... 41 Vice President, Information Technology
William P. Paul.......................... 52 Vice President, Merchandising
Mary E. Wadlinger........................ 40 Vice President, Customer Quality
Gina Wilcox.............................. 32 Vice President, Sales and Marketing
James Thompson........................... 41 Vice President, Development
Lawrence Anderson........................ 47 Vice President, Control and Accounting
</TABLE>
TIMOTHY A. DEMELLO is the founder, Chairman and Chief Executive Officer of
Streamline.com. Before launching Streamline.com in 1993, Mr. DeMello was
founder, President and Chief Executive Officer of Replica Corporation.
Previously, Mr. DeMello served as Vice President of L.F. Rothschild, Unterberg,
Towbin from 1985 to 1987 and as Vice President of Kidder Peabody & Company from
1981 to 1985. Mr. DeMello received a Bachelor of Science degree in business from
Babson College and currently sits on its Board of Trustees.
11
<PAGE>
EDWARD ALBERTIAN has been President and Chief Operating Officer of
Streamline.com since September 1999. From 1995 to September 1999, Mr. Albertian
served as Chief Operating Officer of the Star Markets Company, a premier
regional food retailer in New England. Prior to joining Star Markets, Mr.
Albertian spent nine years as Senior Vice President of Eastern Operations at
Staples, Inc., a national office supply superstore. Mr. Albertain received a
Bachelors' degree from the University of Miami and a Masters of Business
Administration from Northeastern University.
J. GREGORY AMBRO joined Streamline.com in December 1999 as Senior Vice
President and Chief Financial Officer. From March 1996 to November 1999, Mr.
Ambro served as Senior Vice President of Finance and Administration and Chief
Financial Officer of Harris Teeter, Inc. a wholly owned subsidiary of Ruddick
Corporation. Harris Teeter is one of the southeast's leading upscale super
market chains, operating 149 stores and generating revenue of over $2 billion.
From March 1991 to February 1996, Mr. Ambro held the several senior financial
positions at Marshall's, a national off-priced apparel retailer then owned by
the Melville Corporation, including: Vice President of Real Estate, Vice
President of Control and Vice President and Chief Financial Officer. Mr. Ambro
was also Vice President of Control for Kaufman's, a division of the May
Department Stores. Mr. Ambro received his Bachelor's Degree and MBA from the
University of Cincinnati.
JOHN CAGNO has served as Vice President, Information Technology since
January 1999. From August 1996 to January 1999, Mr. Cagno was Vice President,
Information Services at Brookstone Company, Inc. He also served as Director,
Retail Information Systems at Reebok International Ltd. from January 1995 to
August 1996. From January 1994 to January 1995, Mr. Cagno was Director,
Information Systems at Nature Food Centre.
WILLIAM P. PAUL joined Streamline.com as Vice President of Merchandising in
October 1999. From 1995 to October 1999, Mr. Paul was Vice President of
Merchandising of Star Markets Company. Prior to joining Star Markets, Mr. Paul
spent eight years as Vice President of Merchandising of Staples, Inc. Mr. Paul
received a Bachelor's degree from Merrimack College and a Masters of Business
Administration from Boston University.
MARY E. WADLINGER joined Streamline.com in January 1997 as Director of
Operations and has served as Vice President, Customer Quality since May 1997.
From August 1989 until June 1996, Ms. Wadlinger was the Director of Process
Improvement at Melville Corporation, where she managed strategic re-engineering
efforts in customer service, merchandise allocation, logistics and store
operations for Marshall's, CVS Pharmacy and Kay-Bee Toys. Ms. Wadlinger received
her Bachelor of Science degree in finance from the University of Maine at Orono.
GINA WILCOX joined Streamline.com as Director of Strategic Relations in
November 1996, became Associate Vice President, Strategic Relations in December
1998 and was elected Vice President, Sales and Marketing in December 1999. From
June 1995 until she joined Streamline, Ms. Wilcox was a consultant in the
consumer products practice with Andersen Consulting's Strategic Services
Division. Ms. Wilcox received her Masters of Business Administration degree in
1995 from Harvard Business School.
JAMES THOMPSON joined Streamline.com as Vice President, Development in March
2000. Prior to joining Streamline.com, he was Vice President of Construction for
R.F. Walsh, one of the largest real estate development companies in the metro
Boston area. From 1984 to 1996, Mr. Thompson was responsible for the national
rollout for B.J.'s Wholesale Club as the company grew from 1 to 75 stores under
his leadership. Mr. Thompson received a Bachelor of Science degree in civil
engineering from Rensselaer Polytechnic Institute.
LAWRENCE ANDERSON joined Streamline.com as Vice President of Control and
Accounting in March 2000. From 1997 until he joined Streamline.com, he was Vice
President of Finance for Ro-Jacks Foodstores, Inc., and from 1992 to 1997 he was
Vice President of Finance for Star Markets Company Inc. Mr. Anderson received a
Bachelor of Science degree in business from Northeastern University and a
Masters of Science Degree in Accounting from Bentley College.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
Since June 18, 1999, the Company's common stock has been traded on the
Nasdaq National Market under the symbol "SLNE." The following table sets forth
the high and low last reported sale prices per share of the Company's common
stock as reported by the Nasdaq National Market for the second quarter ended
June 30, 1999, the third quarter ended October 2, 1999, and the fourth quarter
ended January 1, 2000.
<TABLE>
<CAPTION>
QUARTER STREAMLINE.COM
- ------- -------------------
HIGH LOW
-------- --------
<S> <C> <C>
Ended June 30, 1999......................................... $ 8.19 $7.38
Ended October 2, 1999....................................... $13.19 $6.56
Ended January 1, 2000....................................... $12.81 $6.50
</TABLE>
HOLDERS
As of March 20, 2000, the Company had approximately 197 stockholders of
record. This does not reflect persons or entitles who hold their stock in
nominee or "street" name through various brokerage firms.
DIVIDENDS
The Company has not declared or paid any cash dividends on its Common Stock
since its inception and does not anticipate paying cash dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES; USES OF PROCEEDS FROM REGISTERED
SECURITIES.
In connection with the Company's acquisition of Beacon Home Direct, Inc.
(d/b/a/ Scotty's Home Market) on January 5, 2000, the Company issued a total
number of 3,710,456 shares of the Company's common stock, $.01 par value per
share, plus warrants and options to purchase an aggregate of approximately
597,595 shares, in exchange for all of the outstanding stock, warrants, and
options of Scotty's Home Market. The issuance and sale of these securities were
made in reliance upon Rule 506 of Regulation D under the Securities Act of 1933,
as amended, and Section 4(2) of the Securities Act.
A total of 4,998,482 shares of the Company's common stock were sold at a
price of $10.00 per share in the Company's initial public offering, including
the exercise of the underwriter's over-allotment option in July 1999, generating
gross offering proceeds of approximately $50.0 million. After deducting $5.0
million in underwriting discounts and approximately in other related expenses,
the net proceeds to the Company were approximately $45.0 million. Concurrent
with the initial public offering, all of the shares of Series A, Series B,
Series C and Series D redeemable convertible preferred stock and accrued
dividends on the Series D preferred stock were converted into 9,673,109 shares
of Streamline.com's common stock.
Through January 1, 2000, Streamline.com spent $14.2 million of the $45
million net proceeds received from the initial public offering for the following
uses and in the following amounts per use $1.7 million for the construction of
plant, building and facilities; $250,000 for legal and audit fees; $2.0 million
paid to Genco, the third party CRC operations partner; $1.1 million paid for
advertising services to Ogilvy; $250,000 for general software maintenance; and
$8.9 million for working capital. None of these amounts entailed direct or
indirect payments to directors, officers, or persons holding 10% or more of the
Company's outstanding common stock, other than payments for salaries and
reimbursements to officers
13
<PAGE>
and directors, and payments aggregating $317,000 to Elm Square Technologies,
Inc. for technology consulting services. Thomas Jones, a director of the
Company, is President of Elm Square Technologies.
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to Selected Financial Data may be found on page 12
of the annual report to security holders for fiscal year ended January 1, 2000
to be delivered to stockholders in connection with the Annual Meeting of
Stockholders to be held on May 25, 2000. Such information is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information with respect to Management's Discussion and Analysis of
Financial Information and Result of Operations may be found beginning on
page 13 of the annual report to security holders for fiscal year ended January
1, 2000 to be delivered to stock holders in connection with the Annual Meeting
of Stockholders to be held on May 25, 2000. Such information is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information with respect to Quantative and Qualitative Disclosures about
Market Risk may be found on page 16 of the annual report to security holders for
fiscal year ended January 1, 2000 to be delivered to stockholders in connection
with the Annual Meeting of Stockholders to be held on May 25, 2000. Such
information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS
Information with respect to Financial Statements may be found beginning on
page 19 of the annual report to security holders for fiscal year ended January
1, 2000 to be delivered to stock holders in connection with the Annual Meeting
of Stockholders to be held on May 25, 2000. Such information is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors and compliance with Section 16(a) of
the Securities Exchange Act may be found in the sections captioned "Proposal No.
1--Election of Directors" and "Section 16(A) Beneficial Ownership Reporting
Compliance" appearing in the definitive Proxy Statement to be delivered to
Stockholders in connection with the Annual Meeting of Stockholders to be held on
May 25, 2000. Such information is incorporated herein by reference. Information
with respect to Executive Officers may be found under the section captioned
"Executive Officers of the Registrant" in Part I, Item 4A of this Annual Report
on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required with respect to Executive Compensation may be found in
the sections captioned "Executive Compensation" appearing in the definitive
Proxy Statement to be delivered to Stockholders in connection with the Annual
Meeting of Stockholders to be held on May 25, 2000. Such information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required with respect to this item may be found in the section
captioned "Principal Shareholders of Streamline.com" and "Proposal No.
1--Election of Directors" appearing in the definitive Proxy Statement to be
delivered to Stockholders in connection with the Annual Meeting of Stockholders
to be held on May 25, 2000. Such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required with respect to this item may be found in the section
captioned "Certain Transactions" appearing in the definitive Proxy Statement to
be delivered to Stockholders in connection with the Annual Meeting of
Stockholders to be held on May 25, 2000. Such information is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of form 10-K
1. FINANCIAL STATEMENTS.
The following financial statements and supplementary data are
included in Part II Item 8 filed as part of this report:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and January
1, 2000
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and January 1, 2000
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) and Comprehensive Loss for the years ended December 31,
1997, 1998 and January 1, 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and January 1, 2000
Notes to Consolidated Financial Statements
15
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES.
Report of Independent Accountants
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable, not required or the information required is shown in the
financial statements or the notes thereto.
3. LIST OF EXHIBITS
EXHIBITS
<TABLE>
<C> <S>
*2.1 Agreement and Plan of Merger and Reorganization, dated as of
November 2, 1998, by and among the Company and the other
parties thereto.
2.2 Agreement and Plan of Merger and Reorganization among the
Company, Streamsub, Inc., and Beacon Home Direct, Inc.
(d/b/a/ Scotty's Home Market dated October 18, 1999.
(Incorporated herein by reference to Exhibit A to the
Company's Proxy Statement/Private Placement Memorandum,
filed on December 15, 1999)
3.1 Second Amended and Restated Certificate of Incorporation of
the Company (Incorporated herein by reference to Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q, File
No. 000-26133, filed August 16, 1999)
*3.2(a) Amended and Restated By-Laws of the Company.
3.2(b) Amendment No. 1 to the Amended and Restated By-Laws of the
Company. (Incorporated herein by reference to Exhibit 3.1,
Quarterly Report on Form 10-Q, filed August 16, 1999)
*4.1 Specimen certificate for shares of the Registrant's Common
Stock.
*10.1 1993 Employee Option Plan, as amended.
*10.2 1993 Director Stock Option Plan, as amended.
*10.3 Series A Preferred Stock Purchase Agreement, dated as of May
15, 1996, by and among the Registrant and the other parties
thereto.
*10.4 Stock Purchase Agreement, dated as of June 13, 1997, by and
among the Registrant and the other parties thereto.
*10.5 Registration Rights Agreement, dated as of June 13, 1997, by
and among the Registrant and the other parties thereto,
including instruments of adherence thereto.
+*10.6 Development Agreement, dated as of June 13, 1997, by and
between the Registrant and Intel Corporation, as amended.
*10.7 Warrant to purchase shares of the Registrant's common stock,
issued to Intel Corporation, dated June 13, 1997.
*10.8 Warrant to purchase shares of the Registrant's common stock,
issued to Intel Corporation, dated as of January 21, 1998.
*10.9 Waiver and Modification Agreement, dated as of September 23,
1997, by and among the Registrant and the other parties
thereto.
*10.10 Warrant to Purchase shares of the Registrant's common stock
issued to General Electric Capital Corporation, dated as of
September 23, 1997.
*10.11 Form of Non-Negotiable Convertible Promissory Notes of the
Registrant due October 1, 1998, dated as of April 15, 1998,
issued in the aggregate face amount of $600,000, issued by
the Registrant.
</TABLE>
16
<PAGE>
<TABLE>
<C> <S>
*10.12 Securities Purchase Agreement, dated as of April 15, 1998,
by and among the Registrant and the other parties thereto.
*10.13 Warrant Agreement, dated as of April 15, 1998, by and among
the Registrant and the other parties thereto.
*10.14 Registration Rights and Co-Sale Agreement, dated as of April
15, 1998, by and among the Registrant and the other parties
thereto.
*10.15 Stock Purchase Agreement, dated as of September 18, 1998, by
and between the Registrant and Nordstrom, Inc.
*10.16 Registration Rights Agreement, dated as of September 18,
1998, by and among the Registrant and Nordstrom, Inc.
*10.17 Letter agreement regarding registration rights, dated as of
September 18, 1998, by and among the Registrant and the
other parties thereto.
*10.18 Shareholders Agreement, dated as of September 18, 1998, by
and among the Registrant, Nordstrom, Inc. and certain
officers of the Registrant.
*10.19 Waiver and Modification Agreement, dated as of September 18,
1998, by and among the Registrant and the other parties
thereto.
*10.20 Warrant Modification Agreement, dated as of September 18,
1998, by and among the Registrant and the other parties
thereto.
*10.21 Letter Agreement, dated March 7, 1997, by and between the
Registrant and Elm Square Technologies.
*10.22 Warrant to purchase shares of the Registrant's common stock,
issued to Elm Square Technologies, Inc., dated as of
December 15, 1998.
*10.23 Letter Agreement, dated as of April 30, 1997, by and between
the Registrant and BrainReserve, Inc.
*10.24 Form of Streamline.com Consumer Learning Center Membership
Agreement and Mutual Non-Disclosure Agreement.
*10.25 Letter Agreement, dated as of January 30, 1997, by
Welty-Leger Corporation.
*10.26 Westwood lease, dated as of August 18, 1995, as amended, by
and between the Registrant and Mortimer B. Zuckerman.
*10.27 Gaithersburg, Maryland lease, dated as of June 30, 1997, as
amended, by and between the Registrant and Manor Care, Inc.
*10.28 Form of Invention and Non-Disclosure Agreement between the
Registrant and its executives and key employees.
*10.29 Form of Non-Competition and Non-Solicitation Agreement
between the Registrant and its executives and key employees.
*10.30 Employment Agreement, dated April 9, 1999, by and between
the Registrant and Timothy A. DeMello.
*10.31 Letter Agreement, dated as of April 13, 1999, by and between
the Registrant and Nordstrom, Inc.
10.32 Letter agreement, dated June 22, 1999, between the Company
and Nordstrom, Inc. (Incorporated herein by reference to
Exhibit 10.1, Quarterly Report on Form 10-Q filed August 16,
1999, File No. 000-26133)
10.33 Carlstadt, New Jersey lease dated as of October 1999, by and
between Streamline.com and ProLogis Trust.
</TABLE>
17
<PAGE>
<TABLE>
<C> <S>
13.1 Financial Section of the 2000 Annual Report to Shareholders,
pages 19 through 38.
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule
</TABLE>
Unless otherwise indicated, all of the above-listed Exhibits are
incorporated by reference from the Company's filing indicated.
- ------------------------
* Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1, Registration No. 333-76383, filed on
April 15, 1999.
+ Portions of this document have been granted confidential treatment by the
Securities and Exchange Commission.
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on January 20, 2000 to report
that on January 5, 2000, Streamsub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Streamline.com merged with and into Beacon Home
Direct, Inc. (d/b/a/ Scotty's Home Market, an Illinois corporation. The
financial statements of Scotty's incorporated by reference therein to
Streamline.com Proxy/Private Placement Memorandum dated December 13, 1999, as
filed with the Securities and Exchange Commission on December 15, 1999 were as
follows:
- Consolidated Statements of Operations for the Years Ended December 31,
1996 (unaudited),
- 1997 and 1998 and the Nine Months Ended September 30, 1998 and 1999
(unaudited)
- Consolidated Balance Sheets at December 31, 1997, 1998 and September 30,
1999 (unaudited)
- Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996 (unaudited), 1997 and 1998 and the Nine Months
Ended September 30, 1999 (unaudited)
- Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 (unaudited), 1997 and 1998 and the Nine Months Ended September 30,
1998 and 1999 (unaudited)
- Notes to Financial Statements
- Report of Independent Accountants
- Pro forma Financial Information was filed on February 11, 2000 on a report
on Form 8-K/A.
(c) Exhibits
The Company hereby files as part of this Form 10-K the exhibits listed in
Item 14(a)(3) as set forth above.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Streamline.com, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 9, 2000 appearing in the 1999 Annual Report to Shareholders of
Streamline.com, Inc. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 2000
Schedule II Valuation and Qualifying Accounts
Schedule of Changes in Valuation Allowance (In thousands)
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE ADDITIONS DEDUCTIONS BALANCE
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997.......... $1,461 $3,348 -- $ 4,809
------ ------ ---- -------
Balance at December 31, 1998.......... 4,809 4,396 -- 9,205
------ ------ ---- -------
Balance at January 1, 2000............ $9,205 $6,960 -- $16,165
====== ====== ==== =======
</TABLE>
Schedule of Changes in Accounts Receivable Reserve (In thousands)
<TABLE>
<CAPTION>
BEGINNING ENDING
BALANCE ADDITIONS DEDUCTIONS BALANCE
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997........... -- -- -- --
Balance at December 31, 1998........... -- -- -- --
Balance at January 1, 2000............. -- $141 $(53) $88
=== ==== ==== ===
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
STREAMLINE.COM, INC.
By: /s/ TIMOTHY A. DEMELLO
-----------------------------------------
Timothy A. Demello
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on its behalf of the
Registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board of Directors,
/s/ TIMOTHY A. DEMELLO Chief Executive Officer, and
-------------------------------------- Director (principal executive
Timothy A. DeMello officer) March 30, 2000
/s/ EDWARD ALBERTIAN President, Chief Operating Officer,
-------------------------------------- and Director
Edward Albertian March 30, 2000
/s/ J. GREGORY AMBRO Chief Financial Officer
-------------------------------------- and Senior Vice President
J. Gregory Ambro (principal financial officer) March 30, 2000
/s/ LAWRENCE ANDERSON Vice President of Control and
-------------------------------------- Accounting (principal accounting
Lawrence Anderson officer) March 30, 2000
/s/ MARK A. COHN Director
--------------------------------------
Mark A. Cohn March 27, 2000
/s/ CHARLES C. CONAWAY Director
--------------------------------------
Charles C. Conaway March 30, 2000
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN P. FITZSIMONS Director
--------------------------------------
John P. Fitzsimons March 30, 2000
Director
--------------------------------------
Thomas O. Jones
/s/ MICHAEL A. STEIN Director
--------------------------------------
Michael A. Stein March 30, 2000
/s/ J. DANIEL NORDSTROM Director
--------------------------------------
J. Daniel Nordstrom March 30, 2000
</TABLE>
21
<PAGE>
Exhibit 10.33
[Net Lease]
LEASE AGREEMENT
THIS LEASE AGREEMENT is made this _____ day of October, 1999, between
ProLogis Trust ("Landlord"), and the Tenant named below.
<TABLE>
<S> <C> <C>
TENANT: STREAMLINE.COM, INC.
TENANT'S REPRESENTATIVE, TERENCE W. TORAN
ADDRESS, AND PHONE NO.: 27 DARTMOUTH STREET
WESTWOOD, MA 02090
PREMISES: That portion of the Building, containing
approximately 102,427 rentable square feet,
as determined by Landlord, as shown on
Exhibit A.
PROJECT: MEADOWLANDS DISTRIBUTION CENTER
BUILDING: BUILDING #3, 600 WASHINGTON AVENUE, CARLSTADT, NJ
TENANT'S PROPORTIONATE SHARE
OF PROJECT: 15%
TENANT'S PROPORTIONATE SHARE
OF BUILDING: 58%
LEASE TERM: Beginning on the Commencement Date and
ending on the last day of the 120th full
calendar month thereafter.
