<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PC FLOWERS & GIFTS.COM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5992 54-1513755
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2001 WEST MAIN STREET, SUITE 175
STAMFORD, CT 06902
(203) 977-8582
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM J. TOBIN, CHIEF EXECUTIVE OFFICER
PC FLOWERS & GIFTS.COM INC.
2001 WEST MAIN STREET, SUITE 175
STAMFORD, CT 06902
(203) 977-8582
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD A. KRANTZ, ESQ. PETER B. TARR, ESQ.
ROBINSON & COLE LLP HALE AND DORR LLP
FINANCIAL CENTRE 60 STATE STREET
695 EAST MAIN STREET BOSTON, MA 02109
STAMFORD, CT 06904-2305 (617) 526-6000
(203) 462-7500
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1)(2) FEE(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share................................... $ $46,000,000 $12,788
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of common stock which the underwriters have the option to
purchase from PC Flowers & Gifts.com Inc. solely to cover over-allotments,
if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 1999
[PC FLOWERS LOGO]
SHARES
COMMON STOCK
PC Flowers & Gifts.com Inc. is offering shares of its common
stock. This is PC Flowers & Gifts.com's initial public offering, and no public
market currently exists for its shares. We have applied for quotation on the
Nasdaq National Market under the symbol "PCFG". We anticipate that the initial
public offering price will be between $ and $ per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds, before expenses, to PC Flowers & Gifts.com........ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PC Flowers & Gifts.com has granted the underwriters a 30-day option to
purchase up to an additional shares of common stock to cover
over-allotments. BancBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 1999.
------------------------------
BANCBOSTON ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
WARBURG DILLON READ LLC
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE> 3
[INSIDE FRONT COVER PAGE]
2
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
PC FLOWERS & GIFTS, "WE", "US" AND "OUR" REFER TO PC FLOWERS & GIFTS.COM INC.;
REFERENCES TO OUR WEB SITE INCLUDE, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE
WEB SITES OF OUR CO-BRANDED MARKETING PARTNERS; REFERENCES TO FINGERHUT INCLUDE
FINGERHUT COMPANIES, INC. AND ITS SUBSIDIARIES, INCLUDING FINGERHUT BUSINESS
SERVICES, INC.; AND REFERENCES TO FEDERATED INCLUDE FEDERATED DEPARTMENT STORES,
INC. AND ITS SUBSIDIARIES.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 8
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Combined Financial Data............................ 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 32
Management.................................................. 43
Certain Transactions........................................ 47
Principal Stockholders...................................... 49
Description of Capital Stock................................ 50
Shares Eligible for Future Sale............................. 52
Underwriting................................................ 54
Legal Matters............................................... 56
Experts..................................................... 56
Additional Filing and Company Information................... 56
Index to Combined Financial Statements...................... F-1
</TABLE>
------------------------------
We have been granted federal registration of the marks PC Flowers &
Gifts(R), 1-800-PC Flowers(R), PC Flowers(R), PC Gifts(R), TV Flowers(R) and PC
Balloons(R), and we have applied for registration of additional marks. All other
trademarks or service marks appearing in this prospectus are the property of
their respective owners.
3
<PAGE> 5
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including "Risk Factors",
before deciding to invest in our common stock.
PC FLOWERS & GIFTS.COM INC.
We are an innovative online retailer of flowers and event-driven gift
products. Our Web site (WWW.PCFLOWERS.COM) offers customers convenient and
reliable one-stop shopping. We offer a wide selection of floral products and
complementary event-driven gift products such as jewelry, cosmetics, specialty
foods and gift baskets. Our customers are able to order flowers through both our
select group of FTD and Teleflora member florists or directly from growers.
Shipping directly from growers allows customers to receive flowers that are
seven to nine days fresher than flowers received through the traditional retail
flower distribution process. Our Web site also provides our customers with
features such as a gift reminder service, the ability to place advance orders
and real-time account information.
A key element of our strategy is to leverage our strategic relationship
with Fingerhut and to develop a strategic relationship with Federated. Fingerhut
is one of the largest direct marketers in the United States, selling general
merchandise through catalogs and various Web sites. A central element of
Fingerhut's business development is to invest in, build and support e-commerce
businesses. As part of that strategy, Fingerhut currently owns 48% of our common
stock. In March 1999, Fingerhut was acquired by Federated, which operates over
400 full-line department stores, including Bloomingdale's, Burdine's, Macy's and
Stern's. In April 1999, Fingerhut began managing the operations of several of
Federated's direct marketing and e-commerce businesses, including macys.com and
Macy's By Mail.
We believe that our strategic relationship with Fingerhut will enable us to
successfully address many of the key challenges facing online retailers:
- Order fulfillment. Through our fulfillment services agreement with
Fingerhut, we utilize its substantial infrastructure for order and credit
card processing, product fulfillment, customer service, telephonic
services and product return services.
- Product sourcing. Our fulfillment services agreement with Fingerhut also
allows us to benefit from Fingerhut's purchasing strength and to offer
Fingerhut's broad range of complementary gift products for sale on our
Web site.
- Customer acquisition. We have participated in a portion of Fingerhut's
catalog and promotional mailings and expect to continue to do so in the
future. Currently, Fingerhut's database consists of over 30 million
consumers, and, in 1999, Fingerhut expects to distribute over 450 million
catalog and promotional mailings. By participating in a portion of these
catalog and promotional mailings, we can potentially increase our
customer base quickly and cost-effectively.
In addition to our relationship with Fingerhut, we currently reach
customers through our Web site and over 1,000 co-branded sites including NBC,
AT&T, Citibank, BellSouth, Merrill Lynch and MindSpring, and through our
1-800-PCFLOWERS service. Furthermore, one of our goals is to develop a strategic
relationship with Federated. Federated currently plans to develop such a
strategic relationship with us, involving, among other things, access to
Federated's customer database and gift products. For example, we have already
contracted with and built a co-branded Web site to sell flowers on macys.com.
Our objective is to be a leading online retailer of flowers and
event-driven gift products. To achieve this goal, we plan to:
- utilize our co-branded business model, our Fingerhut relationship,
traditional forms of online and offline advertising, and, potentially, a
strategic relationship with Federated, to enable us to acquire and retain
customers on a cost effective basis;
- leverage Fingerhut's operational capabilities to support rapid, scalable
growth; and
- utilize multiple channels of distribution and event-driven gift products
to offer customers better value through a wider selection of products and
faster, fresher delivery.
4
<PAGE> 6
Except as otherwise noted, all information contained in this prospectus:
- reflects a 2,000-for-1 stock split, effected in the form of a stock
dividend, effective February 1, 1999;
- reflects an increase in the number of authorized shares of our common
stock to 20,000,000 effective May 10, 1999; and
- assumes that the underwriters will not exercise their over-allotment
option.
-------------------------
We were incorporated in Delaware in 1997 as PC Flowers & Gifts, Inc. and we
changed our name to PC Flowers & Gifts.com Inc. in 1999. We are the successor by
merger to two Virginia corporations, PC Flowers, Inc. formed in 1989, and PC
Flowers & Gifts, Inc., formed in 1994.
Our headquarters are located at 2001 West Main Street, Suite 175, Stamford,
Connecticut 06902. Our telephone number is 203-977-8582.
-------------------------
INFORMATION CONTAINED ON OUR WEB SITE IS NOT A PART OF THIS PROSPECTUS.
5
<PAGE> 7
THE OFFERING
Common stock offered.................. shares
Common stock to be outstanding after
this offering......................... shares
Use of proceeds....................... For expansion of our sales and
marketing efforts, including
additional personnel, capital
expenditures including further
development of our technology and
systems, possible acquisitions or
investments and general corporate
purposes.
Proposed Nasdaq National Market
symbol................................ PCFG
6
<PAGE> 8
SUMMARY COMBINED FINANCIAL DATA
The following table sets forth our summary combined financial data. You
should read this information together with our combined financial statements,
the notes to those statements beginning on page F-7 of this prospectus and the
information under "Selected Combined Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
From 1994 to 1997, our net revenues decreased due to the decline in
consumer utilization of the Prodigy network and our shifting our primary focus
to the development of our Web site and the establishment of co-branded
relationships. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
The following data is presented:
- on an actual basis;
- on a pro forma basis to give effect to the issuance of 532,800 shares of
common stock upon the exercise of certain Fingerhut warrants in May 1999
in consideration for net cash proceeds of approximately $1.6 million; and
- on a pro forma as adjusted basis to give effect to:
- the sale of shares of common stock in this offering,
assuming an initial offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses
that we will pay; and
- the issuance of 1,133,200 shares of common stock upon the exercise of
certain Fingerhut warrants upon consummation of this offering in
consideration for net cash proceeds of approximately $2.9 million.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues........................... $4,781 $3,756 $2,070 $1,489 $1,743 $ 432 $1,008
Gross profit........................... 1,533 1,203 637 525 590 146 368
Income (loss) from operations.......... 19 (100) (93) (3) (485) 18 (654)
Net income (loss)...................... $ 23 $ (100) $ (93) $ (9) $ (451) $ 15 $ (611)
====== ====== ====== ====== ====== ====== ======
Basic and diluted net income (loss) per
share................................ $ 0.01 $(0.03) $(0.02) $(0.00) $(0.20) $ 0.01 $(0.21)
====== ====== ====== ====== ====== ====== ======
Weighted average shares outstanding
used in basic and diluted net income
(loss) per share calculation(1)...... 4,000 4,000 4,000 3,000 2,248 2,000 2,915
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................... $4,173 $5,771 $
Working capital............................................. 3,402 5,000
Total assets................................................ 4,568 6,166
Capital lease obligation, less current portion.............. 26 26
Total stockholders' equity.................................. 3,658 5,256
</TABLE>
- ---------------
(1) There were no dilutive securities outstanding until July 9, 1998.
7
<PAGE> 9
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially and adversely affected.
Similarly, if any of the following risks actually occur, the trading price of
our common stock could decline and you may lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
WE ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW
We expect operating losses and negative cash flow to continue for the
foreseeable future. We anticipate our losses will increase significantly from
current levels because we expect to incur additional costs and expenses related
to:
- brand development, marketing and other promotional activities;
- the expansion of our distribution operations;
- the continued development of our Web site, the systems that we use to
process customers' orders and payments and our computer network;
- the expansion of our product offerings and Web site content; and
- development of relationships with strategic business partners.
We incurred a net loss of $611,000 for the quarter ended March 31, 1999
and, as of that date, we had an accumulated deficit of approximately $1.3
million.
Our ability to become profitable depends on our ability to generate and
sustain substantially higher net revenues while maintaining reasonable expense
levels. We cannot be certain that we will be able to achieve, sustain or
increase profitability on a quarterly or annual basis in the future. See
"Selected Combined Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
BECAUSE OUR MARKET IS HIGHLY SEASONAL, OUR QUARTERLY RESULTS WILL FLUCTUATE
Due to the event-driven nature of the flower and gift industries, we
receive a substantial portion of our orders before major holidays and in
particular, Valentine's Day, Easter, Mother's Day, Thanksgiving and Christmas.
We expect to continue to experience significant seasonal fluctuations in
our net revenues. These seasonal patterns will cause quarterly fluctuations in
our operating results and could harm our financial performance. We believe that
sequential quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
OUR NET REVENUES DEPEND ON OUR ABILITY TO OBTAIN AND OFFER OUR CUSTOMERS
SUFFICIENT QUANTITIES OF
FLOWERS AND GIFTS IN A TIMELY MANNER
If we are unable to offer our customers sufficient quantities of flowers
and gifts in a timely manner, our net revenues and results of operations would
be harmed. Our success depends on whether our suppliers can provide us
sufficient quantities of products at competitive prices, particularly in the
weeks preceding key holidays. We do not have exclusive arrangements with any
vendor or distributor that guarantee the availability of flowers, gifts or other
products for resale.
If we are unable to obtain sufficient quantities of products from our key
suppliers, our net revenues and results of operations would be harmed. We derive
a significant percentage of our net revenues from
8
<PAGE> 10
sales of products sourced through Floral Transworld Delivery Association,
Teleflora and the Floral Division of Dole Foods Co. From time to time, we have
experienced difficulty in obtaining sufficient product allocations. In addition,
our key suppliers have established, and may continue to expand, their own online
retailing efforts, which may impact our ability to obtain sufficient product
allocations from these suppliers.
WE DEPEND ON FOUR SUPPLIERS FOR NEARLY ALL OF OUR PRODUCTS
We use the FTD Floral Wire Delivery Network and the Teleflora Floral Wire
Delivery Network to deliver approximately half of the floral products that we
sell. We purchase the rest of our flowers from the Floral Division of Dole Food
Company, Inc., which owns many major growers in South America. We use Fingerhut,
a significant stockholder of PC Flowers & Gifts.com, to fulfill all jewelry,
cosmetic, specialty foods and gift basket orders. We also depend on Fingerhut
for our gift product sourcing, order and credit card processing, customer
service, telephonic services, product fulfillment and product return services.
Our fulfillment services agreement with Fingerhut expires in October 2000. If we
fail to renew this agreement or if it is terminated before October 2000, our
business, financial condition or results of operations would be materially and
adversely affected.
We do not maintain any inventory of the products we sell. We do not have
any long-term contracts or arrangements with FTD, Teleflora, Dole, Fingerhut or
any of our other suppliers that guarantee the availability of merchandise.
Accordingly, these suppliers could discontinue sales or services to us or
introduce terms that are unacceptable to us. If we were unable to develop and
maintain relationships with suppliers on acceptable terms, our business would be
materially and adversely affected.
WE CANNOT COUNT ON THE CONTINUATION OF OUR STRATEGIC RELATIONSHIP WITH FINGERHUT
AND FEDERATED
A significant part of achieving our objective of becoming a leading online
retailer of flowers and event-driven gift products depends on our ability to
access and leverage:
- Fingerhut's operational and fulfillment capabilities;
- the depth and size of Fingerhut and Federated's databases;
- Fingerhut and Federated's complementary products such as jewelry,
cosmetics, specialty foods and gift baskets; and
- Fingerhut's credit services.
See "Business -- Strategy".
Both Fingerhut and Federated are separate companies that, subject to
existing or future contractual obligations, remain free to act in their own
interests regardless of the effect of their actions on us. Termination by
Fingerhut of the fulfillment services agreement, or of its relationship with us,
would have a material adverse effect on our business and financial condition. In
addition, adverse business or economic developments affecting Fingerhut or
Federated could have an adverse effect on us.
Except for Fingerhut's exercise of warrants to purchase our common stock
upon consummation of this offering, neither Fingerhut nor Federated has any
obligation to make equity or other capital resources available to us in the
future.
We may be unable to further leverage our strategic relationship with
Fingerhut or further develop our relationship with Federated. Other than our
co-branded relationship with Fingerhut and macys.com and the fulfillment
services agreement with Fingerhut, no formal agreements are in place that
require either Fingerhut or Federated to grant us access to their databases,
products or services.
OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE FAIL TO MEET
THE EXPECTATIONS OF SECURITIES ANALYSTS AND INVESTORS, THE MARKET PRICE OF OUR
COMMON STOCK MAY DECREASE SIGNIFICANTLY
Our annual and quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future due to a variety of factors, many of
which are outside of our control. Because our operating
9
<PAGE> 11
results are volatile and difficult to predict, we believe that sequential
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. It is also likely that in some future
quarter our operating results may fall below the expectations of securities
analysts and investors. In this event, the trading price of our common stock may
fall significantly.
Our stock price may be adversely affected by significant fluctuations in
our quarterly operating results. Our revenues for the foreseeable future will
depend primarily on sales of flowers and gifts appearing on our Web site and
secondarily through 1-800-PCFLOWERS and Fingerhut catalogs and promotional
mailings. We cannot forecast with any degree of certainty the number of visitors
to our Web site or the extent of our revenues.
Factors that may harm our business or cause our operating results to
fluctuate include the following:
- our inability to obtain new customers at reasonable cost and to retain
existing customers or encourage repeat purchases;
- decreases in the number of visitors to our Web site or our inability to
convert visitors to our Web site into customers;
- the mix of flowers, gifts and other items that we sell;
- the seasonal nature of our business, including holidays occurring during
a particular quarter;
- our inability to manage our outsourced distribution operations;
- our inability to adequately maintain, upgrade and develop our Web site,
the systems that we use to process customers' orders and payments or our
computer network;
- the ability of our competitors to offer new or enhanced Web sites,
services or products;
- price competition, higher overall wholesale prices of flowers or gifts or
increased shipping costs;
- an increase in our customers' requests for refunds or reshipments;
- our inability to obtain or deliver sufficient quantities of flowers or
gifts during periods of peak demand;
- fluctuations in the amount of consumer spending on flowers and gifts;
- the level of discount pricing and promotional coupon usage;
- increases in the cost of online or offline advertising;
- the success of new advertising we intend to use, including radio
advertisements and credit card bill inserts;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
- extreme weather, which could ill-effect flowers, chocolates and our other
perishable products;
- increases in delivery times, particularly during holiday weeks;
- technical difficulties, system downtime or Internet brownouts;
- government regulations related to use of the Internet for commerce or for
sales and distribution of flowers or gifts; and
- economic conditions specific to the Internet, online commerce and the
flower and gift industries.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS
The online commerce market is new, rapidly evolving and intensely
competitive. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our net revenues and results of operations. We expect competition to
intensify in the future because barriers to enter the online commerce market are
minimal, and current and new competitors can launch Web sites quickly and at a
relatively low cost. In addition, the flower and gift industries are intensely
competitive.
10
<PAGE> 12
We currently or potentially compete with a variety of other companies,
including:
- direct marketers of flowers that maintain or are tied to specific
networks of retail florist outlets, including 1-800-FLOWERS, FTD and the
Gerald Stevens Company;
- other online vendors of flower and gift products, including
FlowerFarmDirect and Proflowers;
- indirect competitors that specialize in online commerce or derive a
substantial portion of their revenues from online commerce, including
America Online, Microsoft and Amazon.com, through which other flower and
gift vendors may offer products; and
- traditional store-based retail florists and other retailers offering gift
products.
Many traditional store-based competitors and some online competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. Many
of these competitors can devote substantially more resources to Web site
development than we can. In addition, larger, well-established and well-financed
entities may join with online competitors or flower or gift suppliers as the use
of the Internet and other online services increases.
Our competitors may be able to secure products from vendors on more
favorable terms, fulfill customer orders more efficiently and adopt more
aggressive pricing or inventory availability policies than we can. Traditional
store-based retailers also enable customers to see and feel products in a manner
that is not possible over the Internet. See "Business -- Competition".
WE DEPEND ON CO-BRANDING RELATIONSHIPS FOR MORE THAN HALF OF OUR REVENUE. OUR
BUSINESS WOULD BE MATERIALLY AND ADVERSELY AFFECTED IF WE CANNOT MAINTAIN OUR
CO-BRANDING RELATIONSHIPS
We derive more than half of our revenue from sales made on more than 1,000
Web sites of our co-branded partners. We may not be able to maintain or grow our
co-branding relationships. Our ability to achieve significant future revenue
growth will depend in large part on adding new co-branded partners and on the
success of our co-branded partners to implement their growth plans. We cannot be
sure that either we or our co-branding partners will be able to achieve these
goals.