COMMENCEMENT DATE: The later of (i) April 1, 2000; or (ii) 60
days following Substantial Completion of the
Building Shell as described in Addendum 2
INITIAL MONTHLY BASE RENT: See Addendum 1
INITIAL ESTIMATED MONTHLY 1. Utilities: $0.00
OPERATING EXPENSE PAYMENTS:
(estimates only and subject 2. Common Area Charges: $1,621.76
to adjustment to actual costs
and expenses according to the 3. Taxes: $6,828.47
provisions of this Lease)
4. Insurance: $256.07
5. Others (Mgmt Fee): $1,963.19
INITIAL ESTIMATED MONTHLY OPERATING
EXPENSE PAYMENTS: $10,669.48
INITIAL MONTHLY BASE RENT AND
OPERATING EXPENSE PAYMENTS: $66,150.77
SECURITY DEPOSIT: $66,150.77
BROKER: N/A
ADDENDA: 1. BASE RENT ADJUSTMENTS; 2. CONSTRUCTION
(ALLOWANCE); 3. ONE RENEWAL OPTION; 4.
ASSIGNMENT & SUBLETTING CONSENT
</TABLE>
1. GRANTING CLAUSE. In consideration of the obligation of Tenant to pay
rent as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord,
the Premises, together with the non-exclusive right to use the common areas,
including, without limitation, the parking areas (except as provided for in
Paragraph 14) and access ways, for ingress and egress, to have and to hold for
the Lease Term, subject to the terms, covenants and conditions of this Lease.
2. ACCEPTANCE OF PREMISES. Tenant shall accept the Premises in its
condition as of the Commencement Date, subject to all applicable laws,
ordinances, regulations, covenants and restrictions and Addendum 2. Landlord has
made no representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business, and Tenant waives any implied warranty that the
Premises are suitable for Tenant's intended purposes. Except as provided in
Paragraph 10 and Addendum 2, in no event shall Landlord have any obligation for
any defects in the Premises or any limitation on its use. The taking of
possession of the Premises shall be conclusive evidence that Tenant accepts the
Premises and that the Premises were in good condition at the time possession was
taken except for items that are Landlord's responsibility under Paragraphs 3 and
10, Addendum 2, and any other provisions of the Lease, and any punchlist items
agreed to in writing by Landlord and Tenant.
3. USE. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (but limited to wholesale sales) products,
materials and merchandise made and/or distributed by Tenant and for such
<PAGE>
other lawful purposes as may be incidental thereto; provided, however, with
Landlord's prior written consent, Tenant may also use the Premises for light
manufacturing. Tenant shall not conduct or give notice of any auction,
liquidation, or going out of business sale on the Premises. Tenant will use the
Premises in a careful, safe and proper manner and will not commit waste,
overload the floor or structure of the Premises or subject the Premises to use
that would damage the Premises. Tenant shall not permit any objectionable or
unpleasant odors, smoke, dust, gas, noise, or vibrations to emanate from the
Premises, or take any other action that would constitute a nuisance or would
disturb, unreasonably interfere with, or endanger Landlord or any tenants of the
Project. Outside storage, including without limitation, storage of trucks and
other vehicles, is prohibited without Landlord's prior written consent. Tenant,
at its sole expense, shall use and occupy the Premises in compliance with all
laws, including, without limitation, the Americans With Disabilities Act,
orders, judgments, ordinances, regulations, codes, directives, permits,
licenses, covenants and restrictions now or hereafter applicable to the Premises
(collectively, "Legal Requirements"). The Premises shall not be used as a place
of public accommodation under the Americans With Disabilities Act or similar
state statutes or local ordinances or any regulations promulgated thereunder,
all as may be amended from time to time. Tenant shall, at its expense, make any
alterations or modifications, within or without the Premises, that are required
by Legal Requirements related to Tenant's use or occupation of the Premises.
Tenant will not use or permit the Premises to be used for any purpose or in any
manner that would void Tenant's or Landlord's insurance, increase the insurance
risk, or cause the disallowance of any sprinkler credits. If any increase in the
cost of any insurance on the Premises or the Project is caused by Tenant's use
or occupation of the Premises, or because Tenant vacates the Premises, then
Tenant shall pay the amount of such increase to Landlord. Any occupation of the
Premises by Tenant prior to the Commencement Date shall be subject to all
obligations of Tenant under this Lease.
Landlord represents that the improvements constructed or
installed by Landlord shall comply in all material respects with all applicable
covenants or restrictions of record and all applicable laws, building codes,
appropriate building and land permits, regulations and ordinances in effect on
the Commencement Date of this Lease.
Notwithstanding anything contained herein to the contrary,
Landlord shall make such modifications as may be required by order or directive
of applicable governmental authority in order to bring the Building or the
Premises into compliance with applicable laws as of the Commencement Date
without cost or expense to Tenant and without including such cost or expense as
an Operating Expense. Any modifications made by Landlord that are required by
applicable laws or regulations that become effective after the Commencement Date
or that are required as a result of the Tenant's use of the Premises shall be
chargeable to Tenant.
4. BASE RENT. Tenant shall pay Base Rent in the amount set forth above.
The first month's Base Rent, the Security Deposit, and the first monthly
installment of estimated Operating Expenses (as hereafter defined) shall be due
and payable on the date hereof, and Tenant promises to pay to Landlord in
advance, without demand, deduction or set-off, monthly installments of Base Rent
on or before the first day of each calendar month succeeding the Commencement
Date. Payments of Base Rent for any fractional calendar month shall be prorated.
All payments required to be made by Tenant to Landlord hereunder shall be
payable at such address as Landlord may specify from time to time by written
notice delivered in accordance herewith. The obligation of Tenant to pay Base
Rent and other sums to Landlord and the obligations of Landlord under this Lease
are independent obligations. Tenant shall have no right at any time to abate,
reduce, or set-off any rent due hereunder except as may be expressly provided in
this Lease. If Tenant is delinquent in any monthly installment of Base Rent or
of estimated Operating Expenses for more than 10 days, Tenant shall pay to
Landlord on demand a late charge equal to 5 percent of such delinquent sum. The
provision for such late charge shall be in addition to all of Landlord's other
rights and remedies hereunder or at law and shall not be construed as a penalty.
5. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord as
security for the performance of Tenant's obligations under this Lease. The
Security Deposit is not an advance rental deposit or a measure of Landlord's
damages in case of Tenant's default. Upon each occurrence of an Event of Default
(hereinafter defined), Landlord may use all or part of the Security Deposit to
pay delinquent payments due under this Lease, and the cost of any damage,
injury, expense or liability caused by such Event of Default, without prejudice
to any other remedy provided herein or provided by law. Tenant shall pay
Landlord on demand the amount that will restore the Security Deposit to its
original amount. Landlord's obligation respecting the Security Deposit is that
of a debtor, not a trustee; no interest shall accrue thereon. The Security
Deposit shall be the property of Landlord, but shall be paid to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease, the Security Deposit, and the Premises to a person or
entity assuming Landlord's obligations under this Paragraph 5.
6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term, on
the same date that Base Rent is due, Tenant shall pay Landlord an amount equal
to 1/12 of the annual cost, as estimated by Landlord from time to time, of
Tenant's Proportionate Share (hereinafter defined) of Operating Expenses for the
Project. Payments thereof for any fractional calendar month shall be prorated.
The term "Operating Expenses" means all costs and expenses incurred by Landlord
with respect to the ownership, maintenance, and operation of the Project
including, but not limited to costs of: Taxes (hereinafter defined) and fees
payable to tax consultants and attorneys for consultation and contesting taxes;
insurance; utilities; maintenance, repair and replacement of all portions of the
Project, including without limitation, paving and parking areas, roads, roofs,
alleys, and driveways, mowing, landscaping, exterior painting, utility lines,
heating, ventilation and air conditioning systems, lighting, electrical systems
and other mechanical and building systems; amounts paid to contractors and
subcontractors for work or services performed in connection with any of the
foregoing; charges or assessments of any association to which the
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<PAGE>
Project is subject; market-rate property management fees payable to a property
manager, including any affiliate of Landlord; security services, if any; trash
collection, sweeping and removal; and additions or alterations made by Landlord
to the Project or the Building in order to comply with Legal Requirements (other
than those expressly required herein to be made by Tenant), provided that the
cost of additions or alterations that are required to be capitalized for federal
income tax purposes shall be amortized on a straight line basis over a period
equal to the lesser of the useful life thereof for federal income tax purposes
or 10 years. Operating Expenses do not include costs, expenses, depreciation or
amortization for capital repairs and capital replacements required to be made by
Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlord with respect thereto, leasing
commissions, or the costs of renovating space for tenants. Further, Operating
Expenses shall not mean or include: (i) costs incurred in connection with the
construction or remodeling of the Project or any other improvements now or
hereafter located thereon, correction of defects in design or construction; (ii)
interest, principal, or other payments on account of any indebtedness that is
secured by any incumbrance on any part of the Project, or rental or other
payments under any ground lease, or any payments in the nature of returns on or
of equity of any kind; (iii) costs of selling, syndicating, financing,
mortgaging or hypothecating any part of or interest in the Project; (iv) taxes
on the income of Landlord or Landlord's franchise taxes (unless any of said
taxes are hereafter instituted by applicable taxing authorities in substitution
for ad valorem real property taxes); (v) depreciation, reserves of any kind,
including replacement reserves and reserves for bad debt or lost rent, or any
other charge not involving the payment of money to third parties; (vi)
Landlord's overhead costs, including equipment, supplies, accounting and legal
fees, rent and other occupancy costs or any other costs associated with the
operation or internal organization and function of Landlord as a business entity
(but this provision does not prevent the payment of a management fee to Landlord
as provided in this Paragraph 6); (vii) fees or other costs for professional
services provided by space planners, architects, engineers, and other similar
professional consultants, real estate commissions, and marketing and advertising
expenses; (viii) costs of defending or prosecuting litigation with any party,
unless a favorable judgment would reduce or avoid an increase in Operating
Expenses, or unless the litigation is to enforce compliance with Rules and
Regulations of the Project, or other standards or requirements for the general
benefit of the tenants in the Project; (ix) costs incurred as a result of
Landlord's violation of any lease, contract, law or ordinance, including fines
and penalties; (x) late charges, interest or penalties of any kind for late or
other improper payment of any public or private obligation, including ad valorem
taxes; (xi) costs of removing Hazardous Materials or of correcting any other
conditions in order to comply with any environmental law or ordinance (but this
exclusion shall not constitute a release by Landlord of Tenant for any such
costs for which Tenant is liable pursuant to Paragraph 30 of this Lease); (xii)
costs for which Landlord is reimbursed from any other source; (xiii) costs
related to any building or land not included in the Project, including any
allocation of costs incurred on a shared basis, such as centralized accounting
costs, unless the allocation is made on a reasonable and consistent basis that
fairly reflects the share of costs actually attributable to the Project; and
(xiv) the part of any costs or other sum paid to any affiliate of Landlord that
may exceed the fair market price or cost generally payable for substantially
similar goods or services in the area of the Project.
Landlord shall provide Tenant within 90 days following the
final day of the calendar year Landlord's itemized year-end common area
maintenance reconciliation reports which reference and include all applicable
Operating Expenses for such year. Upon Tenant's written request (which request
shall be limited to once in a calendar year), Landlord shall provide photocopies
of invoices, bills and other verification to substantiate such costs. In the
event Tenant disputes such costs, Tenant shall notify Landlord in writing within
90 days following receipt of Landlord's verification of such costs as herein
described, and all parties shall use commercially reasonable efforts, each party
acting in good faith, to resolve such dispute. If Tenant's total payments of
Operating Expenses for any year are less than Tenant's Proportionate Share of
actual Operating Expenses for such year, then Tenant shall pay the difference to
Landlord within 30 days after demand, and if more, then Landlord shall retain
such excess and credit it against Tenant's next payments, or in the last year of
the Lease Term, shall refund such excess to Tenant within 30 days following the
expiration of the Lease Term. For purposes of calculating Tenant's Proportionate
Share of Operating Expenses, a year shall mean a calendar year except the first
year, which shall begin on the Commencement Date, and the last year, which shall
end on the expiration of this Lease. With respect to Operating Expenses which
Landlord allocates to the entire Project, Tenant's "Proportionate Share" shall
be the percentage set forth on the first page of this Lease as Tenant's
Proportionate Share of the Project as reasonably adjusted by Landlord in the
future for changes in the physical size of the Premises or the Project; and,
with respect to Operating Expenses which Landlord allocates only to the
Building, Tenant's "Proportionate Share" shall be the percentage set forth on
the first page of this Lease as Tenant's Proportionate Share of the Building as
reasonably adjusted by Landlord in the future for changes in the physical size
of the Premises or the Building. Upon prior written notice to Tenant, Landlord
may equitably and reasonably increase Tenant's Proportionate Share for any item
of expense or cost reimbursable by Tenant that relates to a repair, replacement,
or service that benefits only the Premises or only a portion of the Project or
Building that includes the Premises or that varies with occupancy or use. The
estimated Operating Expenses for the Premises set forth on the first page of
this Lease are only estimates, and Landlord makes no guaranty or warranty that
such estimates will be accurate.
7. UTILITIES. Tenant shall pay for all water, gas, electricity, heat,
light, power, telephone, sewer, sprinkler services, refuse and trash collection,
and other utilities and services used on the Premises, all maintenance charges
for utilities, and any storm sewer charges or other similar charges for
utilities imposed by any governmental entity or utility provider, together with
any taxes, penalties, surcharges or the like pertaining to Tenant's use of the
Premises. Landlord may cause at Tenant's expense any utilities to be separately
metered or charged directly to Tenant by the provider. Tenant shall pay its
share of all charges for jointly metered utilities based upon consumption, as
reasonably determined by Landlord. No interruption or failure of utilities shall
result in the termination of this
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<PAGE>
Lease or the abatement of rent. Tenant agrees to limit use of water and sewer
for normal restroom use.
Notwithstanding anything to the contrary contained in Paragraph 7 of
this Lease, if an interruption or cessation of utilities results from a cause
within the Landlord's reasonable control and the conduct of Tenant's business is
materially impaired as a result thereof, Base Rent and applicable Operating
Expenses not actually incurred by Tenant shall be abated for the period which
commences five (5) business days after the date Tenant gives to Landlord notice
of such interruption until such utilities are restored.
8. TAXES. Landlord shall pay all taxes, assessments and governmental
charges (collectively referred to as "Taxes") that accrue against the Project
during the Lease Term, which shall be included as part of the Operating Expenses
charged to Tenant. Landlord may contest by appropriate legal proceedings the
amount, validity, or application of any Taxes or liens thereof and Tenant shall
receive the benefit of Tenant's Proportionate Share of all reductions, refunds,
or rebates of Taxes paid or payable by Tenant due to the result of any
contesting of Taxes by Landlord. All capital levies or other taxes assessed or
imposed on Landlord upon the rents payable to Landlord under this Lease and any
franchise tax, any excise, transaction, sales or privilege tax, assessment, levy
or charge measured by or based, in whole or in part, upon such rents from the
Premises and/or the Project or any portion thereof shall be paid by Tenant to
Landlord monthly in estimated installments or upon demand, at the option of
Landlord, as additional rent; provided, however, in no event shall Tenant be
liable for any net income taxes imposed on Landlord unless such net income taxes
are in substitution for any Taxes payable hereunder. If any such tax or excise
is levied or assessed directly against Tenant, then Tenant shall be responsible
for and shall pay the same at such times and in such manner as the taxing
authority shall require. Tenant shall be liable for all taxes levied or assessed
against any personal property or fixtures placed in the Premises, whether levied
or assessed against Landlord or Tenant.
9. INSURANCE. Landlord shall maintain all risk property insurance
covering the full replacement cost of the Building. Landlord may, but is not
obligated to, maintain such other insurance and additional coverages as it may
deem necessary, including, but not limited to, commercial liability insurance
and rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to Tenant. The Project or Building may be included in
a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations).
Tenant, at its expense, shall maintain during the Lease Term:
all risk property insurance covering the full replacement cost of all property
and improvements installed or placed in the Premises by Tenant at Tenant's
expense; worker's compensation insurance with no less than the minimum limits
required by law; employer's liability insurance with such limits as required by
law; and commercial liability insurance, with a minimum limit of $1,000,000 per
occurrence and a minimum umbrella limit of $1,000,000, for a total minimum
combined general liability and umbrella limit of $2,000,000 (together with such
additional umbrella coverage as Landlord may reasonably require) for property
damage, personal injuries, or deaths of persons occurring in or about the
Premises. Landlord may from time to time require reasonable increases in any
such limits. The commercial liability policies shall name Landlord as an
additional insured, insure on an occurrence and not a claims-made basis, be
issued by insurance companies which are reasonably acceptable to Landlord, not
be cancelable unless 30 days prior written notice shall have been given to
Landlord, contain a hostile fire endorsement and a contractual liability
endorsement and provide primary coverage to Landlord (any policy issued to
Landlord providing duplicate or similar coverage shall be deemed excess over
Tenant's policies). Such policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the Lease Term and upon each renewal of
said insurance.
The all risk property insurance obtained by Landlord and
Tenant shall include a waiver of subrogation by the insurers and all rights
based upon an assignment from its insured, against Landlord or Tenant, their
officers, directors, employees, managers, agents, invitees and contractors, in
connection with any loss or damage thereby insured against. Neither party nor
its officers, directors, employees, managers, agents, invitees or contractors
shall be liable to the other for loss or damage caused by any risk coverable by
all risk property insurance, and each party waives any claims against the other
party, and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.
10. LANDLORD'S REPAIRS. Landlord shall maintain, at its expense, the
structural soundness of the roof, foundation, and exterior walls of the Building
in good repair, reasonable wear and tear and uninsured losses and damages caused
by Tenant, its agents and contractors excluded. The term "walls" as used in this
Paragraph 10 shall not include windows, glass or plate glass, doors or overhead
doors, special store fronts, dock bumpers, dock plates or levelers, or office
entries. Tenant shall promptly give Landlord written notice of any repair
required by Landlord pursuant to this Paragraph 10, after which Landlord shall
have a reasonable opportunity to repair.
To the extent Landlord breaches its repair obligations under
this Paragraph 10 or elsewhere in the Lease, in the event of an emergency,
Tenant shall have the right to make such temporary, emergency repairs (and only
such temporary, emergency repairs) to the roof, foundation or exterior walls of
the Project as may be reasonably necessary to prevent material damage to
Tenant's property at the Premises and/or personal injury to Tenant's
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employees at the Premises (provided Tenant first attempts to notify Landlord
telephonically of such emergency and notifies Landlord of such circumstances in
writing as soon as practicable thereafter). In such event, Landlord shall
reimburse Tenant for the reasonable, out-of-pocket costs actually incurred by
Tenant in making such emergency repairs. If Landlord fails to reimburse Tenant
for the reasonable, out-of-pocket costs incurred by Tenant in making such
repairs, up to but not to exceed $15,000.00 with respect to such emergency,
within 30 days after demand therefor, accompanied by supporting evidence of the
costs incurred by Tenant, then Tenant may bring an action for damages against
Landlord to recover such costs, together with interest thereof retroactive to
the due date thereof at the rate provided for in Paragraph 37(j) of the Lease,
and reasonable attorney's fees incurred by Tenant in bringing such action for
damages.
11. TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in
Paragraph 6, shall maintain in good repair and condition the parking areas and
other common areas of the Building, including, but not limited to driveways,
alleys, landscape and grounds surrounding the Premises. Subject to Landlord's
obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its
expense, shall repair, replace and maintain in good condition all portions of
the Premises and all areas, improvements and systems exclusively serving the
Premises including, without limitation, dock and loading areas, truck doors,
plumbing, water and sewer lines up to points of common connection, fire
sprinklers and fire protection systems, entries, doors, ceilings and roof
membrane, windows, interior walls, and the interior side of demising walls, and
heating, ventilation and air conditioning systems. Such repair and replacements
include capital expenditures and repairs whose benefit may extend beyond the
Term, and such capital expenditures and repairs shall be fully amortized in
accordance with the Formula (defined hereafter) over the remainder of the Lease
Term, without regard to any extension or renewal option not then exercised. The
"Formula" shall mean that number, the numerator of which shall be the number of
months of the Lease Term remaining after the replacement of any such capital
expenditures, and the denominator of which shall be the lesser of the maximum
amortization period (in months) allowable for determining depreciation of such
capital expenditures for federal income tax purposes or 10 years. Heating,
ventilation and air conditioning systems and other mechanical and building
systems serving the Premises shall be maintained at Tenant's expense pursuant to
maintenance service contracts entered into by Tenant or, at Landlord's election,
by Landlord. The scope of services and contractors under such maintenance
contracts shall be reasonably approved by Landlord. At Landlord's request,
Tenant shall enter into a joint maintenance agreement with any railroad that
services the Premises. If Tenant fails to perform any repair or replacement for
which it is responsible, Landlord may perform such work and be reimbursed by
Tenant within 10 days after demand therefor. Subject to Paragraphs 9 and 15,
Tenant shall bear the full cost of any repair or replacement to any part of the
Building or Project that results from damage caused by Tenant, its agents,
contractors, or invitees and any repair that benefits only the Premises.
12. TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations,
additions, or improvements made by or on behalf of Tenant to the Premises
("Tenant-Made Alterations") in excess of $25,000 shall be subject to Landlord's
prior written consent, which shall not be unreasonably withheld or delayed
provided that such alteration does not materially affect the structure or the
roof of the Building, or modify the utility systems of the Project. Tenant shall
cause, at its expense, all Tenant-Made Alterations to comply with insurance
requirements and with Legal Requirements and shall construct at its expense any
alteration or modification required by Legal Requirements as a result of any
Tenant-Made Alterations. All Tenant-Made Alterations shall be constructed in a
good and workmanlike manner by contractors reasonably acceptable to Landlord and
only good grades of materials shall be used. All plans and specifications for
any Tenant-Made Alterations requiring Landlord's consent shall be submitted to
Landlord for its approval. Landlord may monitor construction of the Tenant-Made
Alterations. Tenant shall reimburse Landlord for its costs in reviewing plans
and specifications and in monitoring construction. Landlord's right to review
plans and specifications and to monitor construction shall be solely for its own
benefit, and Landlord shall have no duty to see that such plans and
specifications or construction comply with applicable laws, codes, rules and
regulations. Tenant shall provide Landlord with the identities and mailing
addresses of all persons performing work or supplying materials, prior to
beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Tenant shall furnish
security or make other arrangements satisfactory to Landlord to assure payment
for the completion of all work free and clear of liens and shall provide
certificates of insurance for worker's compensation and other coverage in
amounts and from an insurance company satisfactory to Landlord protecting
Landlord against liability for personal injury or property damage during
construction. Upon completion of any Tenant-Made Alterations, Tenant shall
deliver to Landlord sworn statements setting forth the names of all contractors
and subcontractors who did work on the Tenant-Made Alterations and final lien
waivers from all such contractors and subcontractors. Upon surrender of the
Premises, all Tenant-Made Alterations and any leasehold improvements constructed
by Landlord or Tenant shall remain on the Premises as Landlord's property,
except to the extent Landlord requires removal at Tenant's expense of any such
items or Landlord and Tenant have otherwise agreed in writing in connection with
Landlord's consent to any Tenant-Made Alterations. At Tenant's request, Landlord
shall provide Tenant, at the time of Tenant's request for approval of
Tenant-Made Alterations, a list of which Tenant-Made Alterations Landlord will
require Tenant to remove upon surrender of the Premises. Tenant shall repair
any damage caused by such removal.
Tenant, at its own cost and expense and without Landlord's
prior approval, may erect such shelves, bins, machinery and trade fixtures
(collectively "Trade Fixtures") in the ordinary course of its business provided
that such items do not alter the basic character of the Premises, do not
overload or damage the Premises, and may be removed without injury to the
Premises, and the construction, erection, and installation thereof complies with
all Legal Requirements and with Landlord's requirements set forth above. Tenant
shall remove its Trade Fixtures and shall repair any damage caused by such
removal.
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13. SIGNS. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent. Upon
surrender or vacation of the Premises, Tenant shall have removed all signs and
repair, paint, and/or replace the building facia surface to which its signs are
attached. Tenant shall obtain all applicable governmental permits and approvals
for sign and exterior treatments. All signs, decorations, advertising media,
blinds, draperies and other window treatment or bars or other security
installations visible from outside the Premises shall be subject to Landlord's
approval and conform in all respects to Landlord's requirements.
14. PARKING. Tenant shall have the exclusive use of the parking areas
on the west side of the Building as designated on Exhibit A and the loading dock
areas exclusively servicing the Premises, and Tenant shall be entitled to park
in common with other tenants of the Project in those areas designated for
nonreserved parking. Landlord may allocate parking spaces among Tenant and other
tenants in the Project if Landlord determines that such parking facilities are
becoming crowded. Landlord shall not be responsible for enforcing Tenant's
parking rights against any third parties.
15. RESTORATION. If at any time during the Lease Term the Premises are
damaged by a fire or other casualty, Landlord shall notify Tenant within 60 days
after such damage as to the amount of time Landlord reasonably estimates it will
take to restore the Premises. If the restoration time is estimated to exceed 12
months, either Landlord or Tenant may elect to terminate this Lease upon notice
to the other party given no later than 30 days after Landlord's notice. If
neither party elects to terminate this Lease or if Landlord estimates that
restoration will take 12 months or less, then, subject to receipt of sufficient
insurance proceeds, Landlord shall promptly restore the Premises excluding the
improvements installed by Tenant or by Landlord and paid by Tenant, subject to
delays arising from the collection of insurance proceeds or from Force Majeure
events. Tenant at Tenant's expense shall promptly perform, subject to delays
arising from the collection of insurance proceeds, or from Force Majeure events,
all repairs or restoration not required to be done by Landlord and shall
promptly re-enter the Premises and commence doing business in accordance with
this Lease. Notwithstanding the foregoing, either party may terminate this Lease
if the Premises are damaged during the last year of the Lease Term and Landlord
reasonably estimates that it will take more than one month to repair such
damage. Tenant shall pay to Landlord with respect to any damage to the Premises
Tenant's Proportionate Share of the amount of the commercially reasonable
deductible under Landlord's insurance policy within 10 days after presentment of
Landlord's invoice. If the damage involves the premises of other tenants, Tenant
shall pay the portion of the deductible that the cost of the restoration of the
Premises bears to the total cost of restoration, as determined by Landlord. Base
Rent and Operating Expenses shall be abated from the date of the casualty for
the period of repair and restoration in the proportion which the area of the
Premises, if any, which is not usable by Tenant bears to the total area of the
Premises. Such abatement shall be the sole remedy of Tenant, and except as
provided herein, Tenant waives any right to terminate the Lease by reason of
damage or casualty loss.
16. CONDEMNATION. If any part of the Premises or the Project should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and in Tenant's reasonable judgment, the Taking
would prevent or materially interfere with Tenant's use of the Premises or in
Landlord's reasonable judgment would materially interfere with or impair its
ownership or operation of the Project, then upon written notice by Landlord or
Tenant this Lease shall terminate and Base Rent shall be apportioned as of said
date. If part of the Premises shall be Taken, and this Lease is not terminated
as provided above, the Base Rent payable hereunder during the unexpired Lease
Term shall be reduced to such extent as may be fair and reasonable under the
circumstances. In the event of any such Taking, Landlord shall be entitled to
receive the entire price or award from any such Taking without any payment to
Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such
award. Tenant shall have the right, to the extent that same shall not diminish
Landlord's award, to make a separate claim against the condemning authority (but
not Landlord) for such compensation as may be separately awarded or recoverable
by Tenant for moving expenses and damage to Tenant's Trade Fixtures, if a
separate award for such items is made to Tenant.
17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written consent
which shall not be unreasonably withheld or delayed pursuant to the provisions
of Addendum 3, Tenant shall not assign this Lease or sublease the Premises or
any part thereof or mortgage, pledge, or hypothecate its leasehold interest or
grant any concession or license within the Premises and any attempt to do any of
the foregoing shall be void and of no effect. For purposes of this paragraph, a
transfer of the ownership interests controlling Tenant shall be deemed an
assignment of this Lease unless such ownership interests are publicly traded.
Notwithstanding the above, Tenant may assign or sublet the Premises, or any part
thereof, to any entity controlling Tenant, controlled by Tenant or under common
control with Tenant (a "Tenant Affiliate"), without the prior written consent of
Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable
out-of-pocket expenses in connection with any assignment or sublease. Upon
Landlord's receipt of Tenant's written notice of a desire to assign the
Premises, or any part thereof (other than to a Tenant Affiliate), Landlord may,
by giving written notice to Tenant within 30 days after receipt of Tenant's
notice, terminate this Lease with respect to the space described in Tenant's
notice, as of the date specified in Tenant's notice for the commencement of the
proposed assignment. Tenant may withdraw its notice to assign by notifying
Landlord within 10 days after Landlord has given Tenant notice of such
termination, in which case the Lease shall not terminate but shall continue.
Provided no default has occurred and is continuing under this
Lease, upon 10 days prior written notice
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to Landlord, Tenant may, without Landlord's prior written consent, assign this
Lease to an entity into which Tenant is merged or consolidated or to an entity
to which substantially all of Tenant's assets are transferred, provided (x) such
merger, consolidation, or transfer of assets is for a good business purpose and
not principally for the purpose of transferring Tenant's leasehold estate, and
(y) the assignee or successor entity has a net worth at least equal to the net
worth of Tenant immediately prior to such merger, consolidation, or transfer.
Notwithstanding any assignment or subletting, Tenant and any
guarantor or surety of Tenant's obligations under this Lease shall at all times
remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings). In the event that the rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease, then Tenant shall be bound and
obligated to pay Landlord as additional rent hereunder 50% of all such excess
rental and other excess consideration within 10 days following receipt thereof
by Tenant.
If this Lease be assigned or if the Premises be subleased
(whether in whole or in part) or in the event of the mortgage, pledge, or
hypothecation of Tenant's leasehold interest or grant of any concession or
license within the Premises or if the Premises be occupied in whole or in part
by anyone other than Tenant, then upon a default by Tenant hereunder Landlord
may collect rent from the assignee, sublessee, mortgagee, pledgee, party to whom
the leasehold interest was hypothecated, concessionee or licensee or other
occupant and, except to the extent set forth in the preceding paragraph, apply
the amount collected to the next rent payable hereunder; and all such rentals
collected by Tenant shall be held in trust for Landlord and immediately
forwarded to Landlord. No such transaction or collection of rent or application
thereof by Landlord, however, shall be deemed a waiver of these provisions or a
release of Tenant from the further performance by Tenant of its covenants,
duties, or obligations hereunder.
18. INDEMNIFICATION. Except for the negligence of Landlord, its agents,
employees or contractors, and to the extent permitted by law, Tenant agrees to
indemnify, defend and hold harmless Landlord, and Landlord's agents, employees
and contractors, from and against any and all losses, liabilities, damages,
costs and expenses (including attorneys' fees) resulting from claims by third
parties for injuries to any person and damage to or theft or misappropriation or
loss of property occurring in or about the Project and arising from the use and
occupancy of the Premises or from any activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises or due to any other act or
omission of Tenant, its subtenants, assignees, invitees, employees, contractors
and agents. The furnishing of insurance required hereunder shall not be deemed
to limit Tenant's obligations under this Paragraph 18.
19. INSPECTION AND ACCESS. Landlord and its agents, representatives,
and contractors may enter the Premises at any reasonable time upon 24 hours
prior notice (except in the case of an emergency) to inspect the Premises and to
make such repairs as may be required or permitted pursuant to this Lease and for
any other business purpose. Landlord and Landlord's representatives may enter
the Premises during business hours for the purpose of showing the Premises to
prospective purchasers and, during the last year of the Lease Term, to
prospective tenants. Landlord may erect a suitable sign on the Premises stating
the Premises are available to let or that the Project is available for sale.
Upon prior written notice to Tenant, Landlord may grant easements, make public
dedications, designate common areas and create restrictions on or about the
Premises, provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.
20. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, subject to
the terms of this Lease, at all times during the Lease Term, have peaceful and
quiet enjoyment of the Premises against any person claiming by, through or under
Landlord.
21. SURRENDER. Upon termination of the Lease Term or earlier
termination of Tenant's right of possession, Tenant shall surrender the Premises
to Landlord in the same condition as received, broom clean, ordinary wear and
tear and casualty loss and condemnation covered by Paragraphs 15 and 16
excepted. Any Trade Fixtures, Tenant-Made Alterations and property not so
removed by Tenant as permitted or required herein shall be deemed abandoned and
may be stored, removed, and disposed of by Landlord at Tenant's expense, and
Tenant waives all claims against Landlord for any damages resulting from
Landlord's retention and disposition of such property. All obligations of Tenant
hereunder not fully performed as of the termination of the Lease Term shall
survive the termination of the Lease Term, including without limitation,
indemnity obligations, payment obligations with respect to Operating Expenses
and obligations concerning the condition and repair of the Premises.
22. HOLDING OVER. If Tenant retains possession of the Premises after
the termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall pay Landlord from time to time,
upon demand, as Base Rent for the holdover period, an amount equal to 150% of
the Base Rent in effect on the termination date, computed on a monthly basis for
each month or part thereof during such holding over. All other payments shall
continue under the terms of this Lease. In addition, Tenant shall be liable for
damages incurred by Landlord as a result of such holding over, provided that in
no event shall Tenant be liable for consequential damages unless Tenant fails to
surrender the Premises within 30 days after the expiration of the Lease Term. No
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holding over by Tenant, whether with or without consent of Landlord, shall
operate to extend this Lease except as otherwise expressly provided, and this
Paragraph 22 shall not be construed as consent for Tenant to retain possession
of the Premises.
23. EVENTS OF DEFAULT. Each of the following events shall be an event
of default ("Event of Default") by Tenant under this Lease:
(i) Tenant shall fail to pay any installment of Base Rent or
any other payment required herein when due, and such failure shall
continue for a period of 10 days from the date such payment was due.
(ii) Tenant or any guarantor or surety of Tenant's obligations
hereunder shall (A) make a general assignment for the benefit of
creditors; (B) commence any case, proceeding or other action seeking to
have an order for relief entered on its behalf as a debtor or to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it
or its debts or seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or of any substantial part
of its property (collectively a "proceeding for relief"); (C) become
the subject of any proceeding for relief which is not dismissed within
60 days of its filing or entry; or (D) die or suffer a legal disability
(if Tenant, guarantor, or surety is an individual) or be dissolved or
otherwise fail to maintain its legal existence (if Tenant, guarantor or
surety is a corporation, partnership or other entity).
(iii) Any insurance required to be maintained by Tenant
pursuant to this Lease shall be cancelled or terminated or shall expire
or shall be reduced or materially changed, except, in each case, as
permitted in this Lease.
(iv) Tenant shall not occupy or shall vacate the Premises or
shall fail to continuously operate its business at the Premises for the
permitted use set forth herein, whether or not Tenant is in monetary or
other default under this Lease. Tenant's vacating of the Premises shall
not constitute an Event of Default if, prior to vacating the Premises,
Tenant has made arrangements reasonably acceptable to Landlord to (a)
insure that Tenant's insurance for the Premises will not be voided or
cancelled with respect to the Premises as a result of such vacancy, (b)
insure that the Premises are secured and not subject to vandalism, and
(c) insure that the Premises will be properly maintained after such
vacation. Tenant shall inspect the Premises at least once each month
and report monthly in writing to Landlord on the condition of the
Premises.
(v) There shall occur any assignment, subleasing or other
transfer of Tenant's interest in or with respect to this Lease except
as otherwise permitted in this Lease.
(vi) Tenant shall fail to discharge any lien placed upon the
Premises in violation of this Lease within 30 days after any such lien
or encumbrance is filed against the Premises.
(vii) Tenant shall fail to comply with any provision of this
Lease other than those specifically referred to in this Paragraph 23,
and except as otherwise expressly provided herein, such default shall
continue for more than 30 days after Landlord shall have given Tenant
written notice of such default, unless such default cannot be cured
within 30 days provided Tenant commences and diligently pursues said
cure and completes the cure within 90 days.
24. LANDLORD'S REMEDIES. Upon each occurrence of an Event of Default
and so long as such Event of Default shall be continuing, Landlord may at any
time thereafter at its election: terminate this Lease or Tenant's right of
possession, (but Tenant shall remain liable as hereinafter provided) and/or
pursue any other remedies at law or in equity. Upon the termination of this
Lease or termination of Tenant's right of possession, it shall be lawful for
Landlord, without formal demand or notice of any kind, to re-enter the Premises
by summary dispossession proceedings or any other action or proceeding
authorized by law and to remove Tenant and all persons and property therefrom.
If Landlord re-enters the Premises, Landlord shall have the right to keep in
place and use, or remove and store, all of the furniture, fixtures and equipment
at the Premises.
If Landlord terminates this Lease, Landlord may recover from
Tenant the sum of: all Base Rent and all other amounts accrued hereunder to the
date of such termination; the cost of reletting the whole or any part of the
Premises, including without limitation brokerage fees and/or leasing commissions
incurred by Landlord, and costs of removing and storing Tenant's or any other
occupant's property, repairing, altering, remodeling, or otherwise putting the
Premises into condition acceptable to a new tenant or tenants, and all
reasonable expenses incurred by Landlord in pursuing its remedies, including
reasonable attorneys' fees and court costs; and the excess of the then present
value of the Base Rent and other amounts payable by Tenant under this Lease as
would otherwise have been required to be paid by Tenant to Landlord during the
period following the termination of this Lease measured from the date of such
termination to the expiration date stated in this Lease, over the present value
of any net amounts which Tenant establishes Landlord can reasonably expect to
recover by reletting the Premises for such period, taking into consideration the
availability of acceptable tenants and other market conditions affecting
leasing. Such present values shall be calculated at a discount rate equal to the
90-day U.S. Treasury bill rate at the date of such termination.
If Landlord terminates Tenant's right to possession without
terminating the Lease after an Event of
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Default, Landlord shall use commercially reasonable efforts to relet the
Premises; provided, however, (a) Landlord shall not be obligated to accept any
tenant proposed by Tenant, (b) Landlord shall have the right to lease any other
space controlled by Landlord first, and (c) any proposed tenant shall meet all
of Landlord's leasing criteria. For the purpose of such reletting Landlord is
authorized to make any repairs, changes, alterations, or additions in or to the
Premises as Landlord deems reasonably necessary or desirable. If the Premises
are not relet, then Tenant shall pay to Landlord as damages a sum equal to the
amount of the rental reserved in this Lease for such period or periods, plus the
cost of recovering possession of the Premises (including attorneys' fees and
costs of suit), the unpaid Base Rent and other amounts accrued hereunder at the
time of repossession, and the costs incurred in any attempt by Landlord to relet
the Premises. If the Premises are relet and a sufficient sum shall not be
realized from such reletting [after first deducting therefrom, for retention by
Landlord, the unpaid Base Rent and other amounts accrued hereunder at the time
of reletting, the cost of recovering possession (including attorneys' fees and
costs of suit), all of the costs and expense of repairs, changes, alterations,
and additions, the expense of such reletting (including without limitation
brokerage fees and leasing commissions) and the cost of collection of the rent
accruing therefrom] to satisfy the rent provided for in this Lease to be paid,
then Tenant shall immediately satisfy and pay any such deficiency. Any such
payments due Landlord shall be made upon demand therefor from time to time and
Tenant agrees that Landlord may file suit to recover any sums falling due from
time to time. Notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect in writing to terminate this Lease for such
previous breach.
Exercise by Landlord of any one or more remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of the Premises and/or a termination of this Lease by Landlord,
whether by agreement or by operation of law, it being understood that such
surrender and/or termination can be effected only by the written agreement of
Landlord and Tenant. Any law, usage, or custom to the contrary notwithstanding,
Landlord shall have the right at all times to enforce the provisions of this
Lease in strict accordance with the terms hereof; and the failure of Landlord at
any time to enforce its rights under this Lease strictly in accordance with same
shall not be construed as having created a custom in any way or manner contrary
to the specific terms, provisions, and covenants of this Lease or as having
modified the same. Tenant and Landlord further agree that forbearance or waiver
by Landlord to enforce its rights pursuant to this Lease or at law or in equity,
shall not be a waiver of Landlord's right to enforce one or more of its rights
in connection with any subsequent default. A receipt by Landlord of rent or
other payment with knowledge of the breach of any covenant hereof shall not be
deemed a waiver of such breach, and no waiver by Landlord of any provision of
this Lease shall be deemed to have been made unless expressed in writing and
signed by Landlord. To the greatest extent permitted by law, Tenant waives the
service of notice of Landlord's intention to re-enter as provided for in any
statute, or to institute legal proceedings to that end, and also waives all
right of redemption in case Tenant shall be dispossessed by a judgment or by
warrant of any court or judge. The terms "enter," "re-enter," "entry" or
"re-entry," as used in this Lease, are not restricted to their technical legal
meanings. Any reletting of the Premises shall be on such terms and conditions as
Landlord in its sole discretion may determine (including without limitation a
term different than the remaining Lease Term, rental concessions, alterations
and repair of the Premises, lease of less than the entire Premises to any tenant
and leasing any or all other portions of the Project before reletting the
Premises). Landlord shall not be liable, nor shall Tenant's obligations
hereunder be diminished because of, Landlord's failure to relet the Premises or
collect rent due in respect of such reletting.
25. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord's obligations hereunder. All obligations of Landlord under this
Lease will be binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" in this Lease shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord thereafter
accruing, but such obligations shall be binding during the Lease Term upon each
new owner for the duration of such owner's ownership, unless any new owner does
not assume Landlord's obligations hereunder. Any liability of Landlord under
this Lease shall be limited solely to its interest in the Project, and in no
event shall any personal liability be asserted against Landlord in connection
with this Lease nor shall any recourse be had to any other property or assets of
Landlord.
26. WAIVER OF JURY TRIAL. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL
BY JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS
LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO.