TO MANAGE OUR GROWTH AND EXPANSION, WE NEED TO IMPROVE AND IMPLEMENT OUR
SYSTEMS, PROCEDURES AND CONTROLS. IF WE ARE UNABLE TO DO SO SUCCESSFULLY, OUR
BUSINESS WOULD BE SERIOUSLY HARMED
Our recent rapid growth in personnel and operations has placed, and will
continue to place, a significant strain on our management, information systems
and resources. In order to manage this growth effectively, we need to continue
to improve our financial and managerial controls, reporting systems and
procedures. Our failure to successfully implement, improve and integrate these
systems and procedures would harm our results of operations.
IF WE ENTER NEW BUSINESS CATEGORIES THAT DO NOT ACHIEVE MARKET ACCEPTANCE, OUR
BUSINESS COULD BE SERIOUSLY HARMED
Any new product category that we launch that is not favorably received by
consumers could damage our brand and reputation and harm our net revenues and
results of operations. An expansion of our business in this manner would require
significant additional expenses, and strain our management, financial and
operational resources. This type of expansion could also subject us to increased
inventory risk. We may choose to expand our operations by developing new product
categories, promoting new or complementary products, expanding the breadth of
products and services offered or expanding our market presence through
relationships with third parties.
IF WE DO NOT SUCCESSFULLY EXPAND OUR OUTSOURCED DISTRIBUTION OPERATIONS, OUR
BUSINESS COULD BE SERIOUSLY HARMED
If we do not successfully expand our outsourced distribution operations to
accommodate increases in demand, particularly during the peak holiday weeks, we
will not be able to increase our net revenues in accordance with our
expectations or the expectations of our investors. In such an event, our
business could
11
<PAGE> 13
be harmed. Our success depends on our ability to expand our distribution
operations in order to accommodate a significant increase in customer orders. We
must also be able to grow our distribution operations and information systems to
accommodate significant increases in demand, which may require us to automate
tasks that are currently performed manually.
Our planned expansion could cause disruptions that harm our business,
results of operations and financial condition. Our current distribution
operations are not adequate to accommodate significant increases in customer
demand that may occur in the future.
IF WE EXPERIENCE PRODUCT DELIVERY PROBLEMS, OUR BUSINESS WOULD BE SERIOUSLY
HARMED
We rely upon third-party carriers for product shipments, including
shipments to and from the third-party distribution facilities that we use. We
are therefore subject to the risks, including employee strikes and inclement
weather, associated with such carriers' ability to provide delivery services to
meet our shipping needs. In addition, failure to deliver products to our
customers in a timely manner would harm our reputation and brand. Our suppliers
also depend upon temporary employees to adequately staff their distribution
facility, particularly during the holiday shopping season. If they do not have
sufficient sources of temporary employees, our net revenues and results of
operations could be harmed.
In addition, we rely exclusively on Federal Express for deliveries of our
direct from the grower products. Although Federal Express is generally reliable
and although alternative delivery services are available, Federal Express and
other delivery services are subject to employee strikes, inclement weather,
equipment failures and other delays.
IF WE DO NOT SUCCESSFULLY EXPAND OUR WEB SITE, OUR BUSINESS WOULD BE SERIOUSLY
HARMED
If we fail to rapidly upgrade our Web site in order to accommodate
increased traffic, we may lose customers, which would harm our net revenues and
results of operations. In addition, our failure to rapidly upgrade our Web site
without system downtime, particularly during peak holiday weeks, would further
harm our net revenues and results of operations. We may experience difficulty in
improving and maintaining our Web site if our employees or contractors that
develop and maintain our Web site become unavailable to us.
WE MAY FAIL TO SUCCESSFULLY MANAGE AND UTILIZE OUR DATABASES AND THOSE OF THIRD
PARTIES
An important component of our business model involves the use of databases
to more effectively acquire and retain customers through targeted direct
marketing efforts. Our success depends in part on our ability to collect
personal information from our customers. In the future, our success will depend
in part on our ability to gain access to the databases of Fingerhut/Federated.
Other than our co-branded relationship with Fingerhut and macys.com and the
fulfillment services agreement with Fingerhut, no formal agreements are in place
that require either Fingerhut or Federated to grant us access to their
databases, products or services. If we gain access to the Fingerhut/Federated
databases, we intend to use these databases to create targeted advertising
campaigns and tailor our Web site offerings and content to the demographics of
our customers. We must expand and update our lists to identify new customers and
retain current customers. In addition, we must continue to develop and refine
our techniques for segmenting these lists to maximize their usefulness to our
co-branded partners and to us. If we fail to gain access to or capitalize on
these customer databases, our business could be adversely affected. In addition,
laws or regulations that could impair our ability to collect user names and
other information on our Web site could adversely affect our business.
OUR FACILITIES AND SYSTEMS ARE VULNERABLE TO UNEXPECTED PROBLEMS
Unanticipated problems at the third-party facility in New York, New York
that houses substantially all of our computer and communications hardware
systems could cause interruptions or delays in our business, loss of data or
render us unable to accept and fulfill customer orders. Any such interruptions
or delays at the facility would harm our net sales and results of operations. In
addition, our systems and
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<PAGE> 14
operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-in, earthquake and similar events and we
have no formal disaster recovery plan and no business interruption insurance. In
addition, the failure by the third-party facility to provide the data
communications capacity required by us, as a result of human error, natural
disaster or other operational disruptions, could result in interruptions in our
service. The occurrence of any or all of the events could harm our reputation,
brand and business.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD BECOME
OBSOLETE AND OUR BUSINESS WOULD BE SERIOUSLY HARMED
If we face material delays in introducing new services, products and
enhancements, our customers may forego the use of our services and use those of
our competitors. To remain competitive, we must continue to enhance and improve
the functionality and features of our Web site. The Internet and the online
commerce industry are rapidly changing. If competitors introduce new products
and services embodying new technologies, or if new industry standards and
practices emerge, our existing Web site and proprietary technology and systems
may become obsolete.
To develop our Web site and other proprietary technology entails
significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our Web site, systems that we use to
process customers' orders and payments and our computer network to customer
requirements or emerging industry standards.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS
Other parties may assert infringement or unfair competition claims against
us. In April 1999, The Flower and Gift Shoppe, Inc. brought a trademark
infringement action against us. See "Business -- Legal Proceedings". We cannot
predict whether other third parties will assert claims of infringement against
us, or whether any assertions or prosecutions will harm our business. If we are
forced to defend against any such claims, including The Flower and Gift Shoppe,
Inc. action, whether they are with or without merit or are determined in our
favor, then we may face costly litigation, diversion of technical and management
personnel, or product shipment delays. As a result of such disputes, we may have
to develop non-infringing technology or enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may be
unavailable on terms acceptable to us, or at all. If there is a successful claim
of product infringement against us and we are unable to develop non-infringing
technology or license the infringed or similar technology on a timely basis, it
could harm our business.
IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BUSINESS WILL BE
SERIOUSLY HARMED
The steps we take to protect our proprietary rights may be inadequate. We
regard our copyrights, service marks, trademarks, trade dress, trade secrets and
similar intellectual property as critical to our success. We rely on trademark
and copyright law, trade secret protection and confidentiality or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. In addition, we rely on our technology license agreement
with our Chief Executive Officer, under which we license certain co-branding
technology. See "Business -- Intellectual Property". We have several trademark
applications pending before the United States Patent and Trademark Office.
Nonetheless, we may not obtain trademark registrations for the trademarks we
use. Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which we will sell our products and
services online. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks, domain names and other proprietary rights.
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<PAGE> 15
THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL, OR OUR FAILURE TO
ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE
WOULD SERIOUSLY HARM OUR BUSINESS
The loss of the services of one or more of our key personnel could
seriously harm our business. We depend on the continued services and performance
of our senior management and other key personnel, particularly William J. Tobin,
Chief Executive Officer and founder, and David Crampton, our President and Chief
Operating Officer. Our future success also depends upon the continued service of
our executive officers and other key sales, marketing and support personnel. The
majority of our senior management joined us in 1999, including our President and
Chief Operating Officer, Chief Financial Officer, Vice President of Strategic
Development and Director of Advertising and Marketing. Our future success
depends on these officers effectively working together with our original
management team. Except for Mr. Tobin, none of our officers or key employees is
bound by an employment agreement for any specific term. Our relationships with
these officers and key employees are at will. We do not have "key person" life
insurance policies covering any of our employees.
WE MAY BE ADVERSELY IMPACTED IF THE SOFTWARE, COMPUTER TECHNOLOGY AND OTHER
SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT
Any failure of our material systems, our vendors' material systems or the
Internet to be year 2000 compliant would have material adverse consequences for
us. Such consequences would include difficulties in operating our Web site
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business. We believe that all of our internally
developed production and operating systems are year 2000 compliant. However, we
have not yet developed a contingency plan to address situations that may result
if we or our vendors are unable to achieve year 2000 compliance. The cost of
developing and implementing such a plan, if necessary, could be material.
We also depend on the year 2000 compliance of the computer systems and
financial services used by consumers. A significant disruption in the ability of
consumers to reliably access the Internet or portions of it or to use their
credit cards would have an adverse effect on demand for our services and would
have a material adverse effect on us. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
THERE ARE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR INVESTMENTS
If we are presented with appropriate opportunities, we intend to acquire or
make investments in complementary companies, products or technologies. We may
not realize the anticipated benefits of any acquisition or investment. If we buy
a company, we could have difficulty in assimilating that company's personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may have to
incur debt or issue equity securities to pay for any future acquisitions or
investments, the issuance of which could be dilutive to us or our existing
stockholders.
EXISTING STOCKHOLDERS WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER PC
FLOWERS & GIFTS.COM
Fingerhut has agreed to support Mr. Tobin or his designee for election to
our board of directors so long as Mr. Tobin and his affiliates own an aggregate
of at least 10% of our common stock. Although they are under no other obligation
to do so, if Fingerhut/Federated and William J. Tobin were to decide to act
together, they would be able to significantly influence all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions.
Fingerhut/Federated and William J. Tobin will beneficially own approximately
% and %, respectively, of our outstanding common stock following the
completion of this offering. See "Principal Stockholders".
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<PAGE> 16
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US
Provisions of our Amended and Restated Certificate of Incorporation, our
Bylaws and Delaware and Connecticut law could make it more difficult for a third
party to acquire us, even if doing so would be beneficial to our stockholders.
See "Description of Capital Stock".
INVESTORS WILL EXPERIENCE IMMEDIATE DILUTION
We expect the initial public offering price to be substantially higher than
the book value per share of the outstanding common stock immediately after this
offering. Accordingly, if you purchase common stock in this offering, you will
experience immediate dilution of approximately $ in the book value per share
of the common stock from the price you pay for the common stock. See "Dilution".
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
Our business would be adversely affected if Internet usage and online
commerce do not continue to grow. Internet usage may be inhibited for a number
of reasons, including:
- inadequate Internet infrastructure;
- inconsistent quality of service; or
- unavailability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. In addition, Web sites, including ours, have
experienced a variety of interruptions in their service as a result of outages
and other delays occurring throughout the Internet network infrastructure. If
these outages or delays frequently occur in the future, Internet usage,
including usage of our Web site, could grow slowly or decline.
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE ONLINE COMMERCE MARKET,
WHICH IS UNCERTAIN
Our future revenues and profits substantially depend on the widespread
acceptance and use of the Internet as an effective medium of commerce by
consumers. Demand for recently introduced products and services over the
Internet is subject to a high level of uncertainty. The development of the
Internet and online services as a viable commercial marketplace is subject to a
number of factors, including the following:
- online commerce is at an early stage, and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors; and
- insufficient availability of telecommunications services or changes in
telecommunications services could result in slower response times.
WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IF GOVERNMENT
REGULATION INCREASES
The adoption or modification of laws or regulations relating to the
Internet could adversely affect the manner in which we currently conduct our
business. In addition, the growth and development of the market for online
commerce may lead to more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The United States Congress recently enacted
Internet laws regarding children's privacy, copyrights, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet.
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<PAGE> 17
WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH
As a publisher of online content, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that we publish or
distribute. If we face liability, particularly liability that is not covered by
our insurance or is in excess of our insurance coverage, then our reputation and
our business may suffer. In the past, plaintiffs have brought these types of
claims and sometimes successfully litigated them against online services.
Although we carry general liability insurance, our insurance may not cover
claims of these types or may be inadequate to indemnify us for all liability
that may be imposed on us.
OUR NET REVENUES WOULD BE HARMED IF OUR ONLINE SECURITY MEASURES FAIL
Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. We cannot predict whether events or
developments will result in a compromise or breach of the technology we use to
protect a customer's personal information.
Furthermore, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to expend significant
additional capital and other resources to protect against a security breach or
to alleviate problems caused by any breaches. We cannot assure that we can
prevent or remedy all security breaches. If any of these breaches occur, we
could lose customers and our net revenues and results of operations could be
harmed.
OUR NET REVENUES COULD BE HARMED IF WE BECOME SUBJECT TO SALES AND OTHER TAXES
If one or more states or any foreign country successfully asserts that we
should collect sales or other taxes on the sale of our products, our net
revenues and results of operations could be harmed. We do not currently collect
sales or other similar taxes for physical shipments of goods into states other
than Connecticut, Minnesota and Tennessee. However, one or more local, state or
foreign jurisdictions may seek to impose sales tax collection obligations on us.
In addition, any new operation in states outside Connecticut, Minnesota and
Tennessee could subject our shipments in such states to state sales taxes under
current or future laws.
RISKS RELATED TO SECURITIES MARKETS
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
We cannot be certain that additional financing will be available to us on
favorable terms when required, or at all. If we raise additional funds through
the issuance of equity, equity-related or debt securities, such securities may
have rights, preferences or privileges senior to those of the rights of our
common stock and our stockholders may experience additional dilution. We require
substantial capital to fund our business. Over the past few years, we have
experienced negative cash flow from operations and expect to experience
significant negative cash flow from operations for the foreseeable future. We
currently anticipate that the net proceeds of this offering, together with our
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures through at least the next 24 months. We may
need to raise additional funds prior to the expiration of this period if, for
example, we pursue business acquisitions or experience operational losses that
exceed our current expectations.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR
INDIVIDUAL STOCKHOLDERS
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following,
some of which are beyond our control:
- actual or anticipated variations in our quarterly operating results;
- announcements of technological innovations or new products or services by
us or our competitors;
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<PAGE> 18
- changes in financial estimates or reduced coverage by securities
analysts;
- conditions or trends in the Internet and/or online commerce industries;
- changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock; and
- potential litigation.
IF OUR STOCK PRICE IS VOLATILE, WE COULD FACE A SECURITIES CLASS ACTION LAWSUIT
In the past, following periods of volatility in the market price of their
stock, many companies have been the subject of securities class action
litigation. If we were sued in a securities class action, it could result in
substantial costs and a diversion of management's attention and resources and
would harm our stock price.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO FALL
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options after March 31,
1999. All of the shares sold in this offering are freely tradable. This leaves
5,000,000 remaining shares, all of which are subject to 180-day lock-up
agreements. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time or from time to time, without notice, release all or
any portion of the securities subject to lock-up agreements. All of these shares
will be eligible for sale in the public market beginning 180 days after the date
of this prospectus, subject to volume and other restrictions pursuant to Rule
144 under the Securities Act. In addition, we intend to file a registration
statement on Form S-8 under the Securities Act shortly after the date of this
prospectus to register 805,000 shares of our common stock reserved for issuance
under the PC Flowers & Gifts.com Stock Option Plan. See "Management -- Stock
Option Plan", "Shares Eligible for Future Sale" and "Underwriting".
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements". These
forward-looking statements include, without limitation, statements about the
market opportunity for the sale of floral, gift and other products over the
Internet, our strategy, competition and expected expense levels, the adequacy of
our available cash resources and our relationship with Fingerhut/Federated. Our
actual results could differ materially from those expressed or implied by these
forward-looking statements as a result of various factors, including the risk
factors described above and elsewhere in this prospectus. We undertake 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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<PAGE> 19
USE OF PROCEEDS
We will receive net proceeds of $ million from the sale of the
shares of common stock offered by us, or $ million if the
underwriters' over-allotment option is exercised in full, in each case at an
initial public offering price of $ and after deducting the estimated
underwriting discounts and commissions and offering expenses payable by us. In
addition, upon consummation of the offering we will receive net cash proceeds of
approximately $2.9 million from Fingerhut upon exercise of its warrants.
We currently intend to use the net proceeds of this offering as follows:
- expansion of our sales and marketing efforts, including additional
personnel;
- capital expenditures, including further development of our technology and
systems;
- possible acquisitions of and investments in complementary businesses,
products and services; and
- general corporate purposes, including working capital.
Pending these uses, the net proceeds will be invested in short-term,
investment grade securities, certificates of deposit or direct or guaranteed
obligations of the United States. We do not have any agreements with respect to
any acquisitions, investments or similar transactions.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock and do
not intend to pay any cash dividends on our common stock in the foreseeable
future. We currently intend to retain any future earnings, if any, to fund the
development and growth of our business. Future dividends, if any, will be
determined by our board of directors. As a result of not collecting a dividend,
there is a risk that stockholders will not experience a return on their
investment unless they sell their shares of common stock.
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<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the issuance of 532,800 shares of
common stock upon the exercise of certain Fingerhut warrants in May 1999
in consideration for net cash proceeds of approximately $1.6 million; and
- on a pro forma as adjusted basis to give effect to:
- the sale of shares of common stock in this offering,
assuming an initial offering price of $ per share; and
- the issuance of 1,133,200 shares of common stock upon the exercise of
certain Fingerhut warrants upon consummation of this offering in
consideration for net cash proceeds of approximately $2.9 million.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 4,173 $ 5,771 $
======= ======= =======
Capital lease obligation, less current portion............. $ 26 $ 26 $
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 1,000,000 shares
authorized, no shares issued and outstanding............. -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
3,334,000 shares issued and outstanding, actual;
3,866,800 shares issued and outstanding, pro forma;
shares issued and outstanding, pro forma
as adjusted.............................................. 33 39
Additional paid-in capital................................. 4,938 6,530
Accumulated deficit........................................ (1,313) (1,313)
------- ------- -------
Total stockholders' equity............................... 3,658 5,256
------- ------- -------
Total capitalization.................................. $ 3,864 $ 5,282 $
======= ======= =======
</TABLE>
ADDITIONAL SHARES MAY BE ISSUED AFTER THIS OFFERING UPON THE EXERCISE OF OPTIONS
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 1999. We are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock to be outstanding after this offering. The
following is a summary of these additional shares of common stock:
- 475,000 shares that could be issued upon the exercise of options
outstanding as of March 31, 1999 under our stock option plan, at a
weighted average exercise price of $3.33 per share; and
- 330,000 additional shares that could be issued under our stock option
plan.