27. SUBORDINATION. This Lease and Tenant's interest and rights
hereunder are and shall be subject and subordinate at all times to the lien of
any first mortgage, now existing or hereafter created on or against the Project
or the Premises, and all amendments, restatements, renewals, modifications,
consolidations, refinancing, assignments and extensions thereof, without the
necessity of any further instrument or act on the part of Tenant. Tenant agrees,
at the election of the holder of any such mortgage, to attorn to any such
holder. Tenant agrees upon demand to execute, acknowledge and deliver such
instruments, confirming such subordination and such instruments of attornment as
shall be requested by any such holder. Notwithstanding the foregoing, any such
holder may at any time subordinate its mortgage to this Lease, without Tenant's
consent, by notice in writing to Tenant, and thereupon
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this Lease shall be deemed prior to such mortgage without regard to their
respective dates of execution, delivery or recording and in that event such
holder shall have the same rights with respect to this Lease as though this
Lease had been executed prior to the execution, delivery and recording of such
mortgage and had been assigned to such holder. The term "mortgage" whenever used
in this Lease shall be deemed to include deeds of trust, security assignments
and any other encumbrances, and any reference to the "holder" of a mortgage
shall be deemed to include the beneficiary under a deed of trust. Landlord
represents that there is currently no mortgage encumbering the Building.
Tenant shall not be obligated to subordinate the Lease or its
interest therein to any future mortgage, deed of trust or ground lease on the
Project unless concurrently with such subordination the holder of such mortgage
or deed of trust or the ground lessor under such ground lease agrees not to
disturb Tenant's possession of the Premises under the terms of the Lease in the
event such holder or ground lessor acquires title to the Premises through
foreclosure, deed in lieu of foreclosure or otherwise.
28. MECHANIC'S LIENS. Tenant has no express or implied authority to
create or place any lien or encumbrance of any kind upon, or in any manner to
bind the interest of Landlord or Tenant in, the Premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises and that it will save and hold Landlord harmless from all loss, cost or
expense based on or arising out of asserted claims or liens against the
leasehold estate or against the interest of Landlord in the Premises or under
this Lease. Tenant shall give Landlord immediate written notice of the placing
of any lien or encumbrance against the Premises and cause such lien or
encumbrance to be discharged within 30 days of the filing or recording thereof;
provided, however, Tenant may contest such liens or encumbrances as long as such
contest prevents foreclosure of the lien or encumbrance and Tenant causes such
lien or encumbrance to be bonded or insured over in a manner satisfactory to
Landlord within such 30 day period.
29. ESTOPPEL CERTIFICATES. Tenant agrees, from time to time, within 10
days after request of Landlord, to execute and deliver to Landlord, or
Landlord's designee, any estoppel certificate requested by Landlord, stating
that this Lease is in full force and effect, the date to which rent has been
paid, that Landlord is not in default hereunder (or specifying in detail the
nature of Landlord's default), the termination date of this Lease and such other
matters pertaining to this Lease as may be reasonably requested by Landlord.
Tenant's obligation to furnish each estoppel certificate in a timely fashion is
a material inducement for Landlord's execution of this Lease. No cure or grace
period provided in this Lease shall apply to Tenant's obligations to timely
deliver an estoppel certificate.
30. ENVIRONMENTAL REQUIREMENTS. Except for Hazardous Material contained
in products used by Tenant in de minimis quantities for ordinary cleaning and
office purposes, Tenant shall not permit or cause any party to bring any
Hazardous Material upon the Premises or transport, store, use, generate,
manufacture or release any Hazardous Material in or about the Premises without
Landlord's prior written consent. Tenant, at its sole cost and expense, shall
operate its business in the Premises in strict compliance with all Environmental
Requirements and shall remediate in a manner satisfactory to Landlord and in
accordance with Environmental Requirements any Hazardous Materials released on
or from the Project by Tenant, its agents, employees, contractors, subtenants or
invitees. Tenant shall complete and certify to disclosure statements as
requested by Landlord from time to time relating to Tenant's transportation,
storage, use, generation, manufacture or release of Hazardous Materials on the
Premises. The term "Environmental Requirements" means all applicable present and
future statutes, regulations, ordinances, rules, codes, judgments, orders or
other similar enactments of any governmental authority or agency regulating or
relating to health, safety, or environmental conditions on, under, or about the
Premises or the environment, including without limitation, the following: the
Comprehensive Environmental Response, Compensation and Liability Act; the
Resource Conservation and Recovery Act; and all state and local counterparts
thereto, and any regulations or policies promulgated or issued thereunder. The
term "Hazardous Materials" means and includes any substance, material, waste,
pollutant, or contaminant listed or defined as hazardous or toxic, under any
Environmental Requirements, asbestos and petroleum, including crude oil or any
fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas
usable for fuel (or mixtures of natural gas and such synthetic gas). As defined
in Environmental Requirements, Tenant is and shall be deemed to be the
"operator" of Tenant's "facility" and the "owner" of all Hazardous Materials
brought on the Premises by Tenant, its agents, employees, contractors or
invitees, and the wastes, by-products, or residues generated, resulting, or
produced therefrom.
Tenant shall indemnify, defend, and hold Landlord harmless
from and against any and all losses (including, without limitation, diminution
in value of the Premises or the Project and loss of rental income from the
Project), claims, demands, actions, suits, damages (including, without
limitation, punitive damages), expenses (including, without limitation,
remediation, removal, repair, corrective action, or cleanup expenses), and costs
(including, without limitation, actual attorneys' fees, consultant fees or
expert fees and including, without limitation, removal or management of any
asbestos brought into the property or disturbed in breach of the requirements of
this Paragraph 30, regardless of whether such removal or management is required
by law) which are brought or recoverable against, or suffered or incurred by
Landlord as a result of any release of Hazardous Materials caused by Tenant, its
agents, employees, contractors, subtenants, assignees or invitees or any other
breach of the requirements under this Paragraph 30 by Tenant, its agents,
employees, contractors, subtenants, assignees or invitees, regardless of whether
Tenant had knowledge of such noncompliance. The obligations of Tenant under this
Paragraph 30 shall survive any termination of this Lease.
Landlord shall have access to, and a right to perform
inspections and tests of, the Premises to
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determine Tenant's compliance with Environmental Requirements, its obligations
under this Paragraph 30, or the environmental condition of the Premises. Access
shall be granted to Landlord upon Landlord's prior notice to Tenant and at such
times so as to minimize, so far as may be reasonable under the circumstances,
any disturbance to Tenant's operations. Such inspections and tests shall be
conducted at Landlord's expense, unless such inspections or tests reveal that
Tenant has not complied with any Environmental Requirement, in which case Tenant
shall reimburse Landlord for the reasonable cost of such inspection and tests.
Landlord's receipt of or satisfaction with any environmental assessment in no
way waives any rights that Landlord holds against Tenant.
Notwithstanding anything to the contrary in this Paragraph 30,
Tenant shall have no liability of any kind to Landlord as to Hazardous Materials
on the Premises caused or permitted by: (i) Landlord, its agents, employees,
contractors or invitees; or (ii) any other tenants in the Project or their
agents, employees, contractors, subtenants, assignees or invitees; or (iii) any
other person or entity located outside of the Premises or the Project.
If Hazardous Materials are hereafter discovered on the
Premises, and the presence of such Hazardous Materials is not the result of
Tenant's use of the Premises or any act or omission of Tenant or its agents,
employees, contractors, subtenants or invitees, and the presence of such
Hazardous Materials violates applicable environmental laws and is required to be
remediated by Landlord or results in any contamination, damages, or injury to
the Premises that materially and adversely affects Tenant's occupancy or use of
the Premises, Landlord shall promptly take all actions at its sole expense as
are necessary to remediate such Hazardous Materials and as may be required by
the Environmental Requirements. Actual or threatened action or litigation by any
governmental authority is not a condition prerequisite to Landlord's obligations
under this paragraph. Within 30 days after notification from Tenant supported by
reasonable documentation setting forth such presence or release of Hazardous
Materials, and after Landlord has been given a reasonable period of time after
such 30-day period to conduct its own investigation to confirm such presence or
release of Hazardous Materials, Landlord shall commence to remediate such
Hazardous Materials within 180 days after the completion of Landlord's
investigation and thereafter diligently prosecute such remediation to
completion. If Landlord fails to commence such remediation or if Landlord
commences such remediation and fails to diligently prosecute same until
completion, then Tenant may terminate this Lease by written notice to Landlord
after expiration of 30 days following a notice to Landlord that Tenant intends
to terminate this Lease if Landlord does not promptly commence or diligently
prosecute the remediation within such 30-day period. If Landlord commences
remediation pursuant to this paragraph, Base Rent and Operating Expenses shall
be equitably adjusted if and to the extent and during the period the Premises
are unsuitable for Tenant's business. Notwithstanding anything herein to the
contrary, if Landlord obtains a letter from the appropriate governmental
authority that no further remediation is required prior to the effective date of
any such termination, such termination shall be null and void and this Lease
shall remain in full force and effect.
31. RULES AND REGULATIONS. Tenant shall, at all times during the Lease
Term and any extension thereof, comply with all reasonable rules and regulations
at any time or from time to time established by Landlord covering use of the
Premises and the Project. The current rules and regulations are attached hereto.
In the event of any conflict between said rules and regulations and other
provisions of this Lease, the other terms and provisions of this Lease shall
control. Landlord shall not have any liability or obligation for the breach of
any rules or regulations by other tenants in the Project.
32. SECURITY SERVICE. Tenant acknowledges and agrees that, while
Landlord may patrol the Project, Landlord is not providing any security services
with respect to the Premises and that Landlord shall not be liable to Tenant
for, and Tenant waives any claim against Landlord with respect to, any loss by
theft or any other damage suffered or incurred by Tenant in connection with any
unauthorized entry into the Premises or any other breach of security with
respect to the Premises.
33. FORCE MAJEURE. Except for monetary obligations, neither Landlord
nor Tenant shall be held responsible for delays in the performance of its
obligations hereunder when caused by strikes, lockouts, labor disputes, acts of
God, inability to obtain labor or materials or reasonable substitutes therefor,
governmental restrictions, governmental regulations, governmental controls,
delay in issuance of permits, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of Landlord or Tenant ("Force Majeure").
34. ENTIRE AGREEMENT. This Lease constitutes the complete agreement of
Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.
35. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws, then and in that event,
it is the intention of the parties hereto that the remainder of this Lease shall
not be affected thereby. It is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is illegal, invalid
or unenforceable, there be added, as a part of this Lease, a clause or provision
as similar in terms to such illegal, invalid or unenforceable clause or
provision as may be possible and be legal, valid and enforceable.
36. BROKERS. Landlord and Tenant represent and warrant to the other
that neither party has dealt with any broker, agent or other person in
connection with this transaction and that no broker, agent or other person
brought about this transaction, other than the broker, if any, set forth on the
first page of this Lease, and Landlord and Tenant agree to indemnify and hold
the other harmless from and against any claims by any other broker, agent
-11-
<PAGE>
or other person claiming a commission or other form of compensation by virtue of
having dealt with either party with regard to this leasing transaction.
37. MISCELLANEOUS. (a) Any payments or charges due from Tenant to
Landlord hereunder shall be considered rent for all purposes of this Lease.
(b) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.
(c) All notices required or permitted to be given under this Lease
shall be in writing and shall be sent by registered or certified mail, return
receipt requested, or by a reputable national overnight courier service, postage
prepaid, or by hand delivery addressed to the parties at their addresses below,
and with a copy sent to Landlord at 14100 EAST 35TH PLACE, AURORA, COLORADO
80011. Either party may by notice given aforesaid change its address for all
subsequent notices. Except where otherwise expressly provided to the contrary,
notice shall be deemed given upon delivery.
(d) Except as otherwise expressly provided in this Lease or as
otherwise required by law, Landlord retains the absolute right to withhold any
consent or approval.
(e) At Landlord's request from time to time Tenant shall furnish
Landlord with true and complete copies of its most recent annual and quarterly
financial statements prepared by Tenant or Tenant's accountants and any other
financial information or summaries that Tenant typically provides to its lenders
or shareholders.
(f) Neither this Lease nor a memorandum of lease shall be filed by or
on behalf of Tenant in any public record. Landlord may prepare and file, and
upon request by Landlord Tenant will execute, a memorandum of lease.
(g) The normal rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Lease or any exhibits or amendments hereto.
(h) The submission by Landlord to Tenant of this Lease shall have no
binding force or effect, shall not constitute an option for the leasing of the
Premises, nor confer any right or impose any obligations upon either party until
execution of this Lease by both parties.
(i) Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.
(j) Any amount not paid by Tenant within 10 days after its due date in
accordance with the terms of this Lease shall bear interest from such due date
until paid in full at the lesser of the highest rate permitted by applicable law
or 15 percent per year. It is expressly the intent of Landlord and Tenant at all
times to comply with applicable law governing the maximum rate or amount of any
interest payable on or in connection with this Lease. If applicable law is ever
judicially interpreted so as to render usurious any interest called for under
this Lease, or contracted for, charged, taken , reserved, or received with
respect to this Lease, then it is Landlord's and Tenant's express intent that
all excess amounts theretofore collected by Landlord be credited on the
applicable obligation (or, if the obligation has been or would thereby be paid
in full, refunded to Tenant), and the provisions of this Lease immediately shall
be deemed reformed and the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new document, so as to comply with
the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder.
(k) Construction and interpretation of this Lease shall be governed by
the laws of the state in which the Project is located, excluding any principles
of conflicts of laws.
(l) Time is of the essence as to the performance of Tenant's
obligations under this Lease.
(m) All exhibits and addenda attached hereto are hereby incorporated
into this Lease and made a part hereof. In the event of any conflict between
such exhibits or addenda and the terms of this Lease, such exhibits or addenda
shall control.
38. LANDLORD'S LIEN/SECURITY INTEREST. Intentionally deleted.
39. LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS, AND OFFICERS OF
PROLOGIS TRUST. Any obligation or liability whatsoever of ProLogis Trust, a
Maryland real estate investment trust, which may arise at any time under this
Lease or any obligation or liability which may be incurred by it pursuant to any
other instrument, transaction, or undertaking contemplated hereby shall not be
personally binding upon, nor shall resort for the enforcement thereof be had to
the property of, its trustees, directors, shareholders, officers, employees or
agents, regardless of whether such obligation or liability is in the nature of
contract, tort, or otherwise.
-12-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
<TABLE>
<CAPTION>
TENANT: LANDLORD:
<S> <C>
STREAMLINE.COM, INC. PROLOGIS TRUST
By: /s/ TERENCE W. TORAN By: /s/ DAVID S. MORZE
-------------------------------------------------- --------------------------------------------------
Title: Terence W. Toran, Chief Development Officer Title:David S. Morze, Senior Vice President
Address: Address:
27 Dartmouth Street 100 Division Street, Suite 101
- ----------------------------------------------------- -----------------------------------------------------
Westwood, Ma 02090 Bensenville, Il 60106
- ----------------------------------------------------- -----------------------------------------------------
</TABLE>
-13-
<PAGE>
RULES AND REGULATIONS
1 The sidewalk, entries, and driveways of the Project shall not be
obstructed by Tenant, or its agents, or used by them for any purpose
other than ingress and egress to and from the Premises.
2. Tenant shall not place any objects, including antennas, outdoor
furniture, etc., in the parking areas, landscaped areas or other areas
outside of its Premises, or on the roof of the Project.
3. Except for seeing-eye dogs, no animals shall be allowed in the offices,
halls, or corridors in the Project.
4. Tenant shall not disturb the occupants of the Project or adjoining
buildings by the use of any radio or musical instrument or by the
making of loud or improper noises.
5. If Tenant desires telegraphic, telephonic or other electric connections
in the Premises, Landlord or its agent will direct the electrician as
to where and how the wires may be introduced; and, without such
direction, no boring or cutting of wires will be permitted. Any such
installation or connection shall be made at Tenant's expense.
6. Tenant shall not install or operate any steam or gas engine or boiler,
or other mechanical apparatus in the Premises, except as specifically
approved in the Lease. The use of oil, gas or inflammable liquids for
heating, lighting or any other purpose is expressly prohibited.
Explosives or other articles deemed extra hazardous shall not be
brought into the Project.
7. Parking any type of recreational vehicles is specifically prohibited on
or about the Project. Except for the overnight parking of operative
vehicles, no vehicle of any type shall be stored in the parking areas
at any time. In the event that a vehicle is disabled, it shall be
removed within 48 hours. There shall be no "For Sale" or other
advertising signs on or about any parked vehicle. All vehicles shall be
parked in the designated parking areas in conformity with all signs and
other markings. All parking will be open parking, and no reserved
parking, numbering or lettering of individual spaces will be permitted
except as specified by Landlord.
8. Tenant shall maintain the Premises free from rodents, insects and other
pests.
9. Landlord reserves the right to exclude or expel from the Project any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs or who shall in any manner do any act in
violation of the Rules and Regulations of the Project.
10 Tenant shall not cause any unnecessary labor by reason of Tenant's
carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to Tenant for any loss
of property on the Premises, however occurring, or for any damage done
to the effects of Tenant by the janitors or any other employee or
person.
11 Tenant shall give Landlord prompt notice of any defects in the water,
lawn sprinkler, sewage, gas pipes, electrical lights and fixtures,
heating apparatus, or any other service equipment affecting the
Premises.
12 Tenant shall not permit storage outside the Premises, including without
limitation, outside storage of trucks and other vehicles, or dumping of
waste or refuse or permit any harmful materials to be placed in any
drainage system or sanitary system in or about the Premises.
13 All moveable trash receptacles provided by the trash disposal firm for
the Premises must be kept in the trash enclosure areas, if any,
provided for that purpose.
14 No auction, public or private, will be permitted on the Premises or the
Project.
15 No awnings shall be placed over the windows in the Premises except with
the prior written consent of Landlord.
16 The Premises shall not be used for lodging, sleeping or cooking or for
any immoral or illegal purposes or for any purpose other than that
specified in the Lease. No gaming devices shall be operated in the
Premises.
17 Tenant shall ascertain from Landlord the maximum amount of electrical
current which can safely be used in the Premises, taking into account
the capacity of the electrical wiring in the Project and the Premises
and the needs of other tenants, and shall not use more than such safe
capacity. Landlord's consent to the installation of electric equipment
shall not relieve Tenant from the obligation not to use more
electricity than such safe capacity.
18 Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage.
19 Tenant shall not install or operate on the Premises any machinery or
mechanical devices of a nature not directly related to Tenant's
ordinary use of the Premises and shall keep all such machinery free of
vibration, noise and air waves which may be transmitted beyond the
Premises.
-14-
<PAGE>
ADDENDUM 1
BASE RENT ADJUSTMENTS
---------------------
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED ________________, 1999, BETWEEN
PROLOGIS TRUST
and
STREAMLINE.COM, INC.
Base Rent shall equal the following amounts for the respective periods
set forth below:
<TABLE>
<CAPTION>
PERIOD MONTHLY BASE RENT
------ -----------------
<S> <C>
Months 1 - 60 $55,481.29
Months 61 - 120 $64,016.88
</TABLE>
-15-
<PAGE>
ADDENDUM 2
CONSTRUCTION
------------
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED ________________, 1999, BETWEEN
PROLOGIS TRUST
and
STREAMLINE.COM, INC.
(a) Landlord agrees to furnish or perform those items of
construction and those improvements (the "TENANT IMPROVEMENTS") specified below:
Build-out of 7,000 square feet of office space based
upon Landlord's standard workletter attached hereto
as Exhibit B.
Landlord shall pay for the Tenant Improvements up to a maximum amount of
$280,000, and Tenant shall pay for the cost of the Tenant Improvements in excess
of such amount. If the cost of the Tenant Improvements is estimated to exceed
such amount, such estimated overage shall be paid by Tenant before Landlord
begins construction and a final adjusting payment based upon the actual costs of
the Tenant Improvements shall be made when the Tenant Improvements are complete.
Notwithstanding the foregoing, Landlord agrees to construct the shell of the
Building (the "Building Shell") in accordance with Landlord's standard
specifications as outlined in those certain plans dated August 28, 1998, as
revised on October 19, 1998 by SCR Associates, PA. Landlord shall proceed with
and substantially complete the construction of the Building Shell no later than
February 1, 2000, subject to Force Majeure and Tenant-caused delays. If Landlord
fails to complete the Building Shell by February 1, 2000, subject to Force
Majeure and Tenant-caused delays, the Commencement Date of the Lease shall be
extended on a per diem basis for every day of delay beyond February 1, 2000
until the Building Shell is Substantially Completed. For purposes of this
paragraph, the Building Shell shall be deemed substantially completed
("Substantially Completed") when, in the opinion of the construction manager
(whether an employee or agent of Landlord or a third party construction
manager), the Building Shell is substantially completed except for punch list
items which do not prevent in any material way the use of the Premises for the
purposes for which they were intended.
(b) If Tenant shall desire any changes, Tenant shall so advise
Landlord in writing and Landlord shall determine whether such changes can be
made in a reasonable and feasible manner. Any and all costs of reviewing any
requested changes, and any and all costs of making any changes to the Tenant
Improvements which Tenant may request and which Landlord may agree to shall be
at Tenant's sole cost and expense and shall be paid to Landlord upon demand and
before execution of the change order.
(c) Landlord shall proceed with and complete the construction
of the Tenant Improvements 14 weeks following receipt of approved space plan(s)
by Tenant for the Tenant Improvements, subject to Force Majeure and
Tenant-caused delays. As soon as such improvements have been Substantially
Completed, Landlord shall notify Tenant in writing of the date that the Tenant
Improvements were Substantially Completed. The Tenant Improvements shall be
deemed substantially completed ("Substantially Completed") when, in the opinion
of the construction manager (whether an employee or agent of Landlord or a third
party construction manager), the Premises are substantially completed except for
punch list items which do not prevent in any material way the use of the
Premises for the purposes for which they were intended. After the Commencement
Date Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises.
(d) The failure of Tenant to take possession of or to occupy
the Premises shall not serve to relieve Tenant of obligations arising on the
Commencement Date or delay the payment of rent by Tenant. Subject to applicable
ordinances and building codes governing Tenant's right to occupy or perform in
the Premises, Tenant shall be allowed to install its tenant improvements,
machinery, equipment, fixtures, or other property on the Premises during the
final stages of completion of construction provided that Tenant does not thereby
interfere with the completion of construction or cause any labor dispute as a
result of such installations, and provided further that Tenant does hereby agree
to indemnify, defend, and hold Landlord harmless from any loss or damage to such
property, and all liability, loss, or damage arising from any injury to the
Project or the property of Landlord, its contractors, subcontractors, or
materialmen, and any death or personal injury to any person or persons arising
out of such installations, unless such loss, damage, liability, death, or
personal injury was caused by Landlord's negligence. Any such occupancy or
performance in the Premises shall be in accordance with the provisions governing
Tenant-Made Alterations and Trade Fixtures in the Lease, and shall be subject to
Tenant providing to Landlord satisfactory evidence of insurance for personal
injury and property damage related to such installations and satisfactory
payment arrangements with respect to installations permitted hereunder. Delay in
putting Tenant in possession of the Premises shall not serve to extend the term
of this Lease or to make Landlord liable for any damages arising therefrom.
(e) Except for incomplete punch list items, Tenant upon the
Commencement Date shall have and hold the Premises as the same shall then be
without any liability or obligation on the part of Landlord for making any
further alterations or improvements of any kind in or about the Premises.
-16-
<PAGE>
ADDENDUM 3
TWO RENEWAL OPTIONS AT MARKET
-----------------------------
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED ________________, 1999, BETWEEN
PROLOGIS TRUST
and
STREAMLINE.COM, INC.
(a) Provided that as of the time of the giving of the First Extension
Notice and the Commencement Date of the First Extension Term, (x) Tenant is the
Tenant originally named herein, (y) Tenant actually occupies all of the Premises
initially demised under this Lease and any space added to the Premises, and (z)
no Event of Default exists or would exist but for the passage of time or the
giving of notice, or both; then Tenant shall have the right to extend the Lease
Term for an additional term of 5 years (such additional term is hereinafter
called the "FIRST EXTENSION TERM") commencing on the day following the
expiration of the Lease Term (hereinafter referred to as the "COMMENCEMENT DATE
OF THE FIRST EXTENSION TERM"). Tenant shall give Landlord notice (hereinafter
called the "FIRST EXTENSION NOTICE") of its election to extend the term of the
Lease Term at least 8 months, but not more than 12 months, prior to the
scheduled expiration date of the Lease Term.
(b) Provided that as of the time of the giving of the Second Extension
Notice and the Commencement Date of the Second Extension Term, (x) Tenant is the
Tenant originally named herein, (y) Tenant actually occupies all of the Premises
initially demised under this Lease and any space added to the Premises, and (z)
no Event of Default exists or would exist but for the passage of time or the
giving of notice, or both and provided Tenant has exercised its option for the
First Extension Term; then Tenant shall have the right to extend the Lease Term
for an additional term of 5 years (such additional term is hereinafter called
the "SECOND EXTENSION TERM") commencing on the day following the expiration of
the First Extension Term (hereinafter referred to as the "COMMENCEMENT DATE OF
THE SECOND EXTENSION TERM"). Tenant shall give Landlord notice (hereinafter
called the "SECOND EXTENSION NOTICE") of its election to extend the term of the
Lease Term at least 8 months, but not more than 12 months, prior to the
scheduled expiration date of the First Extension Term.
(c) The Base Rent payable by Tenant to Landlord during the First
Extension Term shall be the then prevailing market rate for comparable space in
the Project and comparable buildings in the vicinity of the Project, taking into
account the size of the Lease, the length of the renewal term, market
escalations and the credit of Tenant, as determined by Landlord's representative
and Tenant's representative, each acting in good faith. In the event Landlord
and Tenant fail to reach an agreement on such rental rate and execute the
Amendment (defined below) at least 5 months prior to the expiration of the
Lease, then Tenant's exercise of the renewal option shall be deemed withdrawn
and the Lease shall terminate on its original expiration date.
(d) The Base Rent payable by Tenant to Landlord during the Second
Extension Term shall be the then prevailing market rate for comparable space in
the Project and comparable buildings in the vicinity of the Project, taking into
account the size of the Lease, the length of the renewal term and the credit of
Tenant, as determined by Landlord's representative and Tenant's representative,
each acting in good faith. In the event Landlord and Tenant fail to reach an
agreement on such rental rate and execute the Amendment (defined below) at least
5 months prior to the expiration of the Lease, then Tenant's exercise of the
renewal option shall be deemed withdrawn and the Lease shall terminate at the
end of the First Extension Term.
(e) The determination of Base Rent does not reduce the Tenant's
obligation to pay or reimburse Landlord for operating expenses and other
reimbursable items as set forth in the Lease, and Tenant shall reimburse and pay
Landlord as set forth in the Lease with respect to such operating expenses and
other items with respect to the Premises during the First Extension Term and
Second Extension Term without regard to any cap on such expenses set forth in
the Lease.
(f) Except for the Base Rent as determined above, Tenant's occupancy of
the Premises during the First Extension Term and the Second Extension Term shall
be on the same terms and conditions as are in effect immediately prior to the
expiration of the initial Lease Term or the First Extension Term; provided,
however, Tenant shall have no further right to any allowances, credits or
abatements or any options to expand, contract, renew or extend the Lease.
(g) If Tenant does not give the First Extension Notice within the
period set forth in paragraph (a) above, Tenant's right to extend the Lease Term
for the First Extension Term and the Second Extension Term shall automatically
terminate. If Tenant does not give the Second Extension Notice within the period
set forth in paragraph (b) above, Tenant's right to extend the Lease Term for
the Second Extension Term shall automatically terminate. Time is of the essence
as to the giving of the First Extension Notice and Second Extension Notice.
(h) Landlord shall have no obligation to refurbish or otherwise improve
the Premises for the First Extension Term or the Second Extension Term. The
Premises shall be tendered on the Commencement Date of the First Extension Term
and Second Extension Term in "as-is" condition.
(i) If the Lease is extended for either the First Extension Term or
Second Extension Term, then Landlord shall prepare and Tenant shall execute an
amendment to the Lease confirming the extension of the Lease Term and the other
provisions applicable thereto (the "Amendment").
-17-
<PAGE>
(j) If Tenant exercises its right to extend the term of the Lease for
the First Extension Term or Second Extension Term pursuant to this Addendum, the
term "Lease Term" as used in the Lease, shall be construed to include, when
practicable, the First Extension Term or Second Extension Term, as applicable,
except as provided in (f) above.
-18-
<PAGE>
ADDENDUM 4
ASSIGNMENT AND SUBLETTING (CONSENT)
-----------------------------------
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED ________________, 1999, BETWEEN
PROLOGIS TRUST
and
STREAMLINE.COM, INC.
(a) Landlord shall not unreasonably withhold its consent to Tenant's
request for permission to assign the Lease or sublease all or part of the
Premises. It shall be reasonable for the Landlord to withhold its consent to any
assignment or sublease in any of the following instances:
(i) The assignee does not have a net worth calculated
according to generally accepted accounting principles at least equal to
the greater of the net worth of Tenant immediately prior to such
assignment or the net worth of the Tenant at the time it executed the
Lease;
(ii) The intended use of the Premises by the assignee or
sublessee is not reasonably satisfactory to Landlord;
(iii) The intended use of the Premises by the assignee or
sublessee would materially increase the pedestrian or vehicular traffic
to the Premises or the Project;
(iv) Occupancy of the Premises by the assignee or sublessee
would, in Landlord's opinion, violate any agreement binding upon
Landlord or the Project with regard to the identity of tenants, usage
in the Project, or similar matters;
(v) The identity or business reputation of the assignee or
sublessee will, in the good faith judgment of Landlord, tend to damage
the goodwill or reputation of the Project;
(vi) The assignment or sublet is to another tenant in the
Project and is at rates which are below those charged by Landlord for
comparable space in the Project;
(vii) In the case of a sublease, the subtenant has not
acknowledged that the Lease controls over any inconsistent provision in
the sublease; or
(viii) The proposed assignee or sublessee is a government
entity.
The foregoing criteria shall not exclude any other reasonable basis for Landlord
to refuse its consent to such assignment or sublease.
(b) Any approved assignment or sublease shall be expressly subject to
the terms and conditions of this Lease.
(c) Tenant shall provide to Landlord all information concerning the
assignee or sublessee as Landlord may request.
(d) Landlord may revoke its consent immediately and without notice if,
as of the effective date of the assignment or sublease, there has occurred and
is continuing any default under the Lease.
(e) Intentionally deleted.
-19-
<PAGE>
EXHIBIT 13.1
Selected Financial Information
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, January 1,
1995 1996 1997 1998 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 134 $ 922 $ 2,634 $ 6,946 $ 15,380
Loss from continuing operations (1,030) (1,889) (8,500) (10,437) (20,653)
Loss attributable to common
stockholders before extraordinary item (1,050) (2,049) (8,471) (10,958) (20,046)
Net loss attributable
to common stockholders (1,050) (2,049) (8,471) (11,702) (20,046)
Loss from continuing operations
per common share (0.34) (0.64) (2.53) (3.06) (1.84)
Loss attributable to common stockholders
before extraordinary item
per common share (0.34) (0.62) (2.47) (3.11) (1.74)
Net loss attributable to common
stockholders per common share $ (0.34) $ (0.62) $ (2.47) $ (3.32) $ (1.74)
Balance Sheet Data:
Total assets $ 289 $ 3,618 $ 7,897 $ 20,066 $ 50,914
Capital lease obligations, net of
current portion 64 325 334 381 2,075
Redeemable, convertible,
preferred stock -- 5,203 14,000 37,186 --
</TABLE>
12
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Streamline.com simplifies the lives of busy suburban families by providing
Internet-based ordering and home delivery of a wide range of consumer goods and
services such as groceries, household goods, health and beauty care items,
dry-cleaning, video rentals and film processing. Streamline.com's typical
customer tends to be a dual income household with at least one child and access
to the Internet. Streamline.com also provides consumer packaged goods companies
insight into consumer Internet purchasing behavior to help facilitate the
development of their Internet merchandising capabilities and to broaden other
research and marketing programs.
Streamline.com has grown rapidly, with revenue increasing to $15.4 million in
1999 from $2.6 million in 1997. During this same period, Streamline.com's net
loss increased to $19.5 million in 1999 from $8.3 million in 1997.
Streamline.com expects to continue to incur losses as it increases expenditures
in all areas of operations in order to execute its business plan. In particular,
Streamline.com expects to incur costs related to: expanding into new markets,
increasing sales and marketing efforts and continuing to invest in technology
systems and development.
Due to our history of net operating losses, we currently pay no federal or state
income tax. As of January 1, 2000, we had federal and state net operating loss
carryforwards of approximately $40.0 million and $39.8 million, respectively.
These net operating losses are available to offset future income tax obligations
unless federal or state tax law restrictions, such as those related to an
ownership change as defined in the Internal Revenue Code, limit us from doing
so.
Components of Revenue
Streamline.com has three primary sources of revenue. The majority of
Streamline.com's revenue is generated by the sale of consumer products and
services that Streamline.com aggregates in its fulfillment center and delivers
to its customers' homes on a weekly basis. Streamline.com's product and service
revenue is comprised of the retail prices Streamline.com charges its customers
for these products and services. The wholesale prices Streamline.com pays its
distributors and suppliers for such products and services are included as a cost
of revenue. Streamline.com's customers also pay a monthly subscription fee of
$30. In addition, Streamline.com receives advertising, research and marketing
fees through arrangements with consumer packaged goods companies and e-commerce
companies. Revenue from products and services is recognized upon delivery to the
customer; subscription fees are recognized monthly; and advertising, research
and marketing fees are recognized over the life of the applicable arrangement or
as services are performed.
Results of Operations
Comparison of Fiscal Years ended January 1, 2000, December 31, 1998 and December
31, 1997:
Total Revenue
Total revenue increased 121.4% to $15.4 million in the twelve months ended
January 1, 2000 from $6.9 million in the comparable period ended December 31,
1998. Total revenue increased 163.7% to $6.9 million in 1998 from $2.6 million
in 1997. The increase in each year was primarily due to the continuing expansion
of Streamline.com's customer base, a corresponding increase in subscription
fees, and an increase in fees derived from advertising, research and marketing.
Product and Service Revenue, Net
Product and service revenue, net of returns increased 118.4% to $13.2 million in
the twelve months ended January 1, 2000 from $6.0 million in the comparable
period ended December 31, 1998. Product and service revenue, net of returns
increased 232.0% to $6.0 million in 1998 from $1.8 million in 1997. The increase
in revenue was the result of increases in Streamline.com's customer base and
corresponding increases in the number of invoices for product and service
revenue. The number of invoices increased 123.5% to approximately 132,000 in the
twelve months ended January 1, 2000 from approximately 59,000 in the comparable
period ended December 31, 1998. Average product and service revenue per invoice
decreased slightly, to approximately $100 in the twelve months ended January 1,
2000 from approximately $102 in the comparable period ended December 31, 1998.
In 1998, the number of
13
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
invoices increased 217.3% from approximately 18,000 in the period ended December
31, 1997. Average product and service revenue per invoice increased slightly, to
approximately $102 in the twelve months ended December 31,1998 from
approximately $101 in the comparable period ended December 31, 1997. Product and
service revenue, net as a percentage of total revenue decreased to 85.6% in the
twelve months ended January 1, 2000 from 86.7% in the comparable period ended
December 31, 1998. Product and service revenue, net increased as a percentage of
revenue to 86.7% in the period ended December 31, 1998 from 68.9% in the period
ended December 31, 1997 as a result of an increased customer base and a decline
in advertising, marketing and research fees as a percentage of total revenue.
Subscription Fees
Revenue from subscription fees increased 159.7% to $1.0 million in the twelve
months ended January 1, 2000 from $391,000 in the comparable period ended
December 31, 1998. Revenue from subscription fees increased 297.3% to $391,000
in 1998 from $98,000 in 1997. The increases were primarily due to an increase in
the customer base to approximately 4,500 at January 1, 2000 from approximately
2,000 at December 31, 1998 and 900 at December 31, 1997.
Advertising, Research and Marketing Fees
Advertising, research and marketing fees increased 126.9% to $1.2 million in the
twelve months ended January 1, 2000 from $529,000 in the comparable period ended
December 31, 1998. These fees as a percentage of total revenue increased to 7.8%
in the twelve months ended January 1, 2000 from 7.6% in the comparable period
ended December 31, 1998. The increase in advertising, research and marketing
fees is primarily due to an increase in the number of consumer packaged goods
companies that became members of the Consumer Learning Center, a
Streamline-sponsored research center focused on better understanding the
Consumer Direct industry. Fees from advertising, research and marketing services
decreased 26.6% to $529,000 in 1998 from $721,000 in 1997. Advertising, research
and marketing fees as a percentage of total revenue decreased to 7.6% in 1998
from 27.4% in 1997. The decrease is primarily due to a reduction in the average
amount paid by participants resulting from shorter membership periods.
Total Operating Expenses
Total operating expenses increased 107.3% to $36.0 million, or 234.3% of total
revenues, in the twelve months ended January 1, 2000 from $17.4 million, or
250.3% of total revenues, in the comparable period ended December 31, 1998.
Total operating expenses increased 56.1% to $17.4 million, or 250.3% of total
revenue, in 1998 from $11.1 million, or 422.6% of total revenue, in 1997. The
increase in operating expenses is a result of an increase in order volume, and
an increase in infrastructure and general and administrative costs incurred to
support Streamline.com's continued expansion. In 1999, these expenses further
increased due to the opening of Streamline.com's second facility in the
Washington, D.C. market in the fourth quarter. Total expenses decreased as a
percentage of total revenues due to achieving operational efficiencies,
offsetting fixed costs with higher order volumes, and increased advertising and
marketing fee revenue.
Cost of Revenue
The cost of revenue increased to $10.6 million, or 69.1% of total revenues, in
the twelve months ended January 1, 2000 from $5.0 million, or 71.9% of total
revenues in the comparable period ended December 31, 1998. The cost of revenue
increased to $5.0 million, or 71.9% of total revenue, in 1998 from $2.1 million,
or 79.6% of total revenue, in 1997. The declines in cost of revenue as a
percentage of total revenues are primarily a result of improved purchasing and
inventory management in the product and service category, and a higher
percentage of subscription fees as a percentage of total revenue.
Fulfillment Center Operations
Expenses attributable to fulfillment center operations increased 125.7% to $9.1
million, or 58.9% of total revenue, in the twelve months ended January 1, 2000
from $4.0 million, or 57.8% of total revenue, in the comparable period ended
December 31, 1998. Expenses attributable to fulfillment center operations
increased 44.9% to $4.0 million, or 57.8% of total revenue, in 1998 from $2.8
million, or 105.1% of total revenue, in 1997. These costs increased primarily as
a result of increased order volume. In 1999, these costs
14
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
further increased as a result of the opening of Streamline.com's second facility
in the Washington, D.C. area, and a partnership with Genco, a third party
warehouse management company. Genco assumed the warehouse management functions
in our facilities under a test outsourcing arrangement. The costs incurred under
this agreement were higher than expected and as a result the agreement was
terminated in the fourth quarter 1999.
Sales and Marketing
Sales and marketing expenses increased 237.2% to $5.0 million, or 32.4% of total
revenue, for the twelve months ended January 1, 2000 from $1.5 million, or 21.3%
of total revenue, for the comparable period ended December 31, 1998. Sales and
marketing expenses increased 3.6% to $1.5 million, or 21.3% of total revenue, in
1998 from $1.4 million, or 54.2% of total revenue, in 1997. The increases were
due to additional advertising and promotional activities undertaken to acquire
new customers in the Boston market. Expenses further increased in 1999 as a
result of the expansion into the Washington, D.C. market.
Technology Systems and Development
Expenses attributable to technology systems and development increased 25.4% to
$3.8 million, or 24.5% of total revenue, for the twelve months ended January 1,
2000 from $3.0 million, or 43.2% of total revenue, for the comparable period
ended December 31, 1998. Expenses attributable to technology systems and
development increased 79.5% to $3.0 million, or 43.2% of total revenue, in 1998
from $1.7 million, or 63.5% of total revenue, in 1997. These costs increased
primarily due to the costs associated with maintaining, enhancing and
integrating Streamline.com's technology systems.
General and Administrative
General and administrative costs increased 95.0% to $7.6 million, or 49.4% of
total revenues, for the twelve months ended January 1, 2000 from $3.9 million,
or 56.1% of total revenues, for the comparable period ended December 31, 1998.
General and administrative costs increased 23.1% to $3.9 million, or 56.1% of
total revenue, in 1998 from $3.2 million, or 120.2% of total revenue, in 1997.
These costs increased primarily due to the addition of necessary infrastructure
and corporate staff to support continued corporate growth and expansion into new
markets.
Other Income (Expense), Net
Other income (expense), net increased to income of $1.2 million in the twelve
months ended January 1, 2000 from an expense of $(330,000) in the comparable
period ended December 31, 1998 primarily due to increased interest income from
higher cash balances from Streamline.com's initial public offering in June 1999,
and reduced interest costs associated with the pay down of debt.
Other income (expense), net increased 311.0% to $(330,000) in 1998 from
$(79,000) in 1997, largely due to a $519,000 increase in net interest expense
resulting from Streamline.com's issuance of senior discount notes in 1998. This
was offset by $182,000 of interest income Streamline.com received primarily from
investing the proceeds of debt and equity financings completed during the year.
Other expense in 1997 included losses incurred on the disposal of fixed assets.
Minority Interest
At December 31, 1997, Streamline.com held a majority interest in Streamline
Mid-Atlantic, Inc. Portions of Streamline Mid-Atlantic's net losses were
allocated to the minority interest. The allocation of the net losses of
Streamline.com's subsidiary, Streamline Mid-Atlantic, Inc., to the minority
interest decreased to $138,000 in 1998 from $265,000 in 1997. In 1998,
Streamline.com was allocated a per centage of net losses in excess of its
ownership percentage due to the minority interest being allocated all of its
allowable losses. In November 1998, Streamline.com acquired the remaining
minority interest and now reports 100% of the income or loss of this subsidiary
in its results of operations.