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DILUTION
Our pro forma net tangible book value as of March 31, 1999 was
$5.3 million, or $1.36 per share of common stock. Pro forma net tangible book
value per share is calculated by subtracting our total liabilities from our
total tangible assets, which equals total assets less intangible assets, and
dividing this amount by the pro forma number of shares of common stock
outstanding as of March 31, 1999. Assuming the sale by us of shares of
common stock offered in this offering at an initial public offering price of
$ per share, the issuance of 1,133,200 shares of common stock upon the
exercise of the Fingerhut warrants upon consummation of this offering in
consideration for net cash proceeds of approximately $2.9 million and the
application of the estimated net proceeds from this offering, our pro forma net
tangible book value as of March 31, 1999 would have been $ million, or
$ per share of common stock. This represents an immediate increase in the
pro forma net tangible book value of $ per share to our existing
stockholders and an immediate dilution in the pro forma net tangible book value
of $ per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
-------
Pro forma net tangible book value per share as of March
31, 1999............................................... $
-------
Pro forma increase in net tangible book value per share
attributable to new investors..........................
-------
Pro forma net tangible book value per share after this
offering and the exercise of the Fingerhut warrants.......
-------
Pro forma dilution per share to new investors............... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid by existing
stockholders and by new investors in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... % $ % $
Fingerhut warrants...................... % $ % $
New investors........................... % $ % $
------- ----- -------- -----
Total.............................. 100.0% $ 100.0%
======= ===== ======== =====
</TABLE>
As of March 31, 1999, there were outstanding options to purchase 475,000
shares of common stock under the PC Flowers & Gifts.com Stock Option Plan at a
weighted average exercise price of $3.33 per share. See "Management -- Stock
Option Plan". To the extent that the outstanding options, or any options granted
in the future, are exercised, there will be further dilution to new investors.
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<PAGE> 22
SELECTED COMBINED FINANCIAL DATA
The following table sets forth our selected combined financial data. You
should read this information together with our combined financial statements,
the notes to those statements beginning on page F-7 of this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The combined statement of
operations data for the years ended December 31, 1996, 1997 and 1998 and the
combined balance sheet data at December 31, 1997 and 1998 are derived from our
combined financial statements which have been audited by KPMG LLP, independent
accountants, and are included elsewhere in this prospectus. The combined balance
sheet data at December 31, 1996 are derived from our audited combined financial
statements which are not included in this prospectus. The combined statement of
operations data for the years ended December 31, 1994 and 1995 and the combined
balance sheet data at December 31, 1994 and 1995 are derived from our unaudited
combined financial statements, which are not included in this prospectus. The
combined statement of operations data for the three months ended March 31, 1998
and 1999, and the combined balance sheet data at March 31, 1999, are derived
from our unaudited interim combined financial statements, which are included
elsewhere in this prospectus. The unaudited combined financial statements have
been prepared on substantially the same basis as the audited combined financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the combined results of operations for such periods. Historical
results are not necessarily indicative of the results to be expected in the
future, and results of interim periods are not necessarily indicative of results
for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues.......................... $4,781 $3,756 $2,070 $1,489 $1,743 $ 432 $1,008
Cost of revenues...................... 3,248 2,553 1,433 964 1,153 286 640
------ ------ ------ ------ ------ ----- ------
Gross profit.......................... 1,533 1,203 637 525 590 146 368
Operating expenses:
Sales and marketing................. 657 528 335 207 339 49 622
General and administrative.......... 857 765 365 273 631 62 344
Product development................. -- -- 30 48 105 17 56
------ ------ ------ ------ ------ ----- ------
Total operating expenses.......... 1,514 1,303 730 528 1,075 128 1,022
------ ------ ------ ------ ------ ----- ------
Income (loss) from operations......... 19 (100) (93) (3) (485) 18 (654)
Interest income (expense):
Interest income..................... 4 -- -- -- 44 -- 45
Interest expense.................... -- -- -- (6) (10) (3) (2)
------ ------ ------ ------ ------ ----- ------
Total interest income (expense),
net............................. 4 -- -- (6) 34 (3) 43
------ ------ ------ ------ ------ ----- ------
Net income (loss)..................... $ 23 $ (100) $ (93) $ (9) $ (451) $ 15 $ (611)
====== ====== ====== ====== ====== ===== ======
Basic and diluted net income (loss)
per share(1)........................ $ 0.01 $(0.03) $(0.02) $(0.00) $(0.20) $0.01 $(0.21)
====== ====== ====== ====== ====== ===== ======
Weighted average shares outstanding
used in basic and diluted net income
(loss) per share calculation(1)..... 4,000 4,000 4,000 3,000 2,248 2,000 2,915
====== ====== ====== ====== ====== ===== ======
</TABLE>
- ---------------
(1) There were no dilutive securities outstanding until July 9, 1998.
21
<PAGE> 23
The following data is presented:
- on an actual basis; and
- on a pro forma basis to give effect to the issuance of 532,800 shares of
common stock upon the exercise of certain Fingerhut warrants in May 1999
in consideration for net cash proceeds of approximately $1.6 million.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31, 1999
----------------------------------------- -------------------
1994 1995 1996 1997 1998 ACTUAL PRO FORMA
---- ----- ----- ----- ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents............. $201 $ 108 $ 100 $ 153 $1,640 $4,173 $5,771
Working capital (deficiency).......... (7) (79) (135) (371) 1,219 3,402 5,000
Total assets.......................... 385 470 157 195 1,794 4,568 6,166
Capital lease obligation, less current
portion............................. -- -- -- -- 29 26 26
Stockholders' equity (deficit)........ 105 5 (88) (345) 1,269 3,658 5,256
</TABLE>
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and the related notes included elsewhere in this
prospectus. The following discussion contains forward-looking statements within
the meaning of federal securities law. Such statements can be identified by the
use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate," "continue" or other similar words. These statements
discuss future expectations, contain projections of results of operations or of
financial condition or state other "forward-looking" information. Although
management believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, certain factors such as rapid
changes in the markets in which we compete or general economic conditions might
cause a difference between actual results and such forward-looking statements.
When considering such forward-looking statements, prospective investors should
consider the "Risk Factors" and other cautionary statements in this prospectus.
OVERVIEW
We are an innovative online retailer of flowers and event-driven gift
products such as jewelry, cosmetics, specialty foods and gift baskets. Our Web
site offers customers the ability to order flowers and event-driven gift
products 24 hours per day, seven days a week.
We were founded and have been selling flowers online since 1989. From 1989
through 1994, we were the exclusive flower service on the Prodigy online
network. In December 1994, we launched our service on the Internet. From 1994 to
1997, our net revenues decreased due to the decline in Prodigy's membership
base. At that time, we began shifting our focus primarily to the development of
our Web site and establishing our co-branded relationships.
In July 1998, we entered into a strategic relationship with Fingerhut
Companies, Inc. through which Fingerhut acquired shares of our common stock and
obtained warrants to acquire additional shares of our common stock. In January
1999 and May 1999, Fingerhut exercised certain of its warrants increasing its
ownership percentage to 48%. Fingerhut, which was acquired by Federated
Department Stores, Inc. in March 1999, provides services to us, including gift
product sourcing, order and credit card processing, customer service, telephonic
services, product fulfillment and product return services under a strategic
agreement at costs that are less than otherwise available from third parties.
Although Fingerhut will retain a substantial equity interest in us following our
initial public offering, both Fingerhut and Federated are separate companies
that, subject to existing or future contractual obligations, remain free to act
in their own interests regardless of the effect of their actions on us.
Our Internet business has grown rapidly since the launch of our Web site in
1994. In January 1998, we launched our redesigned Web site, and beginning in
October 1998, we expanded our product offerings to include gift products such as
jewelry, cosmetics, specialty foods and gift baskets sourced from Fingerhut. Our
net revenues increased to more than $1.0 million for the quarter ended March 31,
1999 from $432,000 for the quarter ended March 31, 1998.
Sales of cut flowers and event-driven gift products are influenced by the
timing of major holidays such as Valentine's Day, Easter, Mother's Day,
Thanksgiving and Christmas. As a result, we have experienced significantly
increased sales during these holiday periods. For each of the five consecutive
quarters ended March 31, 1999, we have achieved a gross profit margin ranging
from approximately 34% to 36%. Our gross margin may fluctuate in future periods
based on factors such as product and channel mix, the number of orders
originated through co-branded sites, inbound and outbound shipping costs and
levels of promotional pricing.
In the quarter ended March 31, 1999, our net revenues from orders placed or
delivered internationally represented approximately 8% of our total net
revenues. Our international sales are denominated in U.S. dollars and,
therefore, net revenues are not affected by foreign exchange fluctuations.
However, foreign exchange fluctuations may affect demand for our products. In
addition, international sales are subject to
23
<PAGE> 25
diverse market factors and may decrease in future periods depending on, among
other factors, the economic conditions of a given country or region.
We have generally operated with limited working capital. All of our
customers pay for their purchases by credit card over the Internet or by phone
and as a result, we typically receive payment for orders within two to three
business days of purchase. In addition, we do not maintain any inventory. We
have entered into floral product agreements with FTD, Teleflora and the Floral
Division of Dole Food Company, Inc., the latter operating as a direct from the
grower supplier. The agreement with each floral network requires the supplier to
provide the product as well as package and deliver the product directly to the
customer. We have also entered into relationships with suppliers providing
event-driven gift products that are shipped alone or in combination with our
floral arrangements. Our suppliers retain physical possession of this
merchandise until it is shipped to the customer. We record the sale, net of any
discounts, upon shipment of the merchandise from our suppliers to the customer.
We do not hold inventory of the products we sell. However, we take title to the
merchandise just prior to shipment of the product from the supplier to the
customer. Subsequently, we pay the supplier any amounts due for the purchase of
the related merchandise. Our net revenues also include outbound shipping and
handling charges. We are at risk of loss for collecting all of the sales
proceeds, the delivery of the merchandise and the returns from customers,
subject to product and certain delivery guarantees by the supplier. We allow
customers to return products if they are unsatisfied with the product or our
service, and therefore, we provide an allowance for sales returns at the time of
shipment, based upon our historical experience.
Since our migration from the Prodigy network to the Internet, we have
incurred significant losses and, as of March 31, 1999, had an accumulated
deficit of approximately $1.3 million. We expect operating losses and negative
cash flow to continue for the foreseeable future. We anticipate our losses will
increase significantly from current levels because we expect to incur additional
costs and expenses related to the formation of additional strategic alliances;
the development of multiple marketing channels, our brand and other promotional
activities; additional personnel; the continued development of our Web site and
infrastructure and international expansion.
Our ability to achieve profitability depends in part on whether we can
substantially increase net revenues. To the extent that our marketing efforts do
not result in significantly higher net revenues, we may be materially and
adversely affected. We may be unable to generate sufficient revenues from the
sale of our products to enable us to achieve or maintain profitability.
We may experience significant fluctuations in our future operating results
due to a variety of factors, many of which are outside our control. Factors that
may affect our operating results include our ability to attract and retain
customers, the success of strategic alliances, competition, mix of product sales
and seasonality of sales typically experienced by the flower and gift market.
While we have some ability to affect our product mix through effective upselling
of higher margin products, our sales mix will vary from period to period and our
gross margins may fluctuate accordingly.
24
<PAGE> 26
COMBINED RESULTS OF OPERATIONS
The following table sets forth the combined statement of operations data
for the periods indicated as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues.......................... 100% 100% 100% 100% 100%
Cost of revenues...................... 69 65 66 66 64
--- --- --- --- ---
Gross profit........................ 31 35 34 34 36
--- --- --- --- ---
Operating expenses:
Sales and marketing................. 16 14 20 12 62
General and administrative.......... 18 18 36 14 34
Product development................. 1 3 6 4 5
--- --- --- --- ---
Total operating expenses......... 35 35 62 30 101
--- --- --- --- ---
Income (loss) from operations......... (4) -- (28) 4 (65)
Net interest income (expense)......... -- (1) 2 (1) 4
--- --- --- --- ---
Net income (loss)..................... (4)% (1)% (26)% 3% (61)%
=== === === === ===
</TABLE>
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
Net Revenues
Net revenues consist of product sales to customers and charges to customers
for outbound shipping and handling and are net of returns, promotional discounts
and coupons. Net revenues increased to $1.0 million for the quarter ended March
31, 1999 from $432,000 for the quarter ended March 31, 1998, primarily as a
result of the significant growth in our customer base and increase in the number
of repeat purchases from our existing customers, reflecting the increase in the
number of our co-branded marketing sites and our Internet-based marketing
campaign.
Cost of Revenues
Cost of revenues consists of the costs of products sold to customers plus
outbound and inbound shipping and handling costs net of rebates received from
FTD and Teleflora. Cost of revenues increased to $640,000 for the quarter ended
March 31, 1999 from $286,000 for the quarter ended March 31, 1998. This $354,000
increase was primarily attributable to our variable costs associated with
increased sales volume. We expect cost of revenues to increase in future periods
to the extent that our net revenues increase. Our gross profit margin increased
to 36% of net revenues for the quarter ended March 31, 1999 from 34% for the
quarter ended March 31, 1998. This increase was primarily due to a higher
percentage of flowers sold directly from the grower during our heavy Valentine's
Day sales period. Direct from the grower products generally have higher gross
margins due to distribution channel efficiencies. We may be unable to continue
to achieve our historical gross margins or sales mix in the future.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
fees paid to our co-branded partners, advertising and promotional expenditures,
payroll and related expenses for personnel engaged in sales, marketing and
customer service, order processing expenses, credit card charges and related
expenditures. Sales and marketing expenses increased to $622,000 for the quarter
ended March 31, 1999 from $49,000 for the quarter ended March 31, 1998. This
$573,000 increase was primarily the result of higher advertising and promotional
expenditures relating to brand building and increased staffing, as well as order
processing fees paid to Fingerhut and increased fees paid to our co-branded
partners, both of which
25
<PAGE> 27
were directly attributable to our increase in sales volume. As a percentage of
net revenues, sales and marketing expenses increased to approximately 62% in the
first quarter of 1999 from approximately 12% in the first quarter of 1998 due to
increased advertising and promotional expenditures related to building brand
recognition, and additional sales and marketing staff to support our sales
growth. We intend to continue to aggressively pursue existing and new co-branded
partners, expand our branding and marketing campaign and hire additional sales
and marketing personnel, and, therefore, expect sales and marketing expenses to
increase significantly in future periods.
General and Administrative. General and administrative expenses include
payroll and related expenses for administrative, finance and purchasing
personnel, general office and depreciation expenses, travel, professional fees
and other general corporate expenses. General and administrative expenses
increased to $344,000 for the quarter ended March 31, 1999 from $62,000 for the
quarter ended March 31, 1998. This $282,000 increase was due to the hiring of
executive and administrative personnel in the first quarter of 1999, increased
office expenses associated with such personnel and increased professional fees.
As a percentage of net revenues, general and administrative expenses increased
to approximately 34% in the quarter ended March 31, 1999 from approximately 14%
in the quarter ended March 31, 1998, reflecting increased investment in our
corporate infrastructure to support our increased sales. We expect general and
administrative expenses to continue to increase in absolute dollars in 1999 due
to growth in management, personnel, administrative infrastructure and costs
associated with being a public company.
Product Development. Product development costs consist primarily of
payroll and related expenses for developing, enhancing, managing, monitoring and
operating our Web site including fees that we pay to a third party hosting
service. Product development expenses increased to $56,000 for the quarter ended
March 31, 1999 from $17,000 for the quarter ended March 31, 1998. This $39,000
increase was primarily a result of increased spending and systems development
and enhancement. Product development expenses as a percentage of net revenues
increased to approximately 5% for the quarter ended March 31, 1999 from
approximately 4% for the quarter ended March 31, 1998. We anticipate that
continued investment in product development will be critical to attaining our
strategic objectives and, as a result, expect product development expenses to
increase in absolute dollars in 1999 as we implement software upgrades and
enhancements.
Loss from Operations
As described above, we have invested heavily in expanding our
infrastructure, continuing to develop new services and maintaining our
technological advantage as we seek to increase our market share. For the
foregoing reasons, we experienced an operating loss of $654,000 for the quarter
ended March 31, 1999, compared to income from operations of $18,000 for the
quarter ended March 31, 1998.
Interest Income (Expense), Net
Net interest income for the three months ended March 31, 1999 consisted of
income earned on short-term investments in our money market accounts which was
offset in part by interest on a capital lease. Interest expense for the three
months ended March 31, 1998 consisted only of interest on two notes payable to
our Chief Executive Officer.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Revenues
Net revenues increased to $1,743,000 in 1998 from $1,489,000 in 1997 as a
result of a shift in our business strategy from the Prodigy network to our own
and co-branded sites on the Internet.
Cost of Revenues
Cost of revenues increased to $1,153,000 in 1998 from $964,000 in 1997.
This $189,000 increase was primarily a result of our increased sales. Our gross
profit margin percentage decreased to approximately
26
<PAGE> 28
34% in 1998 from approximately 35% in 1997 primarily due to increased use of
promotional discounts and sales coupons.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased to $339,000 in
1998 from $207,000 in 1997. As a percentage of net revenues, sales and marketing
expenses increased to approximately 19% in 1998 from approximately 14% in 1997,
primarily due to increased advertising and promotional expenses incurred in the
fourth quarter of 1998 as part of executing our growth strategy.
General and Administrative. General and administrative expenses increased
to $631,000 in 1998 from $273,000 in 1997 due to increases in executive and
administrative personnel and associated office expenses, and increased use of
professional consultants during the last two quarters of 1998. As a result of
these increases, general and administrative expenses increased to approximately
36% as a percentage of net revenues in 1998 from approximately 18% in 1997.
Product Development. Product development costs increased to $105,000 in
1998 from $48,000 in 1997. As a percentage of net revenues, product development
costs increased to approximately 6% in 1998 from approximately 3% in 1997
primarily as a result of expenses incurred to develop and maintain our Web site,
database and technology infrastructure, and systems and software upgrades
required to support our increased number of Internet transactions.
Loss from operations
Operating loss increased to $485,000 in 1998 from $3,000 in 1997, due
primarily to the increased costs associated with sales and marketing, general
and administrative and product development as we developed our infrastructure.
These increased costs were partially offset by improved gross profit of $65,000.
Interest Income (Expense), Net
Net interest income in 1998 consisted of income from short-term investments
of the proceeds from the sale of shares of common stock to Fingerhut, which was
offset in part by interest expense associated with interest on two notes payable
to our Chief Executive Officer plus interest on a capital lease. Interest
expense in 1997 consisted only of interest on two notes payable to our Chief
Executive Officer. There was no interest income in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenues
Net revenues decreased to $1.5 million in 1997 from $2.1 million in 1996
primarily as a result of the decrease in consumer utilization of the Prodigy
network.
Cost of Revenues
Cost of revenues decreased to $1.0 million in 1997 from $1.4 million in
1996. This decrease was primarily a result of a decrease in product sales
volumes. Our gross profit decreased to $525,000 in 1997 from $637,000 in 1996
primarily as a result of our decreased revenues. As a percentage of net
revenues, our gross margin increased to approximately 35% in 1997 from
approximately 31% in 1996, principally attributable to an increase in the
proportion of generally higher gross margin flowers sold directly from growers.
27
<PAGE> 29
Operating Expenses
Sales and Marketing. Sales and marketing expenses decreased to $207,000 in
1997 from $335,000 in 1996 primarily as a result of cost control and a decrease
in product sales volume. As a percentage of net revenues, sales and marketing
expenses decreased to approximately 14% in 1997 from approximately 16% in 1996
primarily as a result of a 1996 promotional campaign with a retail grocery chain
that was discontinued in 1997.
General and Administrative. General and administrative expenses decreased
to $273,000 in 1997 from $365,000 in 1996. This decrease was primarily a result
of a decrease in headcount and consulting fee expenses from the previous year in
connection with the decline of our Prodigy-based sales. As a percentage of net
revenues, general and administrative expenses remained relatively consistent
from 1997 to 1996.
Product Development. Product development costs increased to $48,000 in
1997 from $30,000 in 1996. As a percentage of net revenues, product development
costs increased to 3% in 1997 from 1% in 1996 primarily as a result of increased
headcount in our technology staff to support our Web site.
Loss from Operations
Operating loss decreased to $3,000 in 1997 from $93,000 in 1996, primarily
due to a $202,000 decrease in operating expenses associated with the decline in
consumer utilization of the Prodigy network. This decrease in costs was
partially offset by a reduction in gross margin of $112,000.
Interest Income (Expense), Net
Interest expense in 1997 was attributable to $6,000 of interest on two
notes payable to our Chief Executive Officer. There was no interest income in
1997 and no interest income or expense in 1996.
INCOME TAXES
No provision or benefit for federal and state income taxes (actual or pro
forma) has been recorded because we incurred net operating losses for the years
ended December 31, 1996, 1997 and 1998. Prior to July 10, 1998, we were an S
corporation for tax purposes. As of December 31, 1998, we had approximately
$212,000 of federal operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2013. Under the Tax
Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances, including
significant changes in ownership interests. Our existing net operating loss
carryforward may be restricted due to changes in ownership or from future tax
legislation.
We have established a valuation allowance against the entire amount of our
deferred tax asset because our management has not been able to conclude that it
is more likely than not that we will be able to realize the deferred tax asset,
due primarily to our history of operating losses.
SELECTED UNAUDITED QUARTERLY COMBINED RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly statements of operations
data for the five quarters ended March 31, 1999. We believe this unaudited
information has been prepared substantially on the same basis as the annual
audited combined financial statements appearing elsewhere in this prospectus. We
believe this data includes all necessary adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. You should read the
quarterly data together with the combined financial statements and the notes to
those statements appearing elsewhere in this prospectus. The combined results of
operations for any quarter are not necessarily indicative of the operating
results for any future period. We expect that our quarterly revenues may
fluctuate significantly. See "Risk Factors -- Our operating results are volatile
and difficult to predict".
28
<PAGE> 30
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
1998 1998 1998 1998 1999
------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $432 $586 $ 241 $ 484 $1,008
Cost of revenues...................... 286 388 159 320 640
---- ---- ----- ----- ------
Gross profit........................ 146 198 82 164 368
Operating expenses:
Sales and marketing................. 49 67 48 175 622
General and administrative.......... 62 68 187 314 344
Product development................. 17 42 26 20 56
---- ---- ----- ----- ------
Total operating expenses......... 128 177 261 509 1,022
---- ---- ----- ----- ------
Income (loss) from operations......... 18 21 (179) (345) (654)
Interest income (expense), net........ (3) 2 17 18 43
---- ---- ----- ----- ------
Net income (loss)..................... $ 15 $ 23 $(162) $(327) $ (611)
==== ==== ===== ===== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations principally with
working capital, notes payable to our Chief Executive Officer and, more
recently, the sale of equity securities to Fingerhut. In July 1998, we entered
into a strategic relationship with Fingerhut in which Fingerhut acquired 496,000
shares (19.9%) of our common stock for an aggregate price of approximately $2.0
million. In connection with this transaction, Fingerhut obtained warrants to
acquire an additional 40.1% share of our outstanding stock. In January 1999,
Fingerhut exercised certain of its warrants and acquired an additional 838,000
shares of common stock at an aggregate exercise price of $3.0 million,
representing an additional 20.1% of our outstanding shares after the exercise.
In May 1999, Fingerhut again exercised certain of its warrants and acquired an
additional 532,800 shares of common stock at an aggregate exercise price of
approximately $1.6 million, giving Fingerhut approximately 48% ownership.
Fingerhut has agreed to exercise its remaining warrants for 1,133,200 shares of
common stock at a weighted average exercise price of $2.56 per share, at an
aggregate exercise price of approximately $2.9 million, simultaneously upon the
completion of this public offering. Neither Fingerhut nor Federated has any
obligation to make equity or other capital resources available to us in the
future.
For the year ended December 31, 1996, we generated $23,000 in cash from
operating activities. We used $20,000 in cash to fund our operations during the
year ended December 31, 1997, $223,000 in cash to fund our operations during the
year ended December 31, 1998, $5,000 in cash to fund our operations during the
quarter ended March 31, 1998 and $271,000 in cash to fund our operations during
the quarter ended March 31, 1999. In each of these periods, our principal
operating cash requirements were to fund our net loss coupled with changes in
our operating assets and liabilities.
We used $31,000 in cash for investing activities during the year ended
December 31, 1996, $4,000 in cash for investing activities during the year ended
December 31, 1997, $25,000 in cash for investing activities during the year
ended December 31, 1998, $9,000 in cash for investing activities during the
quarter ended March 31, 1998 and $193,000 in cash for investing activities
during the quarter ended March 31, 1999. In each period, net cash used for
investing activities related primarily to the purchase of property and
equipment.
We generated $77,000 from financing activities in the year ended December
31, 1997 from loans of $150,000 by our Chief Executive Officer offset, in part,
by $73,000 paid for a stock repurchase, $1.7 million from financing activities
in the year ended December 31, 1998 principally from the sale of equity
securities to Fingerhut and approximately $3.0 million from financing activities
in the quarter ended March 31, 1999 principally from the sale of equity
securities to Fingerhut. For the year ended
29
<PAGE> 31
December 31, 1996 and quarter ended March 31, 1998, we did not generate any cash
from our financing activities.
In March 1999, we entered into a one-year agreement, with subsequent
one-year renewal periods, with Exceed Communications International, Inc. for the
design, development and maintenance of our Web site. This agreement obligates us
to pay Exceed a one-time design and development fee of $250,000, half of which
was paid in March 1999, plus a minimum annual maintenance fee of $200,000
payable upon the launch of our new Web site, which we expect to occur in the
fourth quarter of 1999. In addition, the agreement requires us to pay Exceed a
variable maintenance fee equal to 2.5% of our net annual Internet revenues
exceeding $5 million. As of March 31, 1999, $125,000 of the design and
development fee was capitalized in accordance with the American Institute of
Certified Public Accountants Statement of Position 98-1.
We typically pay suppliers 15 to 30 days after the month of purchase, and,
to date, have not experienced any order fulfillment delays that have had a
material impact on us.
As of March 31, 1999, we had approximately $4.2 million in cash and cash
equivalents. As of that date, our capital commitments consisted of $36,000 in
obligations outstanding under a capital lease.
We believe that the net proceeds from this offering, net proceeds from the
exercise of the Fingerhut warrants and our current available funds will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures through at least the next 24 months. We may need to raise
additional funds prior to the expiration of this period if, for example, we
pursue business acquisitions or experience operational losses that exceed our
current expectations.
If we raise additional funds through the issuance of equity, equity-related
or debt securities, such securities may have rights, preferences or privileges
senior to those of the rights of our common stock and our stockholders may
experience additional dilution. We cannot be certain that additional financing
will be available to us on favorable terms when required, if at all.
IMPACT OF THE YEAR 2000
Many existing computer systems use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We may realize exposure and risk if the systems on which we are dependent
to conduct our operations are not Year 2000 compliant.
Our potential areas of exposure include products purchased from third
parties, information technology including computers and software, and
non-information technology including telephone systems and other equipment used
internally. All of the internally used production and operation systems have
either undergone or are undergoing a complete re-engineering. All new programs
are being tested and validated for Year 2000 compliance.
We have taken steps to ensure that our phone systems and most other
non-information technology are Year 2000 compliant. We believe all
non-information technology upon which we are materially dependent is Year 2000
compliant. Additionally, with respect to information technology, we believe we
have resolved our Year 2000 compliance issues primarily through normal upgrades
of our software or, when it was necessary, by replacing existing software with
Year 2000 compliant applications. The cost of these upgrades or replacements was
not material.
Our Year 2000 compliance assessment plan includes both our and Fingerhut's
information and non-information technology as well as all internally developed
production and operation systems. Based on this assessment, we believe that all
of our non-information technology and all internally developed production and
operating systems are Year 2000 compliant. We have been advised by Fingerhut
that it has completed Year 2000 testing and remediation on its
internally-developed systems and that contingency planning and
30
<PAGE> 32
enterprise certification will continue through the third quarter of 1999, with
completion in the fourth quarter of 1999.
In addition, we have received written assurances from all of our key
distributors and suppliers that they are actively addressing Year 2000 issues.
However, some of our distributors and suppliers, including FTD and Teleflora,
are not yet Year 2000 compliant.
In the event that our production and operational facilities that support
our Web site are not Year 2000 compliant, portions of our services may become
unavailable. We have reviewed our systems and believe that there is no single
application that would make our services totally unavailable and we believe that
we can quickly address any difficulties that may arise.
In the event that our services are not Year 2000 compliant, our services
would be unavailable and we would not be able to deliver our services to our
users. We do not currently have a contingency plan to deal with the worst-case
scenario that might occur if technologies we depend on are not Year 2000
compliant and fail to operate effectively after the Year 2000. We intend to
develop a plan for this scenario by August 31, 1999. If our present efforts to
address the Year 2000 compliance issues are not successful, or if distributors,
suppliers and other third parties with which we conduct business do not
successfully address such issues, our business, operating results and financial
position could be materially and adversely affected. The most likely worst case
scenario is that the Internet fails and we are unable to offer our commerce
services.
RECENT ACCOUNTING PRONOUNCEMENTS
We have adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income" in 1998. SFAS No. 130
requires us to report our financial statements, in addition to our net income
(loss), which includes all changes in equity during a period from non-owner
sources including, as applicable, foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. There were no differences between our comprehensive
loss and our net loss as reported.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
the way public enterprises report information about operating segments. It also
establishes standards for related disclosures about products and services,
geographic area and major customers. We have determined that we do not have any
separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to effect us as we currently do not have any
derivative instruments or hedging activities.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance for
determining whether computer software is internal-use software and on accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. It also provides guidance
on capitalization of the costs incurred for computer software developed or
obtained for internal use. We adopted SOP 98-1 in 1999.
We capitalized software costs related to internally developed or purchased
software in accordance with SOP 98-1 in the amount of approximately $131,000 as
of March 31, 1999. Amounts capitalized are amortized on a straight-line basis
over a period of three years.
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BUSINESS
PC FLOWERS & GIFTS.COM
We are an innovative online retailer of flowers and event-driven gift
products. Our Web site (WWW.PCFLOWERS.COM) offers customers convenient and
reliable one-stop shopping. We offer a wide selection of floral products and
complementary event-driven gift products such as jewelry, cosmetics, specialty
foods and gift baskets. Our customers are able to order flowers through both our
select group of FTD and Teleflora member florists or directly from growers.
Shipping directly from growers allows customers to receive flowers that are
seven to nine days fresher than flowers received through the traditional retail
flower distribution process. Our Web site also provides our customers with
features such as a gift reminder service, the ability to place advance orders
and real-time account information.
A key element of our strategy is to leverage our strategic relationship
with Fingerhut and to develop a strategic relationship with Federated. Fingerhut
is one of the largest direct marketers in the United States, selling general
merchandise through catalogs and various Web sites. A central element of
Fingerhut's business development is to invest in, build and support e-commerce
businesses. As part of that strategy, Fingerhut currently owns 48% of our common
stock. In March 1999, Fingerhut was acquired by Federated, which operates over
400 full-line department stores, including Bloomingdale's, Burdine's, Macy's and
Stern's. In April 1999, Fingerhut began managing the operations of several of
Federated's direct marketing and e-commerce businesses, including macys.com and
Macys By Mail.
We believe that our strategic relationship with Fingerhut will enable us to
successfully address many of the key challenges facing online retailers:
- Order fulfillment. Through our fulfillment services agreement with
Fingerhut, we utilize its substantial infrastructure for order and credit
card processing, product fulfillment, customer service, telephonic
services and product return services.
- Product sourcing. Our fulfillment services agreement with Fingerhut also
allows us to benefit from Fingerhut's purchasing strength and to offer
Fingerhut's broad range of complementary gift products for sale on our
Web site.
- Customer acquisition. We have participated in a portion of Fingerhut's
catalog and promotional mailings and, expect to continue to do so in the
future. Currently, Fingerhut's database consists of over 30 million
consumers, and, in 1999, Fingerhut expects to distribute over 450 million
catalog and promotional mailings. By participating in a portion of these
catalog and promotional mailings, we can potentially increase our
customer base quickly and cost-effectively.
In addition to our relationship with Fingerhut, we currently reach
customers through our Web site and over 1,000 co-branded sites including NBC,
AT&T, Citibank, BellSouth, Merrill Lynch and MindSpring, and through our
1-800-PCFLOWERS service. Furthermore, one of our goals is to develop a strategic
relationship with Federated. Federated currently plans to develop and as
strategic relationship with us, involving, among other things, access to
Federated's customer database and gift products. For example, we have already
contracted with and built a co-branded Web site to sell flowers on macys.com.
We began selling flowers online in 1989. Through 1994, we were the
exclusive flower retailer on the Prodigy online network. As a result of the
decrease in the number of Prodigy subscribers, we began to migrate our service
from Prodigy to the Internet in 1994. Since that time, we have focused our
activities on expanding our Internet services.
CUT FLOWER INDUSTRY
Retail Flower Market. According to statistics published by the Flower
Council of Holland, the worldwide floriculture industry had total retail
revenues of approximately $60 billion in 1997, compared to under $45 billion in
1990. According to The Floral Index, Inc., a marketing and consulting service,
retail sales of floral products in the United States were approximately $14.6
billion in 1998 compared to $12.8 billion in 1992. Consumer purchases of
delivered cut flowers are often "event-driven." According to the
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Society of American Florists, approximately 70% of cut flowers are sent as gifts
for occasions such as Valentine's Day, Easter, Mother's Day, Thanksgiving,
Christmas, birthdays and illness. As a result, flowers are often purchased by
the sender over the telephone, sight unseen, to be delivered to the recipient.
Therefore, consumers place significant value on non-price considerations such as
convenience, product quality, customer service and reliable delivery when
purchasing flowers.
Retail Florist Industry. The retail florist industry has traditionally
been highly fragmented. Most florists are independently owned and operated, and
offer limited products due to space and capital constraints. In addition, most
independent operators are too small to achieve operating efficiencies necessary
to support systems for obtaining and utilizing demographic and behavioral data
about their customers, and therefore are unable to increase sales through
database mining.
Supply Chain. Although the floral product distribution channel has begun
to consolidate, the majority of retail florists receive products through a
lengthy distribution process. First, growers ship flowers from their central
warehouses to wholesalers throughout the country. These wholesalers then ship
flowers to retail florists who market the flowers to the end consumer. The
duration of this supply chain limits the breadth of flowers that can be offered
in retail shops to hardier varietals, since 10 to 12 days often elapse between
the time flowers are first cut and the time that they ultimately reach the
consumer.
Floral Wire Network. The national market for delivered cut flowers has
traditionally been dominated by retail florist networks such as Teleflora and
FTD. These networks collect customer orders through local member florists. FTD
also collects customer orders through its 1-800 number and its own Web site. FTD
and Teleflora then allocate orders for fulfillment to individual retail florists
based on membership, order activity and geography. Member florists typically pay
the network a monthly fee plus a percentage of their network-referred revenues.
In general, networks depend on independent retail florists to fulfill and
deliver orders to customers. As a result, it is difficult for networks to hold
individual florists accountable for late, unfulfilled or poor quality
deliveries.
The "Direct from the Grower" Channel. The emerging "direct from the
grower" channel bypasses wholesalers and retail florists completely by shipping
flowers directly from the grower's warehouse to the consumer by overnight
delivery service. As a result, consumers receive both traditional and more
exotic flowers typically seven to nine days fresher and at a significantly lower
cost than from a retail florist. Since orders are fulfilled centrally, they can
be combined with other gift products which are not cost-efficient for retail
florists to hold in inventory. Direct from the grower flowers are generally
marketed to consumers through catalogs and the Internet.
INTERNET FLORAL OPPORTUNITY
Growth of the Internet and Online Commerce. The Internet has emerged as a
global communication medium that enables millions of people to share information
and conduct business electronically. International Data Corporation estimates
that there were approximately 97 million worldwide users of the Internet in 1998
and that the number of users will grow to approximately 320 million in 2002. The
growth of the Internet represents a substantial opportunity for companies to
conduct business online. IDC estimates that sales to households over the
Internet will increase worldwide from approximately $11 billion in 1998 to more
than $93 billion in 2002. In addition, according to Forrester Research, sales of
flowers and gifts to consumers over the Internet are expected to grow from an
estimated $311 million in 1998 to over $1.3 billion in 2002.
Changing Business Paradigms. The Internet is dramatically affecting the
way consumers and businesses are buying and selling products and services.
Online retailers typically use the Internet to offer standard products and
services that can be easily and sufficiently described with graphics and text
and do not require the physical presence of the product for the consumer to make
the purchase. Online retailers can interact with customers in real time by
frequently adjusting their product mix, pricing and visual presentation and can
tailor their product offerings based on individuals' preferences. The global
reach of the Internet allows retailers to attract customers more quickly than
traditional retailers and catalog marketers. In addition, online retailers do
not have the burdensome costs of significant retail store
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infrastructure or store personnel, and do not have the continuous printing and
mailing costs of catalog marketers.
The Online Flowers and Gifts Opportunity. We believe that flowers and
gifts are particularly well-suited for online retailing, and consumers have
demonstrated a willingness to purchase flowers and gifts sight unseen. Online
shopping for flowers and gifts is more convenient for consumers than shopping
through traditional retail channels for the following reasons:
- flowers and gifts can be viewed, purchased and shipped directly to
consumers through a simple and efficient purchase process;
- online sites are open 24 hours a day, seven days a week, making shopping
online more convenient than shopping through retail outlets;
- flower purchases can be combined and shipped with other event-driven gift
products such as CDs, books, videos, jewelry, chocolates, cosmetics and
glass products; and
- the Internet enables other features and services, such as a gift reminder
service and address books, that are not practical through traditional
retailing channels.