Extraordinary Loss
On September 18, 1998, Streamline.com redeemed all of its outstanding discount
notes issued in April 1998 at a price of $7.0 million with the proceeds from the
issuance of Streamline.com's Series D Preferred Stock. The redemption resulted
in Streamline.com
15
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
recording an extraordinary loss on the extinguishment of debt of approximately
$744,000. This loss included approximately $257,000 for a call premium, and
$452,000 for the unamortized discount value associated with the warrants to
purchase common stock issued in connection with the senior discount notes and
$35,000 for the issuance of common shares and remaining deferred financing
costs.
Liquidity and Capital Resources
For the twelve months ended January 1, 2000 operating activities used cash of
$16.1 million, primarily attributable to the net loss incurred in the period, as
compared to $9.4 million for the twelve months ended December 31, 1998.
Investing activities used cash of $26.8 million in the twelve months ended
January 1, 2000, as compared to $2.1 million for the twelve months ended
December 31, 1998, primarily due to the purchase of marketable securities from
capital raised by the initial public offering, the purchase of property and
equipment to support the expansion of Streamline.com's operations, and costs
associated with purchased and capitalized software for Streamline.com's customer
ordering, warehouse management and financial systems.
Financing activities provided cash of $44.6 million in the twelve months ended
January 1, 2000, as compared to $22.7 million in the twelve months ended
December 31, 1998. Net proceeds from Streamline.com's initial public offering
including the exercise of the underwriters' over-allotment, net of underwriting
discounts and offering expenses, were approximately $45.0 million. Prior to its
initial public offering, Streamline.com financed its operations and capital
requirements primarily through the sale of redeemable convertible preferred
stock and the issuance of senior discount notes.
The Company has incurred cumulative losses through January 1, 2000 of
approximately $42.9 million and continues to have recurring operating losses and
negative cash flows from operating activities. The Company expects to incur
additional losses and will require additional financing as it expands its
service into new and existing markets.
The Company's plans for 2000 are based upon an aggressive expansion strategy
including the introduction of several new facilities and the acquisition of a
significant number of new customers by year end. In addition, the 2000 plan
includes funding the operating losses of a Chicago fulfillment center which was
acquired in connection with the Company's merger with Beacon Home Direct, Inc.,
d/b/a Scotty's Home Market, on January 5, 2000. In order to implement the 2000
plan, the Company will need additional financing, and has engaged an investment
banker to assist in securing additional private funding which the Company
expects to receive by the end of the second fiscal quarter.
In the event the Company is unable to secure additional financing, an
alternative plan has been developed to significantly reduce cash expenditures
including delaying the capital expenditure costs and pre-opening expenses for
the planned new facilities. In addition, the Company would significantly reduce
marketing expenditures, reduce corporate headcount costs including all incentive
compensation and reduce consulting and other miscellaneous spending.
Furthermore, most corporate capital projects would be postponed until additional
financing was obtained and the Company would pursue financing for certain asset
purchases which were not originally anticipated to be financed.
The Company believes that its current cash, cash equivalents and marketable
securities, along with either obtaining additional amounts from financing
activities or implementing the initiatives described above, will allow the
Company to fund its operations through the end of the first quarter of 2001. The
Company also believes that access to capital in 2001 and future periods will be
necessary to continue further expansion into additional markets. The Company's
future financing requirements will depend upon many factors, including the
successful acceptance of its products and services into new markets, expansion
of its marketing efforts, the Company's results of operations and the status of
its competitor's success in new markets. The Company believes that it will
require substantial amounts of additional capital over the next several years
and anticipates that this capital will be derived from a mix of strategic
partnering arrangements or public offerings and private placements of debt or
equity securities or both. There can be no assurance, however, that the Company
will obtain additional funding to fund its operations and capital expenditures.
Market and Interest Rate Risk
To date, Streamline.com has not utilized derivative financial instruments or
derivative commodity instruments. Streamline.com invests its cash in high
quality (i.e.-A1/P1), short term commercial paper, corporate bonds, money market
funds and United States government
16
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
securities, which are subject to minimal credit, market, and interest rate risk,
and have no debt. Due to its short-term duration, the fair value of the
Company's cash and investment portfolio at January 1, 2000 approximated carrying
value. Interest rate risk was estimated as the potential decrease in fair value
resulting from a hypothetical 10% increase in interest rates for issues
contained in the investment portfolio. The resulting hypothetical fair value was
not materially different from the year-end carrying value. Therefore,
Streamline.com believes the market and interest rate risks associated with these
financial instruments are not material.
Acquisitions
In 1996, Streamline.com incorporated its subsidiary Streamline Mid-Atlantic,
Inc., for the purpose of acquiring substantially all of the assets of Shopping
Alternatives, Inc., a consumer direct company based in the Washington, D.C.
area. In 1997 Streamline Mid-Atlantic sold approximately 45% of its common stock
to third parties. In November 1998, Streamline.com acquired the outstanding
minority interest in Streamline Mid-Atlantic and it once again became a wholly
owned subsidiary. In connection with these transactions, Streamline.com recorded
$1.3 million of goodwill which is being amortized on a straight-line basis over
a five-year term.
On October 18, 1999, Streamline.com entered into a definitive agreement to
acquire Beacon Home Direct, Inc. d/b/a Scotty's Home Market, a grocery home
delivery company located in the Chicago, Illinois area. The company completed
the transaction, which has been accounted for as a pooling of interests, on
January 5, 2000. The Company issued approximately 3.7 million shares of its
common stock in exchange for all outstanding shares of Scotty's. Additionally,
outstanding warrants and options to acquire Scotty's common stock were converted
into warrants and options to acquire a total of approximately 598,000 shares of
Streamline.com common stock. Approximately $1.3 million of merger-related costs
will be expensed in the first quarter of 2000.
Year 2000 Compliance
Streamline.com has experienced no year 2000 adverse effects on its internal
systems or any involved in its supply chain, including purchasing, distribution,
sales and accounting. Also, no errors were found related to date processing
before or after January 1, 2000, including treatment of year 2000 as a leap
year. Streamline.com will continue to monitor its hardware, software and
imbedded systems as they are added or modified.
Inflation and Seasonality
While inflation or deflation has not had, and Streamline.com does not expect it
to have, a material impact upon operating results, there can be no assurance
that Streamline.com.'s business will not be affected by inflation or deflation
in the future. Streamline.com experiences seasonal fluctuations due to various
market conditions with average revenue per order declining slightly in the
second and third quarters.
Factors that May Affect Future Results
This annual report contains forward-looking statements that involve risks and
uncertainties. Any statement (including statements to the effect that
Streamline.com "believes", "expects", "anticipates", "plans" and similar
expressions) that are not statements relating to historical matters should be
considered forward-looking statements. Our actual results may differ materially
from the results discussed in the forward looking statements as a result of
numerous important factors, including those discussed below.
Streamline.com Operates in a Highly Competitive Market Streamline.com competes
in a highly competitive marketplace with a variety of traditional retailers,
consumer direct companies and other delivery services. In the geographic markets
we are in or expect to be in within the next 12 to 18 months we compete or
expect to compete directly with other consumer direct retailers that have
similar services, pricing strategies and product selections. Some of our current
and potential competitors are larger than we are and have substantially greater
financial resources. It is possible that increased competition or improved
performance by our competitors may reduce our market share or adversely affect
our business and financial performance in other ways.
Our Success Depends on Our Ability to Open New Consumer Resource Centers An
important part of our business strategy is to aggressively increase the number
of CRC's and the number of customers served out of new and existing CRC's. For
this strategy to be
17
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
successful we need to successfully market to and acquire customers, identify and
lease new sites for CRC's, hire and train employees and adapt our management and
operational systems to meet the needs of our expanded operations. These tasks
may be difficult to accomplish and if we are unable to accomplish any of these
tasks our future revenue could be materially adversely affected.
Our Operating Results May Vary from Quarter to Quarter Our operating results
have fluctuated from quarter to quarter in the past, and we expect that they
will continue to do so in the future. Our revenues may not continue at rates
similar to the rates reported in recent periods, and our operating results may
fall short of either a prior fiscal period or investor's expectations. Factors
that could cause these quarterly fluctuations include the following:
o customer demand being lower than anticipated;
o seasonality (we typically experience lower average order sizes in
the second and third quarters);
o one-time charges associated with acquisitions;
o the level of marketing and advertising expenses associated with
acquiring new customers; and
o the number of new CRCs opened (pre-opening expenses are expensed as
incurred and newer CRCs have higher operating losses than more
mature CRCs).
A significant portion of our operating expenses, such as rent expense and
employee salaries, does not vary directly with revenue and is difficult to
adjust in the short term. As a result, if sales in a particular quarter are
below our expectations for that quarter, Streamline.com could not
proportionately reduce operating expenses for that quarter, and therefore a
revenue shortfall would have a disproportionate effect on our expected net loss
for the quarter.
The market price of our common stock is based in large part on professional
securities analysts' expectations that our business will continue to grow and
that Streamline.com will achieve certain revenue levels. If our financial
performance in a particular quarter does not meet the expectations of securities
analysts, this may adversely affect the views of those securities analysts
concerning our growth potential and future financial performance. If the
securities analysts that regularly follow us lower their ratings or lower their
projections for our future growth and financial performance, the market price of
our stock is likely to drop significantly. In addition, in those circumstances
the decrease in the stock price would probably be disproportionate to the
shortfall in our financial performance.
Rapid Growth Could Strain Our Operations Streamline.com has experienced rapid
growth in orders, revenues, and number of employees in the past several years.
This growth has placed significant demands on our management and operational
systems. If we are not successful in continually upgrading our operational and
financial systems, expanding our management team and increasing and effectively
managing our employee bases this growth is likely to result in operational
inefficiencies and ineffective management of our business and employees, which
in turn will adversely affect our business and financial performance.
The Terms and Timing of Future Financings are Uncertain In order to continue an
aggressive expansion plan, Streamline.com will require additional sources of
financing. Also, it is possible that Streamline.com will require additional
sources of financing earlier than anticipated as a result of unexpected cash
needs or opportunities, expanded growth strategy or disappointing operating
results. Additional funds may not be available on satisfactory terms when
needed, whether in the next twelve months or thereafter. If funds are not
available on a timely basis, the company will have to slow its planned expansion
and customer growth which in turn would negatively impact our ability to meet
the financial projections of securities analysts and could result in a negative
impact to our stock price.
18
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Streamline.com, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and
comprehensive loss and of cash flows present fairly, in all material respects,
the financial position of Streamline.com, Inc. and its subsidiary at December
31, 1998 and January 1, 2000, and the results of their operations and their cash
flows for each of the three years in the period ended January 1, 2000, in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 2000
19
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, January 1,
1998 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 12,593 $ 14,323
Marketable securities -- 20,746
Accounts receivable, net of allowance for doubtful accounts of none
at December 31, 1998 and $88 at January 1, 2000 88 424
Inventory 324 811
Prepaid expenses and other current assets 149 1,148
---------------------------
Total current assets 13,154 37,452
Property and equipment, net 3,663 8,775
Purchased and capitalized software, net 2,025 3,226
Goodwill, net of accumulated amortization 992 732
Other assets, net 232 729
---------------------------
Total assets $ 20,066 $ 50,914
===========================
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity
Current liabilities:
Capital lease obligations $ 236 $ 957
Accounts payable 447 2,812
Accrued expenses 409 754
---------------------------
Total current liabilities 1,092 4,523
---------------------------
Long-term portion of capital lease obligations 381 2,075
Commitments and contingencies (Note 12)
Redeemable convertible preferred stock, ($1.00 par value);
Authorized: 680,000 at December 31, 1998 and January 1, 2000 -- --
Issued and outstanding: 368,570 shares issued and outstanding at December 31,1998
and none issued and outstanding at January 1, 2000 37,186 --
Stockholders' (deficit) equity:
Preferred stock, $.01 par value; none authorized or outstanding at December 31, 1998
and 5,000,000 authorized and none outstanding at January 1, 2000 -- --
Common stock, $.01 par value; authorized: 22,700,000 at December 31, 1998
and 50,000,000 at January 1, 2000 -- --
Issued and outstanding; 3,699,539 shares issued and 3,665,539 outstanding
at December 31, 1998 and 18,432,796 issued 18,398,796 outstanding
at January 1, 2000 37 184
Additional paid-in capital 5,060 87,327
Treasury stock, at cost: 34,000 shares at December 31, 1998 and January 1, 2000 (238) (238)
Accumulated other comprehensive loss -- (8)
Accumulated deficit (23,452) (42,949)
---------------------------
Total stockholders' (deficit) equity (18,593) 44,316
---------------------------
Total liabilities, redeemable convertible preferred stock and stockholders' (deficit) equity $ 20,066 $ 50,914
===========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
Consolidated Statements of Operations
For the Years Ended December 31, 1997 and 1998 and January 1, 2000
<TABLE>
<CAPTION>
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
Revenue:
<S> <C> <C> <C>
Product and service revenue, net $ 1,815 $ 6,026 $ 13,162
Subscription fees 98 391 1,017
Advertising, research and marketing fees 721 529 1,201
------------------------------------------------------------
Total revenue 2,634 6,946 15,380
------------------------------------------------------------
Operating expenses:
Cost of revenue 2,098 4,992 10,624
Fulfillment center operations 2,769 4,013 9,058
Sales and marketing 1,428 1,479 4,987
Technology systems and development 1,673 3,002 3,765
General and administrative 3,166 3,897 7,599
------------------------------------------------------------
Total operating expenses 11,134 17,383 36,033
------------------------------------------------------------
Loss from operations (8,500) (10,437) (20,653)
Other income (expense):
Interest income 58 240 1,352
Interest expense (50) (569) (113)
Other (87) (1) (83)
------------------------------------------------------------
Total other income (expense), net (79) (330) 1,156
------------------------------------------------------------
Loss before minority interest and extraordinary item (8,579) (10,767) (19,497)
Minority interest in net loss of consolidated subsidiary 265 138 --
------------------------------------------------------------
Loss before extraordinary item (8,314) (10,629) (19,497)
Extraordinary item - loss on early redemption of debt -- 744 --
------------------------------------------------------------
Net loss $ (8,314) $ (11,373) $ (19,497)
============================================================
Dividends on preferred stock 157 329 549
Net loss attributable to common stockholders $ (8,471) $ (11,702) $ (20,046)
============================================================
Basic and diluted net loss per common share $ (2.47) $ (3.32) $ (1.74)
Shares used in computing basic and diluted net loss
per common share 3,424,035 3,522,458 11,545,102
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
Consolidated Statements of Stockholders' Equity (Deficit)
and Comprehensive Loss
For the Years Ended December 31, 1997 and 1998 and January 1, 2000
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Loss Total
Common Stock Additional Unrealized loss stockholders'
$0.01 par paid-in Treasury on Marketable Accumulated equity
Shares value capital stock Securities deficit (deficit)
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,284,625 $ 33 $ 1,553 $ (3,765) $ (2,179)
Sale of common stock 163,857 1 1,146 1,147
Dividends on preferred stock (157) (157)
Issuance of warrants for the purchase of
common stock in exchange for goods
and services 738 738
Options exercised 77,550 1 89 90
Repurchase of common stock
(29,000 shares) $(203) (203)
Change in interest in consolidated
subsidiary 480 480
Net loss (8,314) (8,314)
-------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,526,032 35 3,849 (203) (12,079) (8,398)
Dividends on preferred stock (329) (329)
Issuance of warrants in connection
with notes payable 525 525
Reduction in value of warrants granted in
1997 in exchange for goods and services (67) (67)
Issuance of common stock and warrants for
the purchase of common stock in
exchange for goods and services 12,500 -- 516 516
Options exercised 34,583 1 61 62
Common stock issued to acquire
minority interest 126,424 1 505 506
Treasury stock acquired in connection
with forgiveness of notes receivable
(5,000 shares) (35) (35)
Net loss (11,373) (11,373)
-------------------------------------------------------------------------------------------
Balance, December 31, 1998 3,699,539 37 5,060 (238) (23,452) (18,593)
Dividends on preferred stock (549) (549)
Issuance of warrants in connection
with financing commitment 472 472
Reduction in deferred financing costs
related to recission of warrants in
connection with financing commitment (387) (387)
Issuance of common stock 4,998,482 50 49,934 49,984
Stock issuance costs (4,992) (4,992)
Conversion of preferred stock 9,673,109 97 37,638 37,735
Options and warrants exercised 61,666 -- 151 151
Comprehensive loss:
Unrealized loss on marketable securities $(8)
Net loss (19,497)
Total comprehensive loss (19,505)
-------------------------------------------------------------------------------------------
Balance, January 1, 2000 18,432,796 $184 $87,327 $(238) $(8) $(42,949) $ 44,316
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1998 and January 1, 2000
<TABLE>
<CAPTION>
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,314) $(11,373) $(19,497)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 674 1,532 2,700
Amortization of discount on notes payable -- 525 --
Loss on disposal of fixed assets 86 120 --
Amortization of goodwill and other assets 152 257 345
Bad debt expense -- 7 142
Issuance of warrants for the purchase of common stock in
exchange for consulting services 330 447 --
Minority interest in net loss of consolidated subsidiary (265) (138) --
Changes in assets and liabilities:
Accounts receivable (68) (18) (478)
Inventory (79) (69) (487)
Prepaid expenses and other current assets (236) 226 (999)
Other assets -- (183) (497)
Accounts payable 600 (684) 2,365
Accrued expenses 429 (86) 345
---------------------------------------
Net cash used in operating activities (6,691) (9,437) (16,061)
---------------------------------------
Cash flows from investing activities:
Purchases of marketable securities -- -- (29,867)
Proceeds from sale of marketable securities -- -- 9,113
Purchases of property and equipment (1,450) (833) (3,596)
Additions to purchased and capitalized software (1,386) (1,238) (2,491)
---------------------------------------
Net cash used in investing activities (2,836) (2,071) (26,841)
---------------------------------------
Cash flows from financing activities:
Proceeds from sale of common stock 1,147 -- 49,984
Proceeds from sale of common stock of subsidiary 400 -- --
Proceeds from sale of preferred stock 9,000 22,857 --
Proceeds from the exercise of stock options and warrants 90 62 151
Stock issuance costs -- -- (4,992)
Purchases of treasury stock (203) -- --
Dividend payments on preferred stock (360) -- --
Issuance of notes receivable -- (35) --
Proceeds from notes payable-related party -- 600 --
Payments on notes payable-related party -- (600) --
Proceeds from notes payable -- 7,000 --
Payments on notes payable -- (7,000) --
Principal payments on capital lease obligations (106) (229) (511)
---------------------------------------
Net cash provided by financing activities 9,968 22,655 44,632
---------------------------------------
Net increase in cash and cash equivalents $ 441 $ 11,147 $ 1,730
Cash and cash equivalents, beginning of year 1,005 1,446 12,593
---------------------------------------
Cash and cash equivalents, end of year $ 1,446 $ 12,593 $ 14,323
=======================================
Supplemental information:
Cash paid for interest $ 47 $ 495 $ 113
Non-cash financing and investing transactions:
Assets acquired with capital lease obligations $ 267 $ 315 $ 2,926
Issuance of subsidiary's stock and warrants in connection with acquisition (Note 4) 485 -- --
Assumption of liabilities in connection with acquisition (Note 4) 370 -- --
Issuance of common stock in connection with purchase of minority interest (Note 4) -- 506 --
Issuance and measurement of warrants in connection with capitalized assets (Note 10) 408 (34) --
Issuance of warrants in connection with debt (Note 6) -- 525 --
Issuance of common stock for services provided -- 35 --
Common stock received in consideration of note receivable (Note 6) -- 35 --
Dividends accrued on preferred stock (Note 9) 157 329 549
Conversion of preferred stock into common stock -- -- 37,735
Issuance of warrants in connection with financing commitment -- -- 472
Reduction in deferred financing costs related to recission of warrants in
connection with financing commitment -- -- (387)
Unrealized loss on marketable securities -- -- (8)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
Notes to Consolidated Financial Statements
In thousands, except share and per share data
1. Description of Business
Streamline.com, Inc. ("Streamline.com" or the "Company") was incorporated in the
state of Delaware in 1993 and provides Internet-based ordering and home delivery
of a wide range of goods and services to consumers. The Company seeks to
simplify the shopping chores of busy suburban families who place a high value on
their time and demand service excellence. The Company consolidates products and
services currently offered by various suppliers into a single weekly delivery to
its consumers, thus minimizing their need to make frequent trips to multiple
physical stores. During 1999, the Company provided its products and services
from two service centers in the greater Boston and Washington, DC suburbs that
it intends to replicate in other markets nationwide.
Additionally, the Company has working relationships with various consumer
packaged goods companies to perform market research on consumer purchasing
behavior.
The Company has incurred cumulative losses through January 1, 2000 of
approximately $42.9 million and continues to have recurring operating losses and
negative cash flows from operating activities. The Company expects to incur
additional losses and will require additional financing as it expands its
service into new and existing markets.