Online floral retailing also provides the "retailer" with significant
advantages, including the ability to:
- display a virtually unlimited number of products;
- operate 24 hours a day, seven days a week, without incremental personnel
costs;
- offer a broad selection of event-driven gift products to combine and ship
with flowers; and
- collect consumer information and "mine" customer databases.
Online Flowers and Gifts Challenges. There are a number of challenges to
successfully providing online floral and gift services. Online florists require
access to both direct and retail distribution channels to satisfy varying
consumer preferences for assortments of flower products, freshness and timely
delivery. As the competition for online customers intensifies, online retailers
face a number of challenges to acquire and retain customers and maintain
successful Web sites, including:
- Cost-Effectively Acquiring and Retaining Customers. One of the key
drivers of success in any business is the ability to identify, access and
retain new customers in a cost-effective manner. Many online retailers
are only able to access potential customers through expensive
Internet-based methods such as banner advertising, traditional affiliate
programs and "loss leader" promotions or traditional forms of advertising
such as billboards and television which are not targeted, and therefore
expensive on a per-converted customer basis. Multiple and inexpensive
means of finding and retaining customers will be an advantage in the
online world.
- Establishing Brand Recognition. Although a few online retailers have
begun to establish strong brands, the majority are still in the early
stages of brand development. Because a strong brand may help customers
overcome concerns about trying a new retail experience such as online
shopping, brand recognition is especially important to online retailers
in attracting customers and developing customer trust and loyalty.
Creating a strong brand, however, can be difficult and expensive. Online
retailers often must devote a significant amount of time and resources in
order to establish their brands, and many retailers rely heavily on
costly agreements with Internet portal providers to promote their brands.
- Fulfilling Orders Efficiently. Online retailers are discovering that
scalable, efficient and cost-effective customer service, order processing
and fulfillment capabilities are crucial to success in online commerce.
We believe that many customers who experience problems with customer
service, order processing and fulfillment never return to a site, while
customers who experience quick and accurate processing of their orders
and excellent customer service are more likely to become repeat
customers.
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THE PC FLOWERS & GIFTS.COM SOLUTION
Our easy-to-use Web site simplifies consumers' flower and gift purchasing
experiences. Unlike traditional florists, our Web site is available 24 hours a
day, seven days a week and may be reached from the convenience of a shopper's
home or office. In addition, our Web site offers a variety of shopping options
that are attractive to a broad spectrum of customers with differing needs,
budgets and delivery requirements. We also make the shopping experience
convenient by affording customers the ability to shop by product, by occasion
and by price. Finally, through our 1-800-PCFLOWERS service, customers can buy
flowers over the telephone 24 hours a day, seven days a week.
Multiple Distribution Channels. We believe we are one of the few flower
retailers that can deliver flowers to its customers through both the retail
florist network and the direct from the grower channel. We believe our ability
to compete effectively in both channels has provided and will continue to
provide us with a significant competitive advantage. Because each channel has
different distribution and cost structures, we can create product offerings
targeted at different market segments as the industry evolves. PC Net, our
select group of FTD and Teleflora member florists, allows us to process our
orders through florists who have proven to be reliable to ensure product quality
and selection and a high level of customer satisfaction. Although PC Net is an
important component in our flower distribution strategy, we are committed to
reducing our dependence on the traditional retail "bricks and mortar"
infrastructure.
Extensive Product Selection. We believe that our ability to offer our
customers an extensive selection of flowers, through both PC Net and directly
from the grower, provides our customers superior value. We have the ability to
combine complementary, high margin, event-driven gift products such as CDs,
books, videos, jewelry, chocolates, cosmetics and glass products with our direct
from the grower flower products to offer our customers broader product
selection.
Responsive Customer Service. We believe our agreement with Fingerhut
enables us to provide responsive customer service. All of our order and credit
card processing, customer service, telephonic services and product return
services are handled through a specialized division of Fingerhut's customer
service center that ensures the availability of a high standard of customer
service and order processing throughout the year and particularly prior to major
floral occasion holidays. Fingerhut operates the customer service center on
weekdays during expanded business hours and on Saturday mornings. Our products
are 100% guaranteed as we offer customers the choice of a full refund or product
reshipment if they experience problems. For jewelry products, we limit returns
based on how long the customer has kept the product. We believe that our high
level of customer service and support will enable us to better maintain
long-term relationships with our existing customers and encourage repeat visits
and purchases from both our Web site and from our 1-800-PCFLOWERS service.
Value Added Services. Through our Web site, we offer helpful personalized
shopping services to assist our customers and encourage repeat visits and
purchases such as:
- Online Address Book, which records the addresses of people to whom our
customers send gifts so that customers do not need to enter the same
address multiple times;
- Gift Reminder Service, which notifies customers by e-mail both five days
and one day in advance of holidays, birthdays, anniversaries and other
important customer specified dates and proactively offers gift
recommendations;
- Advance Purchase, which allows customers to place an order and schedule
delivery up to six months in advance; and
- Account History, which provides customers with convenient access to their
personal account history including gift descriptions, date of gift,
recipient name and address and purchase price.
Unique Business Model. In addition to our multiple distribution channels,
we believe that several other facets of our business model give us a significant
competitive advantage and allow us to deliver a superior value proposition to
our customers.
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- Fingerhut Relationship. Through our fulfillment services agreement with
Fingerhut, we have access to scalable gift product sourcing, order and
credit card processing, customer service, telephonic services, product
fulfillment and product return services at costs that are less than
otherwise available from third parties. As a result, we are not
constrained by the expense of procuring and maintaining a physical
warehouse-based infrastructure with respect to non-floral gift products
and we gain potential access to a wide range of complementary
event-driven gift products. We believe these capabilities and resources
reduce product costs through better purchasing power and allow us to
expand our product offerings without increasing our inventory and
handling costs.
- Cost-Effective Customer Acquisition and Retention. Our proprietary
co-branding strategy allows us to market our products on customized sites
of our co-branded partners, thus bringing us a significant number of
customers. We currently have more than 1,000 co-branded sites. Together
with Fingerhut and Federated, we are working toward identifying marketing
opportunities in connection with their catalogs, promotional mailings,
Internet presence and other database mining capabilities.
- Technology. Our hardware and software architecture, which is based on a
database driven model, enables frequent changes to product pricing
information and minimizes the engineering required to maintain a growing
amount of products, promotional events and content. In addition, our
merchandise systems enable us to track sales performance by SKU in real
time. We believe these systems enhance our order fulfillment reliability
and customer satisfaction.
STRATEGY
Our objective is to be a leading online retailer of flowers and
event-driven gift products. We plan to achieve this goal through the following
key strategies:
Leverage Fingerhut's Operational Capabilities and Develop Federated
Relationship
A key element of our strategy is to leverage Fingerhut's operational
capabilities to achieve rapid, scalable growth without the investment and
operational risk typically incurred by online companies who either rely on
third-party relationships or build in-house product procurement, order
processing, fulfillment and customer service capabilities. We intend to utilize
Fingerhut's, and potentially Federated's, product offerings to offer additional
event-driven gift products thereby providing a better value proposition to our
customers and increasing average revenue per transaction. Because Fingerhut and
Federated are among the largest direct marketers and store-based retailers in
the United States, we expect to benefit from increased purchasing power to
reduce product costs and increase margins.
Attract and Retain Customers
We believe that by using our co-branded business model, our Fingerhut
relationship, traditional forms of online and offline advertising and our
potential relationship with Federated, we can acquire and retain customers on a
cost-effective basis.
- Access Fingerhut and Federated's Customers. We believe we can increase
revenues and lower customer acquisition costs through targeted marketing
by continuing to participate in Fingerhut's catalogs, promotional
mailings and credit card bill inserts. By further developing our
relationships with Fingerhut and Federated, we expect to gain access to
their extensive customer databases to effectively mine those databases to
identify customer specific event information such as birthdays and
anniversaries. In addition, under our fulfillment services agreement with
Fingerhut, we are able to offer our customers the ability to purchase our
products on or off the Internet with their Fingerhut credit cards. We
believe that Fingerhut's moderate income customer base comprises a market
segment not traditionally reached by the flower-by-wire retail florist
market. Through a combination of lower-priced, fresher, direct from the
grower offers, coupled with a Fingerhut credit card, we believe we can
access this large market.
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- Expand Co-Branded Relationships. Our co-branding strategy allows us to
continuously attract and acquire new customers without significant
investments in advertising and marketing. Through our co-branding
service, our co-branded partners can offer their site visitors a
customized flower and gift service while maintaining their own brand
identity. In addition, our co-branded partners earn a percentage of both
initial and future revenues generated by the sales on their co-branded
sites. To maintain partner loyalty to us and promote our partners' brand
identities through our marketing efforts, we encourage consumers to
return to our partners' Web sites after completing a purchase on their
co-branded site.
- Traditional Marketing. We believe that increasing the brand name
awareness of PC Flowers & Gifts.com will contribute to our future
success. In addition to our co-branding strategy, we use online and
offline marketing strategies to maximize customer awareness and enhance
our brand name recognition. We promote our products through a variety of
advertising and promotional techniques including print and radio
advertising in major markets. We advertise on major Web sites, including
Lycos, Snap.com, Alta Vista, Go2net and MiningCo.com. We also use other
online promotions, including monthly sweepstakes on the Internet, our
gift reminder service, our virtual bouquet service, electronic coupons
and other e-mail based advertising. In addition, in order to increase our
exposure on the Internet and directly generate sales, we will launch an
affiliate program. Under this program, we will pay our registered
affiliates a percentage of revenue for any sale generated as a result of
their link to our Web site. As our customer base grows, we continue to
collect data about our customers' buying preferences and habits and to
develop one-to-one relationships with our customers. We intend to
leverage this information by delivering valuable information and special
offers to our customers via e-mail and other means. We intend to continue
to use the unique resources of the Internet as a low-cost means of
personalized marketing in an effort to drive traffic and repeat
purchases.
Strengthen Existing and Emerging Distribution Channels
We believe we are one of the few online flower providers to have developed
significant relationships with both the traditional retail flower channel as
well as the emerging direct from the grower channel, which provides our
customers with higher levels of service and selection. Over the past nine years,
we have worked closely with one of the leading retail networks, FTD, and
recently we also began to work with Teleflora, allowing customers to place
orders for floral products around the world with same day delivery in many
cases. We will continue to leverage PC Net which enables us to designate a store
for fulfillment and therefore provide superior service to our customers.
We believe that shipment of flowers direct from the grower represents a
significant future opportunity for the online floral market. The direct from the
grower channel offers significant advantages over products provided by other
floral wire and Internet services that deliver flowers predominantly through
retail florists including:
- flowers direct from the grower are typically seven to nine days fresher
due to the time saved through bypassing the wholesaler and the retail
florists;
- flowers direct from the grower are often significantly less expensive to
the consumer, while yielding us the same profit margins;
- growers can provide a greater variety of more exotic flowers than are
usually available through retail florists; and
- flowers direct from the grower can be combined with complementary gift
products, such as CDs, books, videos, jewelry, chocolates, cosmetics and
glass products.
We will continue to leverage direct distribution to combine flowers and
complementary event-driven gift products for customers as well as potentially
improve product margins. As consumers come to recognize the benefits of ordering
flowers from the direct channel, we believe we are well positioned to capitalize
on this trend compared to floral providers who are tied to the retail channel.
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Extend PC Flowers & Gifts.com Brand Into Other Event-Driven Gift Categories
We believe that increasing the brand name awareness of PC Flowers &
Gifts.com will contribute to our future success. We intend to build our brand by
capitalizing on consumers' natural attraction to flowers for event-driven gift
giving and expanding into other complementary gift categories. By increasing the
size and scope of our product offerings, we seek to capture the economic
benefits associated with being a "one-stop-shop" for a varied assortment of
event-driven gift products through our Web site.
Expand into New Markets
We believe we are well positioned to reach the international market for
flowers and gifts, which is larger than the domestic market for such goods. We
intend to aggressively expand overseas through the development of co-branded
partner sites in the language of targeted countries with an initial focus on
Europe and Asia. The technology and relationships that we have developed will
enable us to launch these offerings and services rapidly. In addition, our
management team includes managers experienced in opening online businesses in
many of these markets.
Leverage Proprietary Technology
We use an advanced e-commerce technology platform which provides us with
the scalability and flexibility to manage our operations with minimal human
resources while maintaining high levels of service. Our platform encompasses all
aspects of e-commerce operations and allows us to significantly differentiate
our service offerings through personalized interaction and service, real-time
management reporting, and streamlined, reliable transaction processing and
fulfillment. In particular, we will continue to leverage our co-branding
technology to maintain and improve the customer's experiences, acquire co-
branded partners, improve business performance and provide high levels of
service. We believe that our e-commerce platform helps us overcome the
scalability, high cost of customer acquisition and management challenges of mass
market online commerce and we intend to expand this technology to further
enhance our services and support our growth.
PRODUCTS
We offer a broad selection of floral and gift items on our Web site:
Traditional Floral Products and Balloons. We offer a complete line of
floral products and helium-filled balloons through PC Net, our select group of
FTD and Teleflora member florists.
Flowers Direct From the Grower. We offer cut flowers sourced from major
South American growers. These cut flowers are delivered via overnight delivery
directly from the grower's U.S. warehouses to the customer in our packaging.
Gift Baskets, Gourmet Foods, Jewelry and Cosmetics. Through our
relationship with Fingerhut, we have access to a broad selection of jewelry,
cosmetics and other event-driven gift products, and through Figi's, a subsidiary
of Fingerhut, we have access to a broad selection of gift baskets and gourmet
foods.
MERCHANDISING
Unlike store-based retail formats, we have significant flexibility in the
organization and presentation of our products and are able to dynamically adjust
our product mix on the Internet to respond to changing customer demand.
MARKETING AND PROMOTION
Online Advertising. We advertise on major online sites, including Lycos,
Snap.com, Alta Vista, Go2net and MiningCo.com. We use online promotions,
including monthly sweepstakes on the Internet, our gift reminder service, our
virtual bouquet service, electronic coupons and other e-mail based advertising.
In addition, in order to increase exposure on the Internet and directly generate
sales, we intend to launch an
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affiliate program. Under this program, we pay our registered affiliates a
percentage of revenue for any sale generated as a result of their link to our
Web site.
Offline Advertising. We complement our online advertising with traditional
offline advertising, including print advertising in the Fingerhut catalogs,
credit card bill inserts, magazine inserts and radio advertising in major
markets. We believe our offline advertising enhances our image and enables us to
reach consumers who are not online.
1-800-PCFLOWERS. Our 1-800-PCFLOWERS service provides consumers who lack
Internet access or who are reluctant to use their credit cards to place orders
on the Internet the ability to place orders by phone. We will continue and
expand this service by utilizing the resources of Fingerhut/ Federated.
FULFILLMENT
Teleflora and FTD Flowers and Balloons. Once we receive an order for
flowers, plants or balloons, we transmit the order to a PC Net florist. PC Net
is our select group of FTD and Teleflora member florists who we believe sell the
highest quality flowers and have the most reliable delivery history. We send
orders directly to our PC Net members through the FTD Mercury Network and to the
Teleflora Dove System. PC Net florists fulfill our orders quickly and adhere to
our stringent standards for quality. Delivery is available Monday through
Saturday, excluding holidays, within all fifty states.
Direct From the Grower Flowers. Direct from the grower orders received on
our Web site and from 1-800-PCFLOWERS are electronically transmitted from
Fingerhut's St. Cloud, Minnesota order processing facility to major growers
where the flowers are arranged, packaged and shipped. Flowers direct from the
grower are delivered via overnight delivery, Tuesday through Saturday, excluding
holidays, in the continental United States.
Jewelry and Cosmetics. Jewelry and cosmetics orders are processed and
fulfilled by Fingerhut personnel at the Fingerhut order processing facility in
St. Cloud, Minnesota and are delivered by UPS and overnight delivery.
Gift Baskets and Gourmet Foods. Orders for gift baskets and gourmet foods
are fulfilled by Figi's, a wholly-owned subsidiary of Fingerhut, and are
delivered via UPS and overnight delivery. Due to the perishable nature of these
items and to ensure high quality, we limit their delivery to Wednesday through
Friday.
TECHNOLOGY
Since commencing our online service nearly 10 years ago, we have used
numerous technology solutions and systems for deploying and managing our
e-commerce operations. We believe that our current advanced e-commerce
technology platform provides us with the scalability and flexibility to manage
our e-commerce operations with minimal human resources while maintaining high
levels of service. The platform consists of a broad array of software tools and
systems that help us manage our Web site and those of our co-branded partners,
enable us to monitor and respond to dynamic business change, help improve
customer interaction and service and streamline transaction processing and
fulfillment. In particular, our technology platform enables us to:
- enhance the customer experience by simplifying the purchase process,
reducing the number of customer actions required to complete a
transaction and providing value added services such as an online address
book, personalized gift reminder service, advanced purchasing
capabilities and access to account information.
- provide real-time management reporting to enable us to dynamically
analyze the performance of our business, to maintain and manage our Web
site and to track and improve business performance on a real-time basis;
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- build co-branded Web sites in less than one minute that are seamlessly
integrated with our partners' Web sites and track consumer relationships
with respect to the originating co-branded site in a manner that repeat
customers are directed back to the original co-branded site and our co-
branded partners can retain control over their customer databases;
- process flower orders according to pre-coded rules that govern delivery
options, validate each order, screen for possible fraud, authorize
payment method and transmit an electronic message to our distributors for
physical delivery; and
- separate the page presentation from the underlying database elements to
permit frequent changes to product information and minimize the
engineering resources required to maintain large and growing amounts of
products, pricing, promotions and content.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers and to encourage repeat visits and purchases
depends, in part, on the strength of our customer support, service operations
and staff. Our customer service, telephonic services and product return services
are provided by Fingerhut. Customer service representatives are available on
weekdays during expanded business hours and on Saturday mornings to provide
assistance via e-mail or telephone, to handle questions about orders, to assist
customers in finding desired products and to process their credit card
information. Customer service representatives are a valuable source of feedback
regarding user satisfaction. We offer a 100% guarantee for customer
satisfaction. If customers are not satisfied, we provide a full refund or
reshipment, the choice of which is the customer's. However, we limit returns of
jewelry products based on how long the customer has kept the jewelry.
COMPETITION
The flower and gift industry is very competitive. We currently or
potentially compete with a variety of companies, including:
- direct marketers of flowers that maintain or are tied to specific
networks of retail floral outlets, including 1-800-FLOWERS, FTD and the
Gerald Stevens Company;
- other online vendors of flowers shipped direct from the grower, including
FlowerFarmDirect and Proflowers;
- indirect competitors that specialize in online commerce or derive a
substantial portion of their revenues from online commerce, including
America Online, Microsoft and Amazon.com, through which other flower and
gift vendors may offer products; and
- traditional store-based retail florists and other stores offering gift
products.
We believe that the following are the principal competitive factors in our
market and that, based on our business strategy, we are well-positioned relative
to our competitors to address these factors:
- reliability and speed of order fulfillment;
- product and service quality;
- convenience;
- diversity of product category;
- price;
- customer service; and
- costs of customer acquisition and retention.
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<PAGE> 42
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation
in the United States other than regulations applicable to businesses generally
or directly applicable to electronic commerce. However, because the Internet is
becoming increasingly popular, it is possible that a number of laws and
regulations may be adopted in the United States with respect to the Internet.
These laws may cover issues such as user privacy, freedom of expression,
pricing, content and quality of products and services, taxation, advertising,
intellectual property rights and information security. Furthermore, the growth
of electronic commerce may prompt calls for more stringent consumer protection
laws. Several states have proposed legislation to limit the use of personal user
information gathered online or require online services to establish privacy
policies. The Federal Trade Commission has indicated that it may propose
legislation on this issue to Congress in the near future and has initiated
action against at least one online service regarding the manner in which
personal information was collected from users and provided to third parties. We
do not currently provide information regarding our users to third parties.
However, the adoption of such consumer protection laws could create uncertainty
in Internet usage and reduce the demand for all products and services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of those laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address such issues could create uncertainty in the Internet
marketplace. That uncertainty could reduce demand for our service or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs.
In addition, because our services are available over the Internet in
multiple states and foreign countries, other jurisdictions may claim that we are
required to qualify to do business in each state or foreign country. We are
qualified to do business only in Connecticut. Our failure to qualify in other
jurisdictions when we are required to do so could subject us to taxes and
penalties. It could also hamper our ability to enforce contracts in those
jurisdictions. The application of laws or regulations from jurisdictions whose
laws do not currently apply to our business could have a material adverse affect
on our business, results of operations and financial condition.
The European Union has adopted a policy directive which went into effect in
1998. Under this directive, business entities domiciled in member states of the
EU are limited in the transactions they may do with business entities domiciled
outside the EU unless they are domiciled in a jurisdiction with privacy laws
comparable to the EU privacy directive. The United States presently does not
have laws which satisfy the EU. Discussions between representatives and the
United States are ongoing and may lead to certain safe harbor provisions which,
if adhered to, would allow business entities in the EU and the United States to
continue to do business without limitation. If these negotiations are not
successful and the EU begins enforcement of the privacy directive, there could
be an adverse impact on international Internet business. We plan to do business
directly in the EU in the future which will require us to comply with the
privacy directive of the EU.
INTELLECTUAL PROPERTY
We own several trademarks, including PC Flowers & Gifts(R),
1-800-PCFLOWERS(R), PC Flowers(R), PC Gifts(R), TV Flowers(R) and PC
Balloons(R).
Certain technology that we utilize is the subject of two U.S. patent
applications and an international patent application owned by William J. Tobin,
our Chairman of the Board and Chief Executive Officer. Under a Technology
License Agreement with Mr. Tobin dated as of July 9, 1998, we have a fully paid,
royalty free, worldwide, perpetual, unrestricted and non-exclusive right to use
that technology and to practice the subject matter of the patent applications
and any patents that may issue on those applications in all activities relating
to retail distribution of consumer goods and services by means of server-based
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<PAGE> 43
communication systems. We, in turn, have sublicensed the patent applications to
Fingerhut and its affiliates on a non-exclusive basis.
To date, we have not been notified that we infringe the proprietary rights
of third parties except as described below under "-- Legal Proceedings".
However, there can be no assurance that third parties will not claim
infringement by us with respect to our current or future technologies. We expect
that participants in our markets will be increasingly subject to claims of
infringement as the number of services and competitors in our industry segment
grow. Any such claim, with or without merit, could be time-consuming, result in
costly litigation, cause service upgrade delays or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements may not be
available on terms acceptable to us or at all. As a result, any claim of
infringement against us could have a material adverse effect upon our business,
results of operations and financial condition.
LEGAL PROCEEDINGS
On April 7, 1999 we notified The Flower and Gift Shoppe, Inc. of
Wilmington, Delaware that it was using domain names utilizing certain of our
trademarks and service marks. On April 25, 1999, The Flower and Gift Shoppe,
Inc. brought suit against us in the U.S. District Court for the District of
Delaware, seeking declaratory relief finding that their domain name does not
infringe any of our trademarks and that our trademarks are invalid and
unenforceable. We believe that these claims are without merit, and we intend to
defend this suit vigorously.
EMPLOYEES
As of April 30, 1999, we had 16 full-time employees. In addition, we
utilize independent contractors and other temporary employees. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our employee relations to be good.
FACILITIES
Our corporate offices are located in Stamford, Connecticut, where we lease
approximately 5,500 square feet under a lease that expires in March 2001. We
have an option to renew the lease for two years thereafter.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors as of April 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William J. Tobin(1)....................... 57 Chief Executive Officer, Chairman of the Board,
Director
David Crampton(2)......................... 40 President, Chief Operating Officer and Director
Andrew Grimalda........................... 43 Chief Financial Officer
Robert Rathbun............................ 43 Vice President of Strategic Development
William J. Lansing(1)..................... 41 Director
Michael P. Sherman(2)..................... 46 Director
David Heidecorn(1)(2)..................... 42 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
We intend to elect two independent directors within 90 days after the
closing of this offering. William J. Tobin and Fingerhut previously agreed that
our board would have five directors and that Fingerhut would designate two
directors while it was a minority stockholder and three directors thereafter.
William J. Tobin would be entitled to designate the remaining directors. That
agreement will terminate upon consummation of this offering.
Pursuant to an agreement among Mr. Tobin, Fingerhut and us, Fingerhut has
agreed to vote its shares of common stock for the election of Mr. Tobin or his
designee for election to our board of directors so long as Mr. Tobin and his
affiliates own an aggregate of at least 10% of our common stock. In addition,
Mr. Tobin has agreed to vote his shares of common stock for the election of two
Fingerhut designees to our board of directors so long as Fingerhut owns at least
1,500,000 shares of common stock and for one director thereafter. This agreement
will terminate in 2009 and under certain circumstances may terminate earlier.
William J. Tobin is the Chairman of the Board, Chief Executive Officer and
founder of PC Flowers & Gifts.com. He has served as a board member on the
Interactive Services Association and the New Media Committee for the Direct
Marketing Association. Mr. Tobin received his B.A. from Adelphi University.
David Crampton joined us as our President and Chief Operating Officer in
February 1999. From July 1996 to February 1999, Mr. Crampton was Chief Executive
Officer of The School Report (theschoolreport.com), an Internet-based school
information service. From 1989 to July 1996, Mr. Crampton was a consultant with
McKinsey & Co., working primarily in the telecommunications and multimedia
practices. Mr. Crampton received his M.B.A. from Columbia University and his
B.A. from Dartmouth College.
Andrew Grimalda joined us as our Chief Financial Officer in January 1999.
From December 1997 to January 1999, Mr. Grimalda was Chief Financial Officer of
First National Administrators, Inc., a health insurance administrative and
brokerage company. From May 1993 to December 1997, Mr. Grimalda was Director,
Finance and Planning, for Ivans Inc., a provider of electronic data interface
and telecommunications services. Mr. Grimalda received his M.B.A. from the Sloan
School of Management, MIT and a B.S. in Engineering from the U.S. Military
Academy, West Point.
Robert Rathbun joined us in February 1999 as Vice President of Strategic
Development. Mr. Rathbun oversees the development of new marketing partnerships
and initiatives, as well as identifies and pursues strategic marketing alliances
both online and offline. From September 1995 to February 1999, Mr. Rathbun
served as Vice President of Marketing/Business Development at Cyberian Outpost,
Inc., an
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<PAGE> 45
online retailer of computer hardware and software. From 1993 to September 1995,
Mr. Rathbun served as President and Executive Director of Camp Sloan, Inc., a
summer camp conference center. Mr. Rathbun earned his B.A. from Washington and
Lee University.
William J. Lansing joined our board of directors in July 1998. Mr. Lansing
has been President of Fingerhut since May 1998. Prior to that, Mr. Lansing was
employed by General Electric Corp. as vice president for business development
since October 1996. From January 1996 to October 1996, he served as Chief
Operating Officer of Prodigy. Prior to that, he was a principal at McKinsey &
Co. from 1986 to 1996. Mr. Lansing also serves on the boards of directors of
Digital River, Inc., a provider of electronic commerce outsourcing solutions to
software publishers and online retailers, and Select Comfort Corp., a specialty
retailer and direct marketer of air beds and sleep-related products. Mr. Lansing
received his undergraduate degree from Wesleyan University and his J.D. from
Georgetown University.
Michael P. Sherman joined our board of directors in July 1998. Mr. Sherman
joined Fingerhut in May 1996 as Senior Vice President -- Business Development,
General Counsel and Secretary and was named Executive Vice President in July
1998. From 1983 through 1996, Mr. Sherman served as Executive Vice President,
Corporate Affairs, General Counsel and Secretary of Hanover Direct, Inc., a
direct marketing company. Mr. Sherman received his undergraduate degree from
Syracuse University and his J.D. from the State University of New
Jersey -- Rutgers.
David Heidecorn joined our board of directors and began consulting with us
on financial and securities matters in March 1999. From 1992 to February 1999,
Mr. Heidecorn was Chief Financial Officer and Executive Vice President of
Alarmguard Holdings, Inc., a company that installs and monitors home and
residential alarm systems. Mr. Heidecorn received his undergraduate degree from
Lehigh University and his M.B.A. from Columbia University.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Audit Committee consists of David Crampton, Michael P. Sherman and
David Heidecorn. Among other functions, the Audit Committee makes
recommendations to the board of directors regarding the selection of independent
auditors, reviews the results and scope of the audit and other services provided
by our independent auditors, reviews our balance sheet, statement of operations
and cash flows and reviews and evaluates our internal control functions.
Our Compensation Committee consists of William J. Tobin, William J. Lansing
and David Heidecorn. The Compensation Committee reviews and approves the
compensation and benefits for our executive officers, administers the PC Flowers
& Gifts.com Stock Option Plan and makes recommendations to the board of
directors regarding such matters.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors or members of committees of the board of directors, but are reimbursed
for their reasonable expenses incurred in attending meetings of the board of
directors. In March 1999, we granted to David Heidecorn, one of our directors, a
nonqualified stock option to purchase 10,000 shares of common stock at an
exercise price of $3.33 per share. We currently intend to make comparable option
grants to future outside directors. See "Certain Transactions".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of William J. Tobin, William
J. Lansing and David Heidecorn. No member of the board of directors or of the
Compensation Committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or Compensation Committee.
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<PAGE> 46
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Certificate of Incorporation limits the liability of directors to us
and our stockholders for monetary damages for breach of fiduciary duty as a
director except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which the director derived an improper personal
benefit. Our Bylaws provide that we shall indemnify our officers, directors,
employees and agents to the fullest extent permitted by the Delaware General
Corporation Law. Delaware law provides that a corporation's certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of directors for monetary damages for breach of their fiduciary duties
as directors, except for liability (i) for any breach of their duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law
or (iv) for any transaction from which the director derived an improper personal
benefit. We believe that indemnification under our by-laws covers at least
negligence and gross negligence on the part of indemnified parties.
We have entered into agreements to indemnify our directors and executive
officers. These agreements, among other things, indemnify our directors and
officers for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such persons in any action or proceeding,
including any action by us or in our right, arising out of such person's
services as our director or officer, any of our subsidiaries or any other
company or enterprise to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received for services
rendered to us during the year ended December 31, 1998 by William J. Tobin, our
Chairman of the Board and Chief Executive Officer. None of our other executive
officers who held office at December 31, 1998 met the definition of "highly
compensated" within the meaning of the Securities and Exchange Commission's
executive compensation disclosure rules.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- ------- ----- ------------
<S> <C> <C> <C> <C>
William J. Tobin, Chairman of the Board and
Chief Executive Officer..................... 1998 $87,500 $-- $--
</TABLE>
Mr. Tobin did not receive any compensation from us in 1996 or 1997. Mr.
Tobin does not currently hold options to purchase our capital stock.
EMPLOYMENT AGREEMENT
We have entered into an employment agreement, dated July 9, 1998, with
William J. Tobin. The agreement, as amended on February 1, 1999, provides for
Mr. Tobin to be our Chief Executive Officer. The agreement provides for an
initial three-year term, and for automatic successive 12 month terms, unless we
or Mr. Tobin gives notice of termination at least 60 days prior to the end of
the initial term, or a succeeding term, as the case may be, in which event Mr.
Tobin's employment will terminate at the end of
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<PAGE> 47
such term. The agreement provides for a yearly base salary of $175,000 in the
first year, and $200,000 in the second, third and any succeeding year. The
agreement provides for Mr. Tobin to receive such fringe benefits as are provided
to all of our employees, and certain other benefits approved by our board of
directors, including an automobile allowance and three weeks paid vacation per
year. The agreement further provides that Mr. Tobin shall be entitled to
participate in the benefit plans available generally to senior executives of
subsidiaries of Fingerhut. In the event that Mr. Tobin's employment is
terminated before the end of the initial term, or before the end of any
succeeding term, and such termination results from reasons other than cause, Mr.
Tobin's death or disability, or Mr. Tobin's voluntary resignation, we shall
remain obligated to continue to pay to Mr. Tobin his base salary and all other
amounts due under the agreement until the end of the term. The agreement
provides that Mr. Tobin shall not, for a period of two years following
termination of employment, disclose to any third party or use for the benefit of
any party other than us any of our confidential information. The agreement also
provides that Mr. Tobin shall not compete with us, or solicit any of our
employees, consultants, agents, suppliers, customers, prospects and certain
others who have business relationships with us, until the later of June 30, 2001
or the date that is one year following the consummation of this offer.
STOCK OPTION PLAN
Our board of directors has adopted the PC Flowers & Gifts.com Stock Option
Plan and reserved an aggregate of 805,000 shares of common stock for grants of
stock options under the plan. The PC Flowers & Gifts.com Stock Option Plan
provides for the grant of options for common stock to our employees, directors,
officers, consultants, advisors and independent contractors. As of March 31,
1999, options to purchase 475,000 shares of common stock were outstanding under
the PC Flowers & Gifts.com Stock Option Plan with exercise prices of $3.33 per
share, options to purchase 330,000 shares were available for grant and no
options had been exercised.
The PC Flowers & Gifts.com Stock Option Plan is administered by the board
of directors. The board has the authority to select individuals who are to
receive options under the PC Flowers & Gifts.com Stock Option Plan and to
specify the terms and conditions of each option so granted, the vesting
provisions, the option term and the exercise price. Options granted under the PC
Flowers & Gifts.com Stock Option Plan must be exercised within three months of
the optionee's termination of service to or employment by us (subject to
extension to one year from the date of termination if the optionee dies within
such three month exercise period), or within one year after the optionee's
termination by death or disability (subject to extension to one year from the
date of death if the optionee dies during the one-year exercise period after
termination by disability), but in no event later than the expiration of the
option term. Options granted under the PC Flowers & Gifts.com Stock Option Plan
are not transferable by the optionee except by will or the laws of descent and
distribution and generally are exercisable during the lifetime of the optionee
only by such optionee.
In the event of a sale of all or substantially all of our assets, a merger
or reorganization in which we are not the surviving corporation, or the sale or
other transfer of more than 50% of the outstanding shares of common stock (each,
a "Terminating Event"), the board may determine whether provision will be made
for assumption of or substitution for the stock options granted under the PC
Flowers & Gifts.com Stock Option Plan by the successor corporation. If the board
determines that no such assumption or substitution will be made, all options
will become fully vested and each optionee will have the right to exercise any
unexercised and unexpired options within 30 days from the date of notice of such
determination.
With respect to the PC Flowers & Gifts.com Stock Option Plan, the board has
the discretion to authorize the issuance of unvested shares of our common stock
pursuant to the exercise of a stock option under the Plan. If the optionee
ceases to be employed by or provide services to us, all shares of common stock
issued on exercise of a stock option which are unvested at the time of cessation
shall be subject to repurchase by us at the exercise price paid for such shares.
The terms and conditions upon which the repurchase rights are exercisable by us
are determined by the board and set forth in the agreement evidencing such
right. The board has discretionary authority to cancel our outstanding
repurchase rights
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<PAGE> 48
with respect to one or more shares purchased or purchasable under an option
granted pursuant to the Plan. In the event of a Terminating Event under the PC
Flowers & Gifts.com Stock Option Plan, if vesting of the options accelerates,
our repurchase rights with respect to shares previously acquired on exercise of
options granted under the PC Flowers & Gifts.com Stock Option Plan shall
terminate.
CERTAIN TRANSACTIONS
In July and August 1997, William J. Tobin, our Chairman of the Board and
Chief Executive Officer, made two loans to us, each in the principal amount of
$75,000 at 6% interest, both of which were fully repaid in July 1998.
Pursuant to an Investor Subscription Agreement, on July 9, 1998 we sold to
Fingerhut 496,000 shares (or 19.9%) of our common stock and issued to Fingerhut
warrants to purchase an additional 2,504,000 shares (or 40.1%) of common stock
at prices ranging from $2.50 to $3.58, depending on the time of exercise.
Fingerhut paid us an aggregate of $1,990,000 for the shares and warrants. On
January 8, 1999, Fingerhut exercised warrants to purchase a total of 838,000
shares (or 20.1%) of our common stock at an exercise price of $3.58 per share.
On May 10, 1999 Fingerhut exercised warrants to purchase 532,800 shares (or 8%)
of our common stock at an exercise price of $3.00 per share and agreed to
exercise an additional 1,133,200 shares (12% without giving effect to the
offering) upon consummation of this offering. We granted to Fingerhut certain
rights with respect to the registration of its shares of common stock. See
"Description of Capital Stock -- Registration Rights".
On October 22, 1998, we entered into a Fulfillment Services Agreement with
Fingerhut Business Services, Inc., a wholly-owned subsidiary of Fingerhut. Under
that agreement, Fingerhut Business Services provides the following fulfillment
services for our Web site, co-branded Web sites and telephone order businesses
at a per order charge, plus certain expenses:
- fulfillment of event-driven gift products;
- credit card processing and management;
- order processing and management;
- customer service;
- product sourcing;
- returns processing; and
- reporting.
Fingerhut Business Services sells Fingerhut's and Figi's products to us for
most of our non-floral gift products from its inventory at its actual cost plus
10%. Fingerhut Business Services provides similar goods and services to third
parties on commercial terms which may not be as favorable as those which apply
to us. The Fulfillment Services Agreement terminates on October 21, 2000, but is
automatically extended for additional one-year terms unless a party notifies the
other party at least 60 days before the expiration of the initial term or any
subsequent renewal term. During 1998 and the three months ended March 31, 1999,
we incurred expenses payable to Fingerhut of approximately $38,000 and
approximately $105,000, respectively, for their services. In addition, Fingerhut
may provide other services for us from time to time on a per hour charge or as
specifically agreed. We will pay some costs in connection with promotional and
marketing activities in Fingerhut's catalogs and mailings, but certain of these
activities may be provided at no cost to us.