The Company's plans for 2000 are based upon an aggressive expansion strategy
including the introduction of several new facilities and the acquisition of a
significant number of new customers by year end. In addition, the 2000 plan
includes funding the operating losses of a Chicago fulfillment center which was
acquired in connection with the Company's merger with Beacon Home Direct, Inc.,
d/b/a "Scotty's" Home Market, on January 5, 2000. In order to implement the 2000
plan, the Company will need additional financing and has engaged an investment
banker to assist in securing additional private funding which the Company
expects to receive by the end of the second fiscal quarter.
In the event the Company is unable to secure additional financing, an
alternative plan has been developed to significantly reduce cash expenditures
including delaying the capital expenditure costs and pre-opening expenses for
the planned new facilities. In addition, the Company would significantly reduce
marketing expenditures, reduce corporate headcount costs including all incentive
compensation and reduce consulting and other miscellaneous spending.
Furthermore, most corporate capital projects would be postponed until additional
financing was obtained and the Company would pursue financing for certain asset
purchases which were not originally anticipated to be financed.
The Company believes that its current cash, cash equivalents and marketable
securities, along with either obtaining additional amounts from financing
activities or implementing the initiatives described above, will allow the
Company to fund its operations through the end of the first quarter of 2001. The
Company also believes that access to capital in 2001 and future periods will be
necessary to continue further expansion into additional markets. The Company's
future financing requirements will depend upon many factors, including the
successful acceptance of its products and services into new markets, expansion
of its marketing efforts, the Company's results of operations and the status of
its competitor's success in new markets. The Company believes that it will
require substantial amounts of additional capital over the next several years
and anticipates that this capital will be derived from a mix of strategic
partnering arrangements or public offering and private placements of debt or
equity securities or both. There can be no assurance, however, that the Company
will obtain additional funding to fund its operations and capital expenditures.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. In 1998, the Company purchased the remaining
minority interest in its subsidiary (see Note 4). All significant intercompany
transactions have been eliminated.
Change in Year-End
As of October 2, 1999, the Company began reporting its earnings on a retail
calendar, using four 13-week quarters. The Company's year-end will be on the
Saturday closest to the 31st day of December. This change would not have had a
material impact on prior reported results.
24
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
Revenue Recognition
Product and service revenue is recognized upon delivery of goods and services to
the customer. Advertising, research and marketing fees are recognized over the
life of the contract or as the services are performed. Subscription revenues are
billed and recognized monthly.
Customer Acquisition Costs and Pre-opening Costs
Customer acquisition costs and pre-opening costs are expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less at the time of purchase to be cash equivalents.
The Company invests its excess cash in money market funds and marketable
securities that are subject to minimal credit and market risk. Cash equivalents
at December 31, 1998 and January 1, 2000 included approximately $12,256 and
$1,636, respectively, in money market funds.
Marketable Securities
Marketable securities include high-grade commercial paper and corporate bonds.
Debt and equity securities are classified as available-for-sale to support
current operations or to take advantage of other investment opportunities. These
securities are stated at cost plus accrued interest which approximates fair
market value and all mature within one year. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization and accretion as well as interest are included in
interest income. The Company's investments in debt and equity securities are
diversified among high-credit quality securities in accordance with the
Company's investment policy. Securities available-for-sale are carried at fair
value, with the unrealized gains and losses reported as a separate component of
stockholders' equity and comprehensive loss. The Company has had no investments
that qualify as trading. For the purpose of computing realized gains and losses,
cost is identified on a specific identification basis.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives of three to seven years using the straight-line method.
Assets held under capital leases are amortized over the shorter of the lease
life or the estimated useful life of the asset. Repairs and maintenance costs
are expensed as incurred. Upon retirement or sale, the cost of the assets
disposed and the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the results of operations.
Purchased Software, Capitalized Software and Technology Systems and Development
Purchased third party software and related implementation costs are recorded at
cost and are amortized over their estimated useful lives, typically three years
using the straight-line method. Internal and external costs incurred related to
the application development stage of internal use software are capitalized and
amortized over their estimated useful lives, typically three years using the
straight-line method. Amortization expense related to purchased and capitalized
software is included in technology systems and development expense.
Technology development costs are charged to technology systems and development
expense as incurred. Technology development costs include internal and external
costs incurred in the development and enhancement of software used internally or
used in connection with services provided by the Company that do not otherwise
qualify for capitalization, the costs of maintenance and minor enhancements and
the costs associated with maintaining and supporting internal information
systems.
The Company capitalized approximately $1,238 and $2,491 for purchased and
capitalized software for the years ended December 31, 1998 and January 1, 2000,
respectively. Amortization expense for purchased and capitalized software was
approximately $189, $708, and $1,290 for years ended December 31, 1997 and 1998,
and January 1, 2000, respectively.
25
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
Goodwill
Goodwill is being amortized on a straight-line basis over a five-year term. The
Company periodically evaluates the possible impairment of long-lived assets,
including goodwill, whenever events or changes in circumstances indicate that
the carrying value of the assets may not be recoverable. If such an event
occurred, the Company would project the future undiscounted cash flows expected
to result from the asset. If such projections indicated that the carrying value
would not be recoverable, the Company would reduce the carrying value of the
asset by the estimated excess of such value over future projected discounted
cash flows. Accumulated amortization of goodwill as of December 31, 1998 and
January 1, 2000 was approximately $308 and $569, respectively.
Year 2000 Costs
Costs of modifying computer software to ensure Year 2000 compliance are expensed
as incurred.
Advertising
The Company expenses costs related to advertising as incurred. Advertising
expense was approximately $389, $557 and $2,998, for the years ended December
31, 1997 and 1998, and January 1, 2000, respectively.
Inventory
The Company values all of its inventories at the lower of cost or market value.
Cost is determined on an average cost basis. All inventory items represent
finished goods.
Income Taxes
The Company provides for income taxes under the liability method that requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred tax liabilities and assets are determined based on the
difference between financial statement and tax bases of assets and liabilities,
as measured by the current tax rates. Under this method, a valuation allowance
is required against net deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
Management periodically evaluates the recoverability of deferred tax assets and
the level of the adequacy of the valuation allowance. At such time as it is
determined that it is more likely than not that deferred tax assets are
realizable, the valuation allowance will be appropriately reduced.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts with fixed exercise prices at least equal to the fair market
value of the Company's common stock at the date of grant. The Company has
adopted the disclosure only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," (Note
10). Stock-based awards, including warrants to non-employees, are accounted for
at their fair value.
Risks and Uncertainties and Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The Company has a limited operating history (also see Note 1), has never
achieved profitability and is therefore subject to risks and uncertainties such
as the uncertain nature of the markets in which the Company competes and the
risk that the Company may be unable to manage any future growth successfully.
26
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
In addition, the Company is subject to the risks encountered by companies
relying on the continued growth of on-line commerce and Internet infrastructure.
The risks include the use of the Internet as viable commercial marketplace and
the potentially inadequate development of the necessary network infrastructure.
Fair Value of Financial Instruments and Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash, cash equivalents, and marketable
securities. As of December 31, 1998 and January 1, 2000, these financial
instruments carrying values approximated fair value. The Company primarily
invests its excess cash with high credit quality financial institutions
including primarily commercial paper and corporate bonds. The Company has not
experienced any significant losses on its cash, cash equivalents or marketable
securities.
Net Loss Per Share
The Company computes basic and diluted net loss per share in accordance with
SFAS No. 128, "Earnings Per Share." Basic net loss per share is computed by
dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding for the period. Diluted loss per
share does not differ from basic loss per share since potential common shares
from conversion of preferred stock, stock options and warrants are antidilutive
for all periods presented.
Basic and diluted loss per share were calculated as follows:
<TABLE>
<CAPTION>
1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Loss before extraordinary item $ (8,314) $ (10,629) $ (19,497)
Dividends on preferred stock 157 329 549
---------------------------------------------------------------
Loss attributable to common stockholders
before extraordinary item (8,471) (10,958) (20,046)
Extraordinary item -- 744 --
---------------------------------------------------------------
Net loss attributable to common stockholders $ (8,471) $ (11,702) $ (20,046)
===============================================================
Denominator:
Weighted average common shares
outstanding 3,424,035 3,522,458 11,545,102
Basic and diluted net loss per common share:
Loss per common share before extraordinary item $ (2.47) $ (3.11) $ (1.74)
Extraordinary item -- (0.21) --
---------------------------------------------------------------
Net loss per common share $ (2.47) $ (3.32) $ (1.74)
===============================================================
</TABLE>
Outstanding options of 726,750, 593,000 and 2,132,746, as of December 31, 1997
and 1998 and January 1, 2000, respectively, were not included in the diluted
loss per share computation because their effect would be antidilutive.
Outstanding warrants of 435,714, 788,714 and 753,714 as of December 31, 1997 and
1998 and January 1, 2000, respectively, were not included in the diluted loss
per share calculation because their effect would be antidilutive. Through
February 9, 2000, the company granted 377,300 options under the company stock
option plans. All grants were issued at exercise prices equal to the fair market
value of the common stock.
Comprehensive Income (Loss)
The Company's comprehensive loss is the same as the net loss presented for the
years ended December 31, 1997 and 1998. The comprehensive loss for the year
ended January 1, 2000 has been disclosed on the statement of stockholders'
equity and comprehensive loss.
27
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
3. Marketable Securities
The following is a summary of the marketable securities at January 1, 2000
classified as current assets (in thousands):
<TABLE>
<CAPTION>
Unrealized Unrealized Fair market
Cost gains losses value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale securities:
Corporate bonds $ 11,505 $-- $(10) $ 11,495
Commercial paper 9,249 2 -- 9,251
----------------------------------------------------
$ 20,754 $ 2 $(10) $ 20,746
----------------------------------------------------
</TABLE>
Gross realized gains and losses on marketable securities were not significant.
The Company did not have any marketable securities at December 31, 1998.
4. Subsidiary and Minority Interest
The Company established Streamline Mid-Atlantic, Inc. ("Mid-Atlantic") as a
wholly owned subsidiary in February 1997, receiving 2.2 million common shares of
Mid-Atlantic in exchange for $22 cash.
In February 1997, Mid-Atlantic issued 800,000 shares of common stock in a
private offering to third parties, in exchange for net proceeds of $400.
Mid-Atlantic acquired substantially all of the assets and liabilities of
Shopping Alternatives, Inc., a provider of home grocery services. In the same
month, stockholders of Shopping Alternatives received 970,000 shares of
Mid-Atlantic common stock plus warrants to purchase 30,000 shares of
Mid-Atlantic common stock. The value ascribed to the warrants was nominal. In
accordance with the purchase method of accounting, the purchase price of
approximately $855, which includes approximately $370 of liabilities assumed,
was allocated first to the fair value of the net assets acquired from Shopping
Alternatives. The excess of the purchase price over the fair value of the
acquired assets of approximately $794 was recorded by Mid-Atlantic as acquired
goodwill, in the absence of other intangibles, to be amortized on a
straight-line basis over a period of five years. The accompanying financial
statements for the year ended December 31, 1997 reflect the resultant change in
interest of the Company's ownership of Mid-Atlantic from 100% to approximately
55%.
In November 1998, the Company acquired the outstanding minority ownership
interest of Mid-Atlantic in a single transaction in which minority stockholders
of Mid-Atlantic received 126,424 shares of the Company's common stock, $0.01 par
value, having a fair value of approximately $506 at the date of acquisition. In
accordance with the purchase method of accounting, the Company allocated the
purchase price first to the fair value of the net assets of Mid-Atlantic, as of
the date of the transaction. The resulting total goodwill associated with
Mid-Atlantic, representing the excess of the purchase price over the fair value
of the acquired assets of approximately $1,300 at December 31, 1998, is being
amortized on a straight-line basis over a period of five years. Unaudited pro
forma combined results as if the acquisition had occurred at the beginning of
either of the fiscal years are not materially different than the results
presented.
28
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Useful lives
in years 1998 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment 3-5 $ 822 $ 1,681
Equipment, furniture and fixtures 5-10 2,071 4,621
Vehicles 5 589 1,633
Leasehold improvements 5-10 1,631 3,700
----------------------
5,113 11,635
Accumulated depreciation and amortization (1,450) (2,860)
----------------------
$ 3,663 $ 8,775
======================
</TABLE>
At December 31, 1998 and January 1, 2000, the costs of fixed assets held under
capital leases and included above amounted to approximately $1,029 and $3,918,
respectively, and accumulated amortization related to such assets amounted to
approximately $338 and $423, respectively.
6. Debt
In April 1998, the Company received proceeds of $7,000 in connection with the
issuance of Senior Discount Notes ("Discount Notes"). The Company issued 777
units each consisting of a $10 aggregate principal amount of Discount Notes and
546.88 warrants to purchase common stock. The $7,770 face amount of the Discount
Notes is due April 15, 2001. The Discount Notes bear interest initially in the
form of accretion in the principal amount outstanding up to the face amount at
the rate of 11% per annum until April 15, 1999. Thereafter, the Discount Notes
bear interest on the face amount at the rate of 12% per annum with interest
payable semiannually until maturity.
In conjunction with the issuance of the Discount Notes, the Company also issued
warrants for the purchase of up to a total of 425,000 shares of the Company's
common stock. Warrants to purchase 225,000 shares of common stock at $7.00 per
share vested immediately. The remaining 200,000 warrants vest periodically at
varying exercise prices until 2001 based upon the Company obtaining certain
amounts of financing. All of these warrants expire upon the earlier of April 15,
2005 or five years after a public offering by the Company raising at least
$25,000. The Company recorded approximately $525 of additional paid-in capital
for the fair value of the warrants on the issuance date as an additional
discount associated with the Discount Notes.
On September 18, 1998, the Company redeemed all of the Discount Notes at a price
of $7,000 plus approximately $334 of interest and $257 for a call premium with
the proceeds from the issuance of the Company's Series D Preferred Stock (Note
8). In addition, the Company modified the terms of the warrants issued in
connection with this debt such that the remaining unvested warrants to purchase
200,000 shares of the common stock expired immediately in exchange for the
issuance of 5,000 shares of common stock for $0.1. The redemption resulted in
the Company recording an extraordinary loss on the extinguishment of debt of
approximately $744 including approximately $257 for the call premium,
approximately $452 for the unamortized discount value associated with the
warrants and approximately $35 for the issuance of the common shares and the
remaining deferred financing costs.
7. Related Party Transactions
During 1997, the Company paid consulting fees under an agreement with a
marketing firm, the Chief Executive Officer of which is a director of the
Company. Total fees paid under this agreement during 1997 were approximately
$338. Additionally during 1997, the Company issued warrants valued at $25 to
this firm for the purchase of 50,000 shares of the Company's common stock at an
exercise price of $2.04 per share with an expiration date in 2001.
29
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
During 1997, the Company repurchased 11,500 shares of its common stock from its
Chairman and Chief Executive Officer at a purchase price of $7.00 per share,
which the Company's Board of Directors determined to be the fair value of those
shares at the date of repurchase.
During 1997, 1998, and 1999, the Company paid fees for technology development
and consulting under an agreement with a firm, the Chief Executive Officer of
which is a current director and former officer of the Company. Fees paid by the
Company under this agreement totaled approximately $1,250, $1,676, and $1,218 in
1997, 1998, and 1999, respectively. In addition, during 1997 the Company issued
warrants valued at approximately $330 to this firm for the purchase of 50,000
shares of the Company's common stock at an exercise price of $2.04 per share
with an expiration date in 2007. During 1998, the Company issued additional
warrants valued at approximately $447 to this firm for the purchase of 100,000
shares of its common stock at an exercise price of $4.00 per share with an
expiration date in 2003. Costs associated with these transactions have been
recorded as additions to capitalized software of approximately $683 and $468 for
the years ended December 31, 1998 and January 1, 2000, respectively, and as
technology systems and development expense of $1,440 and $750 for the years
ended December 31, 1998 and January 1, 2000, respectively.
During 1998, the Company issued convertible subordinated notes payable in the
amount of $200 to two directors of the Company, and $400 to five stockholders of
the Company, which were redeemed during 1998 at par value plus accrued interest.
On April 13, 1999, the Company issued warrants valued at approximately $472 to a
significant investor for the purchase of 75,000 shares of the Company's common
stock at an exercise price of $7.00 per share, in connection with a financing
commitment. In June 1999, the stockholder agreed to rescind all of its rights
pursuant to this warrant, effective as of the closing of the initial public
offering. In connection with this recission, the Company reversed the remaining
unamortized deferred financing costs of approximately $387 at the time of the
initial public offering.
During 1999, the Company paid fees to a technology firm, which is also an
investor. Fees paid by the Company totaled approximately $77.
The Company has capital equipment lease arrangements with one of its
stockholders and its affiliated entities. The Company paid approximately $69,
$198 and $561 in the years ended December 31, 1997 and 1998, and January 1,
2000, respectively under these capital lease arrangements. As of December 31,
1998 and January 1, 2000, amounts due to these related parties are $458 and
$716, respectively and have been included as capital lease obligations on the
balance sheet.
All warrant activity described in Note 11 during the years ended December 31,
1997 and 1998, and January 1, 2000 was with stockholders of the Company.
30
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
8. Redeemable Convertible Preferred Stock
The following table reflects redeemable convertible preferred stock activity
from December 31, 1996 through January 1, 2000:
<TABLE>
<CAPTION>
Series A Series B Series C
---------------- ---------------- -----------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 50,000 $ 5,203 -- $ -- -- $ --
Shares of Series B issued -- -- 80,000 8,000 -- --
Shares of Series C issued -- -- -- -- 10,000 1,000
Accrual of Series A dividends -- 157 -- -- -- --
Payment of Series A dividends -- (360) -- -- -- --
-------------------------------------------------------------
Balance at December 31, 1997 50,000 5,000 80,000 8,000 10,000 1,000
Shares of Series D issued -- -- -- -- -- --
Accrual of Series D dividends -- -- -- -- -- --
-------------------------------------------------------------
Balance at December 31, 1998 50,000 5,000 80,000 8,000 10,000 1,000
Accrual of Series D dividends -- -- -- -- -- --
Conversion to common stock
in connection with initial
public offering (50,000) (5,000) (80,000) (8,000) (10,000) (1,000)
-------------------------------------------------------------
Balance at January 1, 2000 -- $ -- -- $ -- -- $ --
=============================================================
<CAPTION>
Series D Total
----------------- -----------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- 50,000 $ 5,203
Shares of Series B issued -- -- 80,000 8,000
Shares of Series C issued -- -- 10,000 1,000
Accrual of Series A dividends -- -- -- 157
Payment of Series A dividends -- -- -- (360)
--------------------------------------------
Balance at December 31, 1997 -- -- 140,000 14,000
Shares of Series D issued 228,570 22,857 228,570 22,857
Accrual of Series D dividends -- 329 -- 329
--------------------------------------------
Balance at December 31, 1998 228,570 23,186 368,570 37,186
Accrual of Series D dividends -- 549 -- 549
Conversion to common stock
in connection with initial
public offering (228,570) (23,735) (368,570) (37,735)
--------------------------------------------
Balance at January 1, 2000 -- $ -- -- $ --
============================================
</TABLE>
During 1997, the Company amended its certificate of incorporation to amend the
rights of the Series A redeemable cumulative convertible preferred stock
("Series A") and to create two new series of redeemable convertible preferred
stock, designated as Series B (the "Series B") and Series C (the "Series C").
The Company is authorized to issue up to 100,000 shares of each of these series
of preferred stock, and each series has a par value of $1.00 per share. These
series of preferred stock are not cumulative as to dividends. In connection with
the amendment, the Company made a cash payment of approximately $360
representing the total accrued dividends due to the holders of the Series A. In
addition, the Company issued 80,000 and 10,000 shares of Series B and Series C,
respectively, for gross proceeds of $8,000 and $1,000, respectively.
During 1998, the Company amended its certificate of incorporation to amend
certain terms of Series A, Series B and Series C and authorize the issuance of
up to 380,000 shares of preferred stock designated as Series D. In September
1998, the Company issued 228,570 shares of Series D at $100 per share resulting
in gross proceeds of $22,857.
All outstanding shares of redeemable convertible preferred stock were converted
into common stock upon the closing of the Company's initial public offering on
June 17, 1999. Shares of redeemable convertible preferred stock for all Series,
while outstanding, were subject to the following rights and privileges:
Redemption
The Company was required to redeem each series of preferred stock in the amount
of $100 per share plus accumulated and unpaid dividends in two equal annual
installments commencing on the fifth anniversary upon request by holders of at
least two-thirds of such series of preferred stock. Each holder of preferred
stock could elect immediate redemption upon the sale of substantially all of the
Company's capital stock or assets to a third party. Additionally, a holder of
Series D could elect redemption if the Company has violated certain covenants.
However, stockholders were not entitled to elect redemption if that holder or a
Director nominated by the holder voted its shares in favor of the sale. As of
December 31, 1998, future redemption requirements for the preferred stock were
$2,500, $7,000, $16,093, and $11,593 in the years ended December 31, 2001, 2002,
2003 and 2004 respectively, plus additional accrued dividends.