We also have a standard co-branded arrangement with Fingerhut for its Web
sites under which Fingerhut receives 6% of the revenues generated from such
co-branded activities. During the three months ended March 31, 1999, we incurred
expenses payable to Fingerhut of $13,000 for these co-branded activities.
We believe that all the transactions set forth above were made on terms at
least as favorable to us as could have been obtained from unaffiliated third
parties. Any future transactions, including loans, between
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<PAGE> 49
us and our officers, directors and principal stockholders and their affiliates
will be approved by a majority of the board of directors, including a majority
of the independent and disinterested directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
Under an Employment Agreement with Mr. Tobin dated July 9, 1998, as amended
February 1, 1999, Mr. Tobin serves as our Chief Executive Officer. The agreement
provides for an initial three year term and an annual salary of $175,000 in the
first year and $200,000 in the second, third and any succeeding year. The
agreement renews automatically unless terminated by us or Mr. Tobin. See
"Management -- Employment Agreements".
On July 9, 1998 we entered into a Technology License Agreement with Mr.
Tobin and Fingerhut, which allows us and Fingerhut, with some restrictions, to
use without charge certain e-commerce-related technology for which Mr. Tobin has
filed a patent application. Additionally, Mr. Tobin licensed certain
intellectual property rights to us, which we, in turn, sublicensed to Fingerhut.
See "Business -- Intellectual Property".
On July 9, 1998 we entered into a Stockholder Agreement with Mr. Tobin and
Fingerhut, which provides Mr. Tobin and Fingerhut with rights to require us to
publicly register their shares of our common stock and pay for such
registration, in certain situations. Subject to restrictions, Mr. Tobin can
demand that we register his shares of our common stock, and Fingerhut may join
such demand, and Mr. Tobin and Fingerhut can also require us to register their
shares when we register other shares of our common stock, except in connection
with our initial public offering. See "Management" and "Description of Capital
Stock -- Registration Rights".
We have entered into indemnification agreements with each of our executive
officers and directors. See "Management -- Limitation of Liability and
Indemnification Matters".
Pursuant to an agreement among Mr. Tobin, Fingerhut and us, Fingerhut has
agreed to vote its shares of common stock for the election of Mr. Tobin or his
designee for election to our board of directors so long as Mr. Tobin and his
affiliates own an aggregate of at least 10% of our common stock. In addition,
Mr. Tobin has agreed to vote his shares of common stock for the election of two
Fingerhut designees to our board of directors so long as Fingerhut owns at least
1,500,000 shares of common stock and for one director thereafter. This agreement
will terminate in 2009 and, under certain circumstances, may terminate earlier.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our outstanding common stock as of April 30, 1999 and as adjusted
to reflect the sale of the common stock offered hereby for (i) each person or
entity known by us to beneficially own more than 5% of the common stock, (ii)
each of our directors, (iii) our Chief Executive Officer and (iv) all of our
directors and executive officers as a group. Except as otherwise indicated, we
believe that the beneficial owners of the common stock listed below, based on
information furnished by those owners, have sole voting and investment power
with respect to such shares. The addresses of Messrs. Tobin, Crampton and
Heidecorn are in care of PC Flowers & Gifts.com at 2001 West Main Street, Suite
175, Stamford, CT 06902. The addresses of Messrs. Lansing and Sherman and
Fingerhut are in care of Fingerhut at 4400 Baker Road, Minnetonka, MN 55343.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
----------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
- ---- ------------------ -------- --------
<S> <C> <C> <C>
William J. Tobin(1)..................................... 2,000,000 40.0%
David Crampton.......................................... -- -- --
David Heidecorn......................................... -- -- --
William J. Lansing...................................... -- -- --
Michael P. Sherman...................................... -- -- --
Fingerhut Companies, Inc.(2) ........................... 3,000,000 60.0%
All directors and executive officers as a group (7
persons)(2)........................................... 2,000,000 40.0%
</TABLE>
- ---------------
(1) Includes 300,000 shares held by a limited liability company for the benefit
of Mr. Tobin's children, of which Mr. Tobin is the sole manager. Also
includes 200,000 shares held by Mr. Tobin's wife, as to which Mr. Tobin
disclaims beneficial ownership.
(2) Fingerhut is a wholly-owned subsidiary of Federated Department Stores, Inc.
and, as such, our common stock owned by Fingerhut may also be deemed to be
beneficially owned by Federated. Includes 1,133,200 shares of common stock
issuable upon the exercise of certain warrants upon consummation of this
offering.
Pursuant to an agreement among Mr. Tobin, Fingerhut and us, Fingerhut has
agreed to vote its shares of common stock for the election of Mr. Tobin or his
designee for election to our board of directors so long as Mr. Tobin and his
affiliates own an aggregate of at least 10% of our common stock. In addition,
Mr. Tobin has agreed to vote his shares of common stock for the election of two
Fingerhut designees to our board of directors so long as Fingerhut owns at least
1,500,000 shares of common stock and for one director thereafter. This agreement
will terminate in 2009 and under certain circumstances may terminate earlier.
49
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 20,000,000 shares of common stock,
par value $.01 per share, and 1,000,000 shares of preferred stock, par value
$.01 per share. The following summary of certain provisions of the common stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of our Amended and Restated Certificate of Incorporation,
which is included as an exhibit to the registration statement of which this
prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of May 10, 1999, there were 3,866,800 shares of our common stock
outstanding held of record by four stockholders. There will be
shares of common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options,
after giving effect to the sale of common stock offered to the public hereby.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. See "Risk Factors --
Existing stockholders will be able to exercise significant control over PC
Flowers & Gifts.com". Subject to preferences that may be applicable to any
outstanding shares of our preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
board of directors out of funds legally available for the payment of dividends.
See "Dividend Policy". In the event of liquidation, dissolution or winding up,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock.
PREFERRED STOCK
Pursuant to our Amended and Restated Certificate of Incorporation, the
board of directors will have the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the designations, powers, preferences, privileges and
relative, participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of our common stock. The board of
directors, without stockholder approval, can issue preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. Preferred stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
us or make removal of management more difficult. Additionally, the issuance of
preferred stock may have the effect of decreasing the market price of the common
stock, and may adversely affect the voting and other rights of the holders of
common stock. We have no plans to issue any preferred stock.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND
CONNECTICUT AND DELAWARE LAW
As noted above, our board of directors, without stockholder approval, has
the authority under our Amended and Restated Certificate of Incorporation to
issue preferred stock with rights superior to the rights of the holders of our
common stock. As a result, our preferred stock could be issued quickly and
easily, could adversely affect the rights of holders of common stock and could
be issued with terms calculated to delay or prevent our change in control or
make removal of management more difficult.
The laws of the State of Connecticut, where our principal executive offices
are located, impose restrictions on certain transactions between certain foreign
corporations and significant stockholders. Section 33-840 of the Connecticut
Business Corporation Act prohibits certain publicly held foreign corporations
that are based in Connecticut from engaging in a "business combination"
(including the issuance of equity securities which have an aggregate market
value of 5% or more of the total market
50
<PAGE> 52
value of the outstanding shares of the company) with an "interested shareholder"
as defined in the Connecticut Business Corporation Act for a period of five
years from the date of the shareholder's purchase of stock unless approved in a
prescribed manner. The application of this statute could prevent a change of our
control. Generally, approval is required by our board of directors and by a
majority of our non-employee directors and by 80% of the outstanding voting
shares and two-thirds of the voting power of the outstanding shares of the
voting stock other than shares held by the interested shareholder. We can give
no assurance that these provisions would not prevent us from entering into a
business combination that otherwise would be beneficial to us.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested
stockholder status, did own) 15% or more of a corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
REGISTRATION RIGHTS
According to the terms of a Stockholders Agreement dated July 9, 1998, Mr.
Tobin, who beneficially owns 2,000,000 shares of common stock, is entitled to
demand that we file a registration statement for no less than 10%, but no more
than 50%, of his shares. We are not required to effect:
- a registration within six months after the effective date of a previous
underwritten registration of equity securities; or
- a registration, for up to six months, if we notify Mr. Tobin that such
registration would reasonably have an adverse effect on any of our
business plans.
Fingerhut, which beneficially owns 3,000,000 shares of common stock, is
entitled to receive notice of Mr. Tobin's demand registration, and may be able
to sell its shares as part of Mr. Tobin's demand registration. If the demand
registration is underwritten, the underwriter may limit the number of shares to
be registered based on how many shares may be sold in an orderly manner within a
price range acceptable to Mr. Tobin. Even in the case of such an underwriter's
limitation, Mr. Tobin's shares would be included before any other stockholder's.
According to the terms of the Stockholders Agreement, Mr. Tobin and
Fingerhut are entitled to piggyback registration rights in connection with
certain registrations by us of our common stock. If we propose any such
registration, Mr. Tobin and Fingerhut are entitled to require us to register
their shares; however, Mr. Tobin and Fingerhut may be subject to certain
registration limitations.
We are generally required to bear all of the expenses of all registrations
under the Stockholders Agreement. The registration rights of the holders
terminate on July 9, 2008.
Under the terms of the Stockholders Agreement, we agreed to indemnify the
holders of registration rights in connection with aspects of the registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company, New York, New York.
51
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock and there can be no assurance that a significant public market for the
common stock will be developed or be sustained after this offering. Sales of
substantial amounts of common stock in the public market after this offering, or
the possibility of such sales occurring, could adversely affect prevailing
market prices for our common stock or our future ability to raise capital
through an offering of equity securities.
After this offering, we will have outstanding shares of
common stock. Of these shares, the shares offered hereby will be
freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by our "affiliates", as that term is defined in
Rule 144 under the Securities Act.
The remaining 5,000,000 shares of common stock outstanding upon completion
of this offering will be "restricted securities," as that term is defined in
Rule 144 ("Restricted Shares"). The Restricted Shares were issued and sold by us
in private transactions in reliance upon exemptions from registration under the
Securities Act. Restricted Shares may be sold in the public market only if they
are registered or if they qualify for an exemption from registration under Rule
144 or 701 under the Securities Act, which are summarized below.
Pursuant to certain "lock-up" agreements, all our executive officers,
directors and stockholders, who collectively hold all of the Restricted Shares,
have agreed not to offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of any such shares for a period of 180 days from the date
of this prospectus. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time or from time to time, without notice, release all or
any portion of the securities subject to lock-up agreements. In addition, we
have agreed with the underwriters that we will not offer, sell or otherwise
dispose of our common stock for a period of 180 days from the date of this
prospectus. Similarly, BancBoston Robertson Stephens Inc. may also, at its sole
discretion and from time to time, without notice, release all or any part of
this restriction. See "Underwriting".
On the date of the expiration of the lock-up agreements described below,
of the Restricted Shares will be eligible for immediate sale (of
which shares will be subject to certain volume, manner of sale
and other limitations under Rule 144). Approximately remaining
shares will be eligible for sale pursuant to Rule 144 on the expiration of
one-year holding periods.
Following the expiration of such lock-up periods, certain shares issuable
upon exercise of options granted by us prior to the date of this prospectus will
also be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such shares in reliance upon Rule
144 but without compliance with certain restrictions, including the holding
period requirement, imposed under Rule 144. In general, under Rule 144 as in
effect at the closing of this offering, beginning 90 days after the date of this
prospectus, a person (or persons whose shares of we are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not our affiliate) would be entitled to
sell within any three month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of common stock
(approximately shares immediately after this offering) or (ii)
the average weekly trading volume of the common stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales under
Rule 144 are also subject to certain manner of sale and notice requirements and
to the availability of current public information about us. Under Rule 144(k), a
person who is not deemed to have been our affiliate at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner who
is not our affiliate) is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
52
<PAGE> 54
We intend to file after the effective date of this offering a registration
statement on Form S-8 to register approximately 805,000 shares of common stock
reserved for issuance under the PC Flowers & Gifts.com Stock Option Plan. Such
registration statement will become effective automatically upon filing. Shares
issued under the foregoing plan, after the filing of a registration statement on
Form S-8, may be sold in the open market, subject, in the case of certain
holders, to the Rule 144 limitations applicable to affiliates, the
above-referenced lock-up agreements and vesting restrictions imposed by us.
In addition, following this offering, the holders of shares
of outstanding common stock will, under certain circumstances, have rights to
require us to register their shares for future sale. See "Description of Capital
Stock -- Registration Rights".
53
<PAGE> 55
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, and Warburg Dillon Read LLC, a subsidiary of UBS AG, have
severally agreed with us, subject to the terms and conditions of the
underwriting agreement, to purchase from us the number of shares of common stock
set forth below opposite their respective names. The underwriters are committed
to purchase and pay for all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Dain Rauscher Wessels.......................................
Warburg Dillon Read LLC, a subsidiary of UBS AG.............
-------
Total.............................................
=======
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No such reduction
shall change the amount of proceeds that we will receive as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
OVER ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the
30-day period after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price less the
underwriting discount set forth on the cover page of this prospectus. If the
underwriters exercise their over-allotment option to purchase any of the
additional shares of common stock, the underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof as the number of shares to be purchased by each of them bears to the
total number of shares of common stock offered in this offering. If purchased,
these additional shares will be sold by the underwriters on the same terms as
those on which the shares offered hereby are being sold. We will be obligated,
pursuant to the over-allotment option, to sell shares to the underwriters to the
extent the over-allotment option is exercised. The underwriters may exercise the
over-allotment option only to cover over-allotments made in connection with the
sale of the shares of common stock offered in this offering.
The following table summarizes the compensation that we will pay to the
underwriters.
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions that we
will pay to the underwriters................ $ $ $
</TABLE>
We estimate that our expenses in connection with this offering, other than
the underwriting discounts and commissions referred to above, will be
approximately $ .
54
<PAGE> 56
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each of our executive officers and directors and all of our other
stockholders have agreed, during the period of 180 days after the effective date
of this prospectus, subject to specified exceptions, not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock or any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or with respect to which they have the power of disposition, without the prior
written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time or from time
to time, without notice, release all or any portion of the securities subject to
lock-up agreements. BancBoston Robertson Stephens Inc. has agreed that it will
only release securities owned directly or beneficially by William J. Tobin in
the same proportion that it releases securities owned directly or beneficially
by Fingerhut or Federated.
There are no existing agreements between the representatives and any of our
stockholders who have executed a lock-up agreement providing consent to the sale
of shares prior to the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of BancBoston Robertson Stephens Inc., subject
to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale".
The underwriters have advised us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
Before this offering, there has been no public market for the common stock.
Consequently, the public offering price for the common stock offered by this
prospectus has been determined through negotiations among the representatives
and us. Among the factors considered in such negotiations were prevailing market
conditions, certain of our financial information, market valuations of other
companies that we and the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
NASDAQ NATIONAL MARKET QUOTATION
We applied to have our shares of common stock approved for quotation on the
Nasdaq National Market under the symbol "PCFG".
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under
the Securities Act of 1933, some persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the shares of common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A
55
<PAGE> 57
"syndicate covering transaction" is the bid for or purchase of common stock on
behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by such underwriter or syndicate member
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
DIRECTED SHARE PROGRAM
The underwriters have reserved up to three percent of the common stock to
be issued by us and offered for sale in this offering, at the initial public
offering price, to directors, officers, employees, business associates and
persons otherwise connected to PC Flowers & Gifts.com. The number of shares of
common stock available for sale to the general public will be reduced to the
extent these individuals purchase reserved shares. Any reserved shares which are
not purchased will be offered by the underwriters to the general public on the
same basis as the other shares offered in this offering.
LEGAL MATTERS
Certain legal matters will be passed on for us by Robinson & Cole LLP,
Stamford, Connecticut. Certain legal matters will be passed on for the
underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
Our financial statements as of December 31, 1997 and 1998 and for each of
the years in the three-year period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of KPMG LLP,
independent accountants, appearing elsewhere herein, upon authority of said firm
as experts in auditing and accounting.
ADDITIONAL FILING AND COMPANY INFORMATION
We have filed a registration statement on Form S-1 with the Commission.
This prospectus, which is a part of the registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. You may review a copy of the registration statement, including
exhibits, at the Commission's public reference room at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 or Seven World Trade Center, 13th
Floor, New York, New York 10048 or Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Commission.