31
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
Liquidation
In the event of any liquidation, dissolution, or winding-up of the Company, the
holders of the Series D were entitled to a liquidation preference of up to $100
per share plus all accrued but unpaid dividends before any payments are made to
the holders of the Series A, Series B or Series C. After payments to the Series
D stockholders, the holders of the Series A, Series B or Series C were entitled
to receive a liquidation payment of $100 per share and any accumulated and
unpaid dividends. Any assets remaining after such liquidation payment to the
preferred stockholders would be available for distribution ratably to common
stockholders.
Dividends
The holders of Series D were entitled to cumulative dividend rights at a rate of
5% per annum of the Series D liquidation preference. The dividend rights would
be payable in cash, as an addition to the liquidation preference or an issuance
of Series D shares at the discretion of the Company or any combination of the
foregoing. Series D accumulated dividends were to be paid before dividends or
distributions were made to the holders of the Series A, Series B or Series C.
The Company would pay a dividend or distribution on the same terms and at the
same or equivalent rate on each share of Series A, Series B, Series C and Series
D whenever a dividend or distribution was declared or paid on any shares of the
common stock. At December 31, 1998, Series D stockholders were entitled to
cumulative dividends in arrears of approximately $329. Accrued dividends of $878
were converted to 218,387 shares of common stock in June 1999 in connection with
the Company's initial public offering.
Conversion
The number of shares of common stock into which the Series A, Series B, Series C
and Series D were convertible was determined by multiplying each share by the
quotient of $100 divided by the conversion price as follows: Series
A--approximately $2.04 per share; Series B and C--$7.00 per share; Series
D--$4.00 share. All unpaid dividends were to be paid upon conversion.
Each share of Series A, Series B and Series C was convertible into the Company's
common stock at the option of the holder at any time prior to redemption, or
would be automatically converted upon the closing of a public offering of the
Company's common stock resulting in a price of at least $8.00 per share and
gross proceeds of at least $25,000, subject to anti-dilution provisions.
Each share of Series D was convertible into the Company's common stock at the
option of the holder at any time after the earlier of a conversion event or
March 18, 2000. A conversion event includes any transaction that would be deemed
a liquidation, Mr. DeMello's ceasing to be an officer, director or consultant of
the Company, certain actions by the Company without a prior affirmative vote by
a majority of the Series D stockholders, a change in persons constituting the
majority of the board of directors or a material adverse change in the Company's
business. Each Series D share would be automatically converted upon the closing
of the first sale of a public offering resulting in at least $25,000 of gross
proceeds for at least $8.00 per share provided that an investment banker
delivers an opinion that deems the conversion is necessary to facilitate a
successful public offering, or upon a sale the shares of Series A, Series B,
Series C and Series D redeemable convertible preferred stock ("Preferred Stock")
and accrued dividends on the Series D Preferred Stock were converted into
9,673,109 shares of common stock.
Voting
Holders of Series A, Series B, Series C and Series D did not have voting rights
but holders of Series A and Series C, voting together, and holders of Series B,
voting separately, have the right to elect one director of the Company, or in
lieu thereof, one individual as an observer at all meetings of the Company's
board of directors. Holders of Series D had the right to elect one director of
the Company and one individual as an observer at all meetings of the Company's
board of directors. The Company was required to request the consent of the
Series D stockholders before engaging in certain activities such as the
modification of the rights of the Series D stockholders, a merger or
acquisition, the declaration of dividends for all capital stock and the issuance
of common stock at a price less than $7.00 per share and more than $4.00 per
share.
32
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
9. Stockholders' Equity
Common Stock and Preferred Stock
The holders of common stock are entitled to one vote for each share held at all
meetings of the stockholders. Dividends on common stock may be paid out of
lawfully available funds as and when determined by the board of directors,
subject to any preferential dividend rights of preferred shareholders. In April
1999, the Company's board of directors adopted, and the stockholders approved,
effective upon the closing of an initial public offering, an increase in the
authorized capital stock of the Company to 50,000,000 shares of common stock and
5,000,000 shares of preferred stock, each having a par value of $0.01 per share.
The board of directors is authorized, without further stockholder approval, to
fix or alter the relative rights, preferences, qualifications, limitations or
restrictions thereof, including any dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series.
Treasury Stock
During 1997, the Company repurchased 29,000 shares of its common stock from
certain employees and directors of the Company for a total of approximately
$203. During 1998, the Company received 5,000 shares of common stock as
consideration for payment of a $35 employee note receivable.
Stock Split
On April 8, 1999, the board of directors declared a 1-for-2 reverse stock split
of common stock. All common shares and per share amounts in the consolidated
financial statements and related footnotes have been restated to reflect the
effect of the reverse stock split for all periods presented.
Initial Public Offering
In June 1999, the Company completed an initial public offering of its common
stock (the "IPO"). A total of 4,998,482 shares of the Company's common stock
were sold at a price of $10.00 per share, including the exercise of the
underwriter's over allotment option in July 1999, generating gross offering
proceeds of approximately $50,000. After deducting approximately $5,000 in
underwriting discounts and other related expenses, the net proceeds to the
Company were approximately $45,000. Concurrent with the IPO, all of the shares
of Series A, Series B, Series C and Series D redeemable convertible preferred
stock ("Preferred Stock") and accrued dividends on the Series D Preferred Stock
were converted into 9,673,109 shares of Streamline's common stock.
10. Stock Option Plan and Employee Stock Purchase Plan
Stock Option Plans
On June 10, 1993, the Company adopted two stock option plans. The 1993 Employee
Option Plan ("Employee Plan") initially allowed for the granting of 202,750
shares of either statutory or non-statutory options as defined by Section 422 of
the Internal Revenue Code. As of December 31, 1998, the Company had authorized
1,500,000 shares to be issued in connection with the Employee Plan. In April
1999, the Company increased the number of authorized shares to be issued under
this plan to 2,500,000. As of December 31, 1998 and January 1, 2000, there were
approximately 882,500 and 316,000 shares available for future grants under the
Employee Plan, respectively.
The Director Option Plan ("Director Option Plan") allows for the granting of
shares of non-statutory options and is not intended to meet the requirements of
Internal Revenue Code Section 422. As of December 31, 1998, an aggregate of
125,000 shares of common stock had been reserved for issuance upon the exercise
of options available under the Director Option Plan. During 1999, the Company
increased the number of authorized shares to be issued under this plan to
400,000. As of December 31, 1998 and January 1, 2000, there were approximately
37,500 and 312,500 shares available for future grants under the Director Option
Plan, respectively.
33
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
Options are generally granted at a price established by the board of directors
to be not less than the fair market value of the stock on the date of grant. The
options vest at various rates over periods up to four years and expire up to ten
years from the grant date for the Employee Option Plan and five years from the
grant date for the Director Option Plan.
The Company has adopted the disclosure only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for stock options granted
at or above fair value. Had compensation cost been determined based on the fair
value at the grant dates for awards in 1997, 1998 and 1999 consistent with the
provisions of SFAS No. 123, the Company's pro forma net loss attributable to
common stockholders and pro forma basic and diluted net loss per common share
for fiscal 1997, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss attributable to common stockholder
As reported $(8,471) $(11,702) $(20,046)
Pro forma (8,554) (11,783) (21,261)
Basic and diluted net loss per common share
As reported $(2.47) $ (3.32) $ (1.74)
Pro forma (2.50) (3.35) (1.84)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for
grants through the date of the initial public offering June 18, 1999; no
volatility, no dividend yield, and risk free interest rate of 5.6% for 1997,
5.3% for 1998 and 5.1% for 1999. The following assumptions were used for grants
subsequent to the initial public offering; 90% volatility, no dividend yield,
and risk free interest rate of 6.0%. The expected lives for grants in 1997 and
1998 of the Employee and Directors' Plan were five and three years,
respectively. The expected lives for grants in 1999 of the plans are three
years. The weighted average fair value of options granted was $0.45, $0.14, and
$4.23 per share for the years ended December 31, 1997 and 1998 and January 1,
2000, respectively. All options granted during the years ended December 31, 1997
and 1998 were issued at exercise prices in excess of the fair market value of
the common stock. All options granted during the year ended January 1, 2000 were
issued at exercise prices equal to the fair market value of the common stock.
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants may be made each
year, future effects on reported pro forma net income or net loss may differ
from the above pro forma disclosures.
The following table summarizes the activity in the Company's option plans at
December 31, 1997 and 1998 and January 1, 2000, and changes during the periods
then ended:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- --------------------- --------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- ------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 450,500 $1.76 726,750 $2.84 593,000 $3.88
Granted 398,750 3.62 119,750 6.76 1,732,245 8.74
Exercised (77,550) 1.16 (34,583) 1.80 (26,667) 3.10
Forfeited (44,950) 1.80 (218,917) 2.30 (165,832) 8.71
-------------------------------------------------------------------
Outstanding at end of period 726,750 $2.84 593,000 $3.88 2,132,746 $7.46
===================================================================
Options exercisable at end
of period 162,250 $1.84 307,415 $2.80 564,620 $3.98
===================================================================
</TABLE>
34
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
The following table summarizes information about stock options outstanding at
January 1, 2000:
<TABLE>
<CAPTION>
Total Weighted
number average Number
Range of of options remaining of options
Exercise Price outstanding contractual life exercisable
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
$1.00 - 4.00 343,334 6.1 337,168
6.50 - 7.00 1,048,162 9.1 227,452
7.63 - 9.56 20,750 9.6 --
10.00 - 12.81 719,500 9.5 --
============================================
2,132,746 8.8 564,620
============================================
</TABLE>
Employee Stock Purchase Plan
In April 1999, the Company's board of directors and stockholders approved the
1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"). The Company has
reserved 250,000 shares of common stock for issuance under the 1999 Purchase
Plan. No shares were issued in 1999.
11. Common Stock Warrants
The following table summarizes the activity related to warrants at December 31,
1997 and 1998, and January 1, 2000 and changes during the periods then ended:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 50,000 $1.93 435,714 $5.28 788,714 $5.67
Granted 385,714 5.72 553,000 6.46 75,000 7.00
Exercised -- -- -- -- (35,000) 1.99
Forfeited -- -- (200,000) 7.00 (75,000) 7.00
-----------------------------------------------------------------
Outstanding at end of period 435,714 $5.28 788,714 $5.67 753,714 $5.67
=================================================================
Warrants exercisable at end
of period 193,929 $3.84 681,571 $5.46 753,714 $5.67
=================================================================
</TABLE>
The weighted average fair value of warrants granted during 1997, 1998, and 1999
estimated on the date of grant using the Black-Scholes option-pricing model was
$2.74, $1.82 and $6.29, respectively. The fair value was estimated using an
expected volatility of 50% in 1997 and 80% in 1998 and 1999, risk free rates of
5.8% to 6.3% in 1997, 4.1% to 5.5% in 1998, and 4.5% to 6.2% in 1999 and the
contractual term of the warrant.
35
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
The following table summarizes information about warrants outstanding at January
1, 2000:
<TABLE>
<CAPTION>
Total number Weighted
of warrants average
outstanding remaining
Exercise Price and exercisable contractual life
- ------------------------------------------------------------------
<S> <C> <C>
$1.80 15,000 1.0
2.04 100,000 4.6
4.00 100,000 4.0
7.00 538,714 3.1
-----------------------------------
753,714 3.4 years
-----------------------------------
</TABLE>
During 1997, the Company issued warrants for the purchase of a total of 385,714
shares of its common stock at exercise prices ranging from $2.04 - $7.00 per
share and expiration dates from 2001 through 2007. These warrants were
principally issued in lieu of cash consideration for services provided to the
Company. Certain of these warrants were issued with immediate vesting while some
of the warrants had vesting that was contingent on additional services being
provided. In 1997, in connection with the issuance of these warrants, the
Company recorded $330 of technology systems and development costs, $281 of
capitalized software and $77 of deferred financing costs based upon the
appraised value of the warrants at the date of grant. As of December 31, 1997,
approximately 214,500 of these warrants were subject to vesting upon certain
conditions and are subject to adjustment until the measurement date is reached.
In 1998, the remeasurement of these warrants results in the Company reducing
capitalized software recorded in 1997 by approximately $67. As of December 31,
1998 and January 1, 2000, 107,143 warrants granted in 1997 were subject to
vesting upon certain future events and no significant value has been ascribed to
these unvested warrants.
During 1998, the Company issued warrants for the purchase of a total of 553,000
shares of its common stock at exercise prices ranging from $4.00 - $7.00 per
share as described below.
Warrants for the purchase of 425,000 common shares were issued in connection
with the Discount Notes at an exercise price of $7.00 per share. These warrants
expire upon the earlier of April 15, 2005 or five years after a public offering
by the Company raising at least $25,000. In connection with the repayment of the
Discount Notes, the Company notified the terms of the warrants issued in
association with this debt such that the remaining unvested warrants to purchase
200,000 shares of the common stock expired immediately in exchange for the
issuance of 5,000 shares of common stock for $0.1. (See Note 6.)
In addition, the Company issued warrants for the purchase of a total of 100,000
shares of its common stock at an exercise price of $4.00 per share with an
expiration date in 2003 in exchange for services provided to the Company. (See
Note 7.)
The Company issued warrants for the purchase of 28,000 shares of common stock at
an exercise price of $7.00 per share which are all vested as of December 31,
1998. These warrants expire in 2001. These warrants were principally issued in
lieu of cash consideration for services provided to the Company. The Company
recorded approximately $33 to capitalized software for the fair value of the
warrants.
In April 1999, the Company issued warrants for the purchase of 75,000 shares of
common stock at an exercise price of $7.00 per share in connection with a
financing commitment by a current stockholder. The Company recorded
approximately $472 of deferred financing costs for the estimated fair value of
the warrant. In June 1999, the stockholder agreed to rescind all of its rights
pursuant to this warrant, effective as of the closing of the initial public
offering. In connection with this recission, the Company reversed the remaining
unamortized deferred financing costs of approximately $387 at the time of the
initial public offering.
36
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
12. Commitments and Contingencies
Lease Obligations
The Company leases its facilities and certain equipment under noncancelable
leases. Future minimum lease obligations at January 1, 2000 are as follows:
<TABLE>
<CAPTION>
Operating Capital
leases leases
- ------------------------------------------------------------------
<S> <C> <C>
2001 $ 1,930 $1,160
2002 1,963 1,049
2003 1,539 802
2004 1,515 269
2005 1,437 155
Thereafter 7,284 116
------- ------
Total future payments $15,668 3,551
======= ======
Less: amount representing interest 519
------
Present value of capital leases $3,032
======
</TABLE>
All capital lease obligations are fully collateralized by the equipment and are
at interest rates ranging from 4% to 20%.
Total rent expense for the years ended December 31, 1997 and 1998 and January 1,
2000 was approximately $639, $948, and $1,307, respectively.
13. Income Taxes
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------
<S> <C> <C> <C>
Deferred provision
Federal $(2,827) $(3,867) $(5,317)
State (521) (713) (1,644)
Change in valuation allowance 3,348 4,396 6,961
Other -- 184 --
-----------------------------------
Total provision $ -- $ -- $ --
===================================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets are
approximately $9,205 and $16,165 as full amount of its deferred tax assets.
As of January 1, 2000, the Company had federal net operating loss carryforwards
of approximately $39,994 and state net operating losses of approximately
$39,814. The federal and state net operating loss carryforwards begin to expire
in 2008 and 2000, respectively.
Under the provisions of the Internal Revenue Code, certain substantial changes
in the Company's ownership may have limited, or may limit in the future, the
amount of net operating loss carryforwards which could be utilized annually to
offset future taxable income and income tax liability. The amount of any annual
limitation is determined based upon the Company's value prior to an ownership
change.
37
<PAGE>
Notes to Consolidated Financial Statements (continued)
In thousands, except share and per share data
14. Retirement Savings Plan
In 1997, the Company adopted the Streamline 401(k) Plan (the "Plan") for its
employees, which has been qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted to contribute to the Plan through payroll
deductions within statutory limitations and subject to any limitations included
in the Plan. To date, the Company has made no contributions to the Plan.
15. Acquisition of Beacon Home Direct d/b/a Scotty's Home Market
On October 18, 1999, the Company signed a merger agreement with Beacon Home
Direct, Inc., d/b/a Scotty's Home Market. On January 5, 2000, the Company
acquired Scotty's, by merging it into the Company pursuant to the Agreement and
Plan of Merger and Reorganization, dated as of October 18, 1999 (the "Merger
Agreement"). The transaction was accounted for as a pooling of interests. The
Company issued approximately 3,710,000 shares of its common stock in exchange
for all of the common stock of Scotty's. Additionally, outstanding warrants and
options to acquire Scotty's common stock were converted into warrants and
options to acquire a total of approximately 598,000 shares of Streamline common
stock.
The following pro forma summary presents the consolidated results of operations
of the Company as if the acquisition of Scotty's had occurred during 1999 and as
of the beginning of the periods presented, after giving effect to certain
adjustments. These pro forma results are as of the beginning of the periods
presented.
<TABLE>
<CAPTION>
1997 1998 1999
- ------------------------------------------------------------------------------------------
(In thousands, except per share data, unaudited)
<S> <C> <C> <C>
Revenue $ 6,514 $ 12,528 $ 22,862
Net loss attributable to common shareholders (10,411) (15,462) (26,862)
Net loss per share $ (2.10) $ (2.69) $ (1.76)
</TABLE>
16. Subsequent Events
On January 5, 2000, the Company's shareholders approved an increase in the
number of authorized shares under the Employee Plan from 2,500,000 to 3,000,000
shares.
38
<PAGE>
Directors and Officers
Board of Directors
Timothy A. DeMello
Chairman of the Board and Chief Executive Officer
Streamline.com
Edward Albertian
President and Chief Operating Officer
Streamline.com
Mark Cohn
Chairman and Chief Executive Officer
Damark International
Charles C. Conaway
President and Chief Operating Officer
CVS Corporation
John P. Fitzsimons
Senior Vice President
Reliance Insurance Company
Daniel J. Nordstrom
Chief Executive Officer
Nordstrom.com
Michael A. Stein
Chief Financial Officer
Nordstrom, Inc.
Thomas Jones
President
Elm Square Technologies, Inc.
Officers
Timothy A. DeMello
Chairman and Chief Executive Officer
Edward Albertian
President and Chief Operating Officer
J. Gregory Ambro
Senior Vice President and Chief Financial Officer
Lawrence P. Anderson
Vice President, Control and Accounting
John T. Burns
Vice President and General Manager, Boston Market
John Cagno
Vice President, Information Technology
Scott DeGraeve
Vice President and General Manager, Chicago Market
William P. Paul
Vice President, Merchandising
Kevin M. Sheehan
Vice President and General Manager,
Washington D.C. Market
Rod Sturchio
Vice President and General Manager,
New York/New Jersey Market
James Thompson
Vice President, Development
Mary E. Wadlinger
Vice President, Customer Quality
Gina L. Wilcox
Vice President, Sales & Marketing
39
<PAGE>
Shareholder Information
Annual Meeting
The Annual Meeting of Shareholders will be held at 10:00 am on Thursday, May 25,
2000 at the offices of the Company, 27 Dartmouth Street, Westwood, MA 02090
Transfer Agent
BankBoston, N.A.
c/o Equiserve
150 Royall St.
Canton, MA 02021
Phone 781.575.3400
Corporate Counsel
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Phone 617.951.8000
Independent Accountants
PricewaterhouseCoopers LLP
One International Place
Boston, MA 02110
Phone 617.478.5000
Financial Information
To obtain our Annual Report or Form 10-K, free of charge,
or other financial publications, visit our Web site or contact:
Streamline.com Investor Relations
[email protected]
Corporate Offices
Streamline.com, Inc.
27 Dartmouth Street
Westwood, MA 02090
781.407.1900
781.407.1946 fax
www.streamline.com
40
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME OF SUBSIDIARY INCORPORATION STATE
- --------------------------------------------------------------------------------
<S> <C>
Beacon Home Direct, Inc. (d/b/a/
Scotty's Home Market Illinois
- --------------------------------------------------------------------------------
Streamline Mid-Atlantic, Inc. Delaware
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration
Statements the Form S-8 (Nos. 333-87123 and 333-30108) of Streamline.com,
Inc. of our report dated February 9, 2000 relating to the financial
statements, which appears in the Annual Report to Shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated February 9, 2000 relating to
the financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> JAN-01-2000
<CASH> 14,323
<SECURITIES> 20,746
<RECEIVABLES> 512
<ALLOWANCES> 88
<INVENTORY> 811
<CURRENT-ASSETS> 37,452
<PP&E> 17,068
<DEPRECIATION> (5,067)
<TOTAL-ASSETS> 50,914
<CURRENT-LIABILITIES> 4,523
<BONDS> 0
0
0
<COMMON> 184
<OTHER-SE> 44,132
<TOTAL-LIABILITY-AND-EQUITY> 50,914
<SALES> 13,162
<TOTAL-REVENUES> 15,380
<CGS> 10,624
<TOTAL-COSTS> 25,409
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (19,497)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,497)
<EPS-BASIC> (1.74)
<EPS-DILUTED> (1.74)
</TABLE>