Our Commission filings and the registration statement can also be reviewed
by accessing the Commission's Internet site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
56
<PAGE> 58
PC FLOWERS & GIFTS.COM INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Combined Balance Sheets as of December 31, 1997 and 1998 and
March 31, 1999 (unaudited)................................ F-3
Combined Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 (unaudited) and 1999 (unaudited)..... F-4
Combined Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 and for
the three months ended March 31, 1999 (unaudited)......... F-5
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 (unaudited) and 1999 (unaudited)..... F-6
Notes to Combined Financial Statements...................... F-7
</TABLE>
F-1
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
PC Flowers & Gifts.com Inc.:
We have audited the accompanying combined balance sheets of PC Flowers &
Gifts.com Inc. as of December 31, 1997 and 1998, and the related combined
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years in the three-year period ended December 31, 1998. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of PC Flowers &
Gifts.com Inc. as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
New York, New York
May 10, 1999
F-2
<PAGE> 60
PC FLOWERS & GIFTS.COM INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (SEE NOTE 1(B))
----------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
--------- ---------- ----------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 153,000 $1,640,000 $ 4,173,000 $ 5,771,000
Accounts receivable.................. 16,000 68,000 98,000 98,000
Prepaid expenses and other current
assets............................ -- 7,000 15,000 15,000
--------- ---------- ----------- -----------
Total current assets.............. 169,000 1,715,000 4,286,000 5,884,000
Property and equipment, net............ 26,000 79,000 257,000 257,000
Other assets........................... -- -- 25,000 25,000
--------- ---------- ----------- -----------
Total assets...................... $ 195,000 $1,794,000 $ 4,568,000 $ 6,166,000
========= ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................... $ 179,000 $ 379,000 $ 502,000 $ 502,000
Accrued expenses..................... 36,000 107,000 372,000 372,000
Current portion of capital lease
obligation........................ -- 10,000 10,000 10,000
Due to former stockholder............ 175,000 -- -- --
Due to officer....................... 150,000 -- -- --
--------- ---------- ----------- -----------
Total current liabilities......... 540,000 496,000 884,000 884,000
Capital lease obligation, less current
portion.............................. -- 29,000 26,000 26,000
--------- ---------- ----------- -----------
Total liabilities................. 540,000 525,000 910,000 910,000
Stockholders' equity (deficit):
Preferred stock, $0.01 par value;
1,000,000 shares authorized, no
shares issued and outstanding..... -- -- -- --
Common stock, $0.01 par value;
20,000,000 shares authorized,
2,000,000, 2,496,000 and 3,334,000
shares issued and outstanding as
of December 31, 1997 and 1998, and
as of March 31, 1999 (unaudited),
respectively, and 3,866,800 shares
issued and outstanding, pro
forma............................. 20,000 25,000 33,000 39,000
Additional paid-in capital........... (39,000) 1,946,000 4,938,000 6,530,000
Accumulated deficit.................. (326,000) (702,000) (1,313,000) (1,313,000)
--------- ---------- ----------- -----------
Total stockholders' equity
(deficit)....................... (345,000) 1,269,000 3,658,000 5,256,000
--------- ---------- ----------- -----------
Commitments:
Total liabilities and
stockholders' equity
(deficit)....................... $ 195,000 $1,794,000 $ 4,568,000 $ 6,166,000
========= ========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-3
<PAGE> 61
PC FLOWERS & GIFTS.COM INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................. $2,070,000 $1,489,000 $1,743,000 $ 432,000 $1,008,000
Cost of revenues............. 1,433,000 964,000 1,153,000 286,000 640,000
---------- ---------- ---------- ---------- ----------
Gross profit............... 637,000 525,000 590,000 146,000 368,000
Operating expenses:
Sales and marketing........ 335,000 207,000 339,000 49,000 622,000
General and
administrative.......... 365,000 273,000 631,000 62,000 344,000
Product development........ 30,000 48,000 105,000 17,000 56,000
---------- ---------- ---------- ---------- ----------
Total operating
expenses.............. 730,000 528,000 1,075,000 128,000 1,022,000
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............ (93,000) (3,000) (485,000) 18,000 (654,000)
---------- ---------- ---------- ---------- ----------
Interest income (expense):
Interest income............ -- -- 44,000 -- 45,000
Interest expense........... -- (6,000) (10,000) (3,000) (2,000)
---------- ---------- ---------- ---------- ----------
Total interest income
(expense), net........ -- (6,000) 34,000 (3,000) 43,000
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ (93,000) $ (9,000) $ (451,000) $ 15,000 $ (611,000)
========== ========== ========== ========== ==========
Basic and diluted net income
(loss) per share........... $ (0.02) $ (0.00) $ (0.20) $ 0.01 $ (0.21)
========== ========== ========== ========== ==========
Weighted-average basic and
diluted shares
outstanding................ 4,000,000 3,000,000 2,248,000 2,000,000 2,915,000
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements
F-4
<PAGE> 62
PC FLOWERS & GIFTS.COM INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
--------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31,
1995........................... 4,000,000 $ 40,000 $ (39,000) $ 4,000 $ 5,000
Net loss......................... -- -- -- (93,000) (93,000)
---------- -------- ---------- ----------- ----------
Balance as of December 31,
1996........................... 4,000,000 40,000 (39,000) (89,000) (88,000)
Retirement of common stock....... (2,000,000) (20,000) -- (228,000) (248,000)
Net loss......................... -- -- -- (9,000) (9,000)
---------- -------- ---------- ----------- ----------
Balance as of December 31,
1997........................... 2,000,000 20,000 (39,000) (326,000) (345,000)
Issuance of common stock and
warrants to Fingerhut
Companies...................... 496,000 5,000 1,985,000 -- 1,990,000
Reduction of retired treasury
stock.......................... -- -- -- 75,000 75,000
Net loss......................... -- -- -- (451,000) (451,000)
---------- -------- ---------- ----------- ----------
Balance as of December 31,
1998........................... 2,496,000 25,000 1,946,000 (702,000) 1,269,000
Exercise of Fingerhut Companies'
warrants (unaudited)........... 838,000 8,000 2,992,000 -- 3,000,000
Net loss for the period
(unaudited).................... -- -- -- (611,000) (611,000)
---------- -------- ---------- ----------- ----------
Balance as of March 31, 1999
(unaudited).................... 3,334,000 $ 33,000 $4,938,000 $(1,313,000) $3,658,000
========== ======== ========== =========== ==========
</TABLE>
See accompanying notes to combined financial statements
F-5
<PAGE> 63
PC FLOWERS & GIFTS.COM INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- -------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (93,000) $ (9,000) $ (451,000) $ 15,000 $ (611,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization....... 16,000 25,000 16,000 4,000 15,000
Changes in operating assets and
liabilities:
Accounts receivable............... 217,000 (9,000) (52,000) 12,000 (30,000)
Prepaid expenses and other current
assets......................... -- 3,000 (7,000) -- (8,000)
Accounts payable.................. (111,000) (26,000) 200,000 (26,000) 123,000
Accrued expenses.................. (6,000) (4,000) 71,000 (10,000) 265,000
Other assets...................... -- -- -- -- (25,000)
--------- -------- ---------- -------- ----------
Net cash provided by (used in)
operating activities........... 23,000 (20,000) (223,000) (5,000) (271,000)
--------- -------- ---------- -------- ----------
Cash flows from investing activities:
Purchase of property and equipment..... (31,000) (4,000) (25,000) (9,000) (193,000)
--------- -------- ---------- -------- ----------
Net cash used in investing
activities..................... (31,000) (4,000) (25,000) (9,000) (193,000)
--------- -------- ---------- -------- ----------
Cash flows from financing activities:
Proceeds from issuance of common
stock............................... -- -- 1,990,000 -- --
Proceeds from exercise of warrants..... -- -- -- -- 3,000,000
Payments under stock repurchase
agreement........................... -- (73,000) (100,000) -- --
Payments under capital lease
obligation.......................... -- -- (5,000) -- (3,000)
Due to officer......................... -- 150,000 (150,000) -- --
--------- -------- ---------- -------- ----------
Net cash provided by financing
activities..................... -- 77,000 1,735,000 -- 2,997,000
--------- -------- ---------- -------- ----------
Net (decrease) increase in cash
and cash equivalents........... (8,000) 53,000 1,487,000 (14,000) 2,533,000
Cash and cash equivalents at beginning of
period................................. 108,000 100,000 153,000 153,000 1,640,000
--------- -------- ---------- -------- ----------
Cash and cash equivalents at the end of
period................................. $ 100,000 $153,000 $1,640,000 $139,000 $4,173,000
========= ======== ========== ======== ==========
</TABLE>
Supplemental disclosure of noncash information:
During the year ended December 31, 1998, the Company paid $16,000 for
interest.
Noncash financing activity:
During the year ended December 31, 1998, a former stockholder of the
Company modified a stock repurchase agreement in exchange for an
accelerated payment. This transaction resulted in a non-cash financing
activity of $75,000.
The Company entered into a capital lease for a car in 1998. The capital
lease obligation resulted in a noncash financing activity of $44,000 for
the year ended December 31, 1998.
See accompanying notes to combined financial statements
F-6
<PAGE> 64
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 IS UNAUDITED)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Summary of Operations
PC Flowers & Gifts.com Inc. (the "Company") is an online retailer of
flowers and event-driven gift products such as jewelry, cosmetics, specialty
foods and gift baskets. In May 1999, the Board of Directors elected to change
the name of the Company from PC Flowers & Gifts, Inc. to PC Flowers & Gifts.com
Inc.
The Company was incorporated in the Commonwealth of Virginia in 1989 under
the name of PC Flowers, Inc. In 1994, the two then stockholders of the Company
founded PC Flowers & Gifts, Inc. (formerly known as PC Gifts, Inc.), in the
Commonwealth of Virginia. In July 1997, PC Flowers, Inc. merged with and into PC
Flowers & Gifts, Inc., the latter becoming the surviving entity. This
transaction has been accounted for as a merger among common stockholders in a
manner similar to a pooling of interests. As a result, the Company's financial
statements for all periods prior to the merger represent the combined financial
statements of PC Flowers, Inc. and PC Flowers & Gifts, Inc. The Company changed
its state of incorporation from Virginia to Delaware in August 1997.
Inherent in the Company's business are various risks and uncertainties,
including its historical operating losses, dependence upon strategic alliances
and the acceptance of the Internet as a medium for commerce.
(b) Initial Public Offering, Fingerhut Warrants and Pro Forma Combined Balance
Sheet (Unaudited)
In May 1999, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission that would permit the
Company to sell shares of the Company's common stock in connection with a
proposed initial public offering ("IPO").
The accompanying pro forma balance sheet as of March 31, 1999 gives effect
to the issuance of 532,800 shares of common stock upon the exercise of certain
Fingerhut Companies, Inc. ("Fingerhut") warrants in May 1999 in consideration
for net cash proceeds of approximately $1.6 million (see note 4).
The remaining Fingerhut warrants to purchase 1,133,200 shares of common
stock shall be exercised upon consummation of the IPO in consideration for cash
proceeds of approximately $2.9 million (see note 4).
(c) Unaudited Interim Financial Information
The interim combined financial statements of the Company as of March 31,
1999, and for the three months ended March 31, 1998 and 1999 are unaudited.
Certain information and note disclosures normally included in combined financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the SEC
relating to interim combined financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position and the results of its operations and its cash flows have been included
in such unaudited financial statements. The results of operations for the three
months ended March 31, 1998 and 1999 are not necessarily indicative of the
results to be expected for the entire year.
F-7
<PAGE> 65
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Use of Estimates
The preparation of combined financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(e) Cash Equivalents
The Company considers all highly liquid securities, with original
maturities of three months or less, to be cash equivalents, which principally
consist of money market accounts.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the related assets,
generally ranging from three to five years. Equipment under capital leases is
stated at the present value of minimum lease payments and is amortized using the
straight-line method over the shorter of the lease term or the estimated useful
life of the asset.
(g) Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. To date, no such
impairment has been recorded.
(h) Income Taxes
Prior to July 10, 1998, the Company elected to be taxed as an S corporation
under Subchapter S of the Internal Revenue Code, and accordingly, income or loss
attributed to the Company's operations was allocated to its stockholders to be
reported on their personal tax returns. Tax net operating losses incurred during
this period are not available to offset the Company's future taxable income, if
any.
On July 10, 1998, the Company's subchapter S status was terminated as a
result of the investment by Fingerhut (see note 4) and is being treated as a C
corporation. Effective on this date, income taxes are accounted for under the
asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
results of operations in the period that the tax change occurs. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
(i) Revenue Recognition
The Company's revenues are principally derived from the sale of flowers and
other event-driven gift products using the various relationships with suppliers
("Strategic Relationships" -- see note 3). The Company is not obligated to take
title to the merchandise unless it successfully sells the merchandise. The
Company records the sale, net of any discounts, upon shipment of the merchandise
from its suppliers (see
F-8
<PAGE> 66
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
note 3) to the customer. The Company does not hold inventory of the products it
sells. However, the Company takes title to the merchandise just prior to
shipment of the product from the supplier to the customer.
Subsequently, the Company pays the supplier any amounts due for the
purchase of the related merchandise. Outbound shipping and handling charges are
also included in net revenues. The Company is at risk of loss for collecting all
of the sales proceeds, delivery of the merchandise and returns from customers,
subject to product and certain delivery guarantees by the suppliers. The Company
generally allows customers to return products if the customer is unsatisfied
with the product or service. Accordingly, the Company provides an allowance for
sales returns at the time of shipment, based upon historical experience.
(j) Dependence on Merchandise Vendors
The Company does not manufacture or produce any of the merchandise that it
sells. The Company's strategy has been to develop and maintain its strategic
relationships (see note 3) to secure a continuing supply of items to be sold.
(k) Advertising Expense
The Company expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing in the statements of
operations and totaled approximately $30,000, $35,000, and $90,000 for the years
ended December 31, 1996, 1997, and 1998, respectively, and $0 and $387,000 for
the three month periods ended March 31, 1998 and 1999, respectively.
(l) Capitalized Software Development for Internal Use
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," ("SOP 98-1"). SOP 98-1
provides guidance for determining whether computer software is internal-use
software and on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the public.
It also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. The Company adopted SOP 98-1 in
1999.
The Company capitalized software costs related to internally developed or
purchased software in accordance with SOP 98-1 in the amount of approximately
$131,000 as of March 31, 1999. Amounts capitalized are amortized on a
straight-line basis over three years. Amortization expense for the three month
period ended March 31,1999 was approximately $1,000.
(m) Product Development Costs
Product development costs include expenses incurred by the Company to
develop, enhance, manage, monitor and operate the Company's Web site. Product
development costs are expensed as incurred, except for costs capitalized in
accordance with SOP 98-1 beginning in 1999.
(n) Financial Instruments and Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. The Company operates in one business segment and sells its products
primarily to customers located in the United States. The fair value of these
instruments approximated their financial statement carrying amount because of
the short-term maturity of these instruments. All of the Company's cash
equivalents were invested in money market accounts.
F-9
<PAGE> 67
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's customers are concentrated in the United States. The Company
has not experienced any significant credit losses to date as all sales are
processed through credit card transactions and are approved prior to shipment of
the merchandise. The Company maintains allowances for customer returns and such
returns have been within management's expectations. The Company generally
requires no collateral from its vendors and customers.
The Company's accounts receivable include receivables from Figi's, Inc.
("Figi's"), an affiliate of Fingerhut Companies, Inc. The Company sells certain
items through Figi's catalog while Figi's sells certain items through the
Company's Web sites. The Company's accounts receivable also include rebates from
Floral Transworld Delivery Association ("FTD").
The following table shows the accounts receivable and net revenues
generated from Figi's and FTD:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
ACCOUNTS RECEIVABLE 1997 1998 1999
------------------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Figi's...................................................... $ -- $62,000 $62,000
======= ======= =======
FTD......................................................... $16,000 $ 6,000 $36,000
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------ ------------
NET REVENUES 1997 1998 1998 1999
- ------------ ------- ------- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Figi's.................................................... $ -- $62,000 $-- $--
======= ======= == ==
</TABLE>
(o) Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Compensation expense related to employee stock options is recorded only if, on
the date of grant, the fair value of the underlying stock exceeds the exercise
price. The Company adopted the disclosure-only requirements of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," which allows entities to continue to apply the provisions of APB
Opinion No. 25 for transactions with employees and provide pro forma net income
(loss) and pro forma earnings (loss) per share disclosures for employee stock as
if the fair-value-based method of accounting in SFAS No. 123 had been applied to
these transactions.
(p) Basic and Diluted Net Loss Per Share
Loss per share is presented in accordance with the provisions of SFAS No.
128, "Earnings Per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. SFAS No. 128 replaced the presentation of primary
and fully diluted earnings (loss) per share (EPS), with a presentation of basic
EPS and diluted EPS. Under SFAS No. 128, basic EPS excludes dilution for common
stock equivalents and is computed by dividing income or loss available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock and resulted in the issuance of common stock. Diluted net loss
per share is equal to basic loss per share since all common stock equivalents
are anti-dilutive for each of the periods presented. Diluted net loss per share
for the year ended December 31, 1998, does not include the anti-dilutive effect
F-10
<PAGE> 68
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of 2,504,000 warrants to purchase common stock. There were no anti-dilutive
shares outstanding for the years ended December 31, 1996 and 1997 or for the
three month period ended March 31, 1998. Dilutive net loss per share for the
three month period ended March 31, 1999 does not include the effects of options
to purchase 475,000 shares of common stock and 1,666,000 warrants, as the effect
of their inclusion is anti-dilutive.
(q) Stock Split
In February 1999, the Company authorized and implemented a 2,000-for-1
common stock split in the form of a common stock dividend. Accordingly, all
share and per share amounts in the accompanying combined financial statements
have been retroactively restated to reflect the effect of the stock split.
(r) Recent Accounting Pronouncements
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" in 1998. SFAS No.
130 requires the Company to report in its financial statements, in addition to
its net income (loss), comprehensive income (loss), which includes all changes
in equity during a period from non-owner sources including, as applicable,
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. There
were no differences between the Company's comprehensive loss and its net loss as
reported.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
the way that public enterprises report information about operating segments. It
also establishes standards for related disclosures about products and services,
geographic area and major customers. The Company has determined that it does not
have any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to effect the Company as the Company currently
does not have any derivative instruments or hedging activities.
F-11
<PAGE> 69
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) BALANCE SHEET COMPONENTS
Property and equipment, including equipment under capital leases, are
stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
--------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................... $ 73,000 $ 83,000 $ 131,000
Software......................................... -- -- 131,000
Automobile, including assets under a capital
lease of $0, $44,000 and $44,000,
respectively................................... 42,000 44,000 44,000
Furniture and fixtures........................... 27,000 42,000 56,000
--------- -------- ---------
142,000 169,000 362,000
Less accumulated depreciation and amortization,
including amounts related to assets under a
capital lease of $0, $5,000 and $7,000,
respectively................................... (116,000) (90,000) (105,000)
--------- -------- ---------
Property and equipment, net.................... $ 26,000 $ 79,000 $ 257,000
========= ======== =========
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1997 1998 1999
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Reserves for sales returns......................... $ 1,000 $ 1,000 $ 1,000
Sales tax payable.................................. 1,000 3,000 3,000
Accrued marketing.................................. -- 28,000 358,000
Professional fees.................................. 28,000 56,000 4,000
Interest........................................... 6,000 -- --
Other.............................................. -- 19,000 6,000
------- -------- --------
Total accrued expenses........................ $36,000 $107,000 $372,000
======= ======== ========
</TABLE>
(3) STRATEGIC RELATIONSHIPS
The Company entered into floral product agreements with FTD, Teleflora,
Inc. and the Floral Division of Dole Food Company, Inc., the latter operating as
a direct from the grower channel. The agreements with each floral and gift
supplier require the supplier to provide the product as well as package and
deliver the product directly to the customer. Fees to these suppliers are
included in cost of revenues.
During the past two years, the Company has entered into agreements with
more than 1,000 strategic partner Internet sites as well as many corporate
intranet sites. In exchange for a commission on net sales of typically 8%, these
various Internet and intranet sites co-brand and market the Company's products.
Commissions to these various sites are included in sales and marketing.
Exceed Communications International, Inc. ("Exceed") is the Company's
exclusive Internet Web site developer and intranet commerce provider. In
exchange for such services, the Company pays Exceed 5% of all net Internet sales
less shipping and handling until $50,000 of revenue is earned by Exceed. After
this point, Exceed receives 3% of all net Internet sales less shipping and
handling. Fees to Exceed are included in product development.
F-12
<PAGE> 70
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
During March 1999, the Company revised its agreement with Exceed whereby
the Company pays Exceed $200,000 per annum plus two and one-half percent of all
net annual Internet sales over $5,000,000, as defined. This agreement required
the Company to pay Exceed a design and development fee of $250,000, half of
which was paid during the three months ended March 31, 1999.
During March 1999, the Company entered into an agreement with Frontier
Global Center, Inc. ("Frontier") whereby Frontier provides the Company with its
Internet hosting services in exchange for a monthly fee of approximately $5,000.
Fees to Frontier are included in product development.
(4) STRATEGIC INVESTOR
In July 1998, the Company entered into a strategic relationship with
Fingerhut through which Fingerhut purchased 496,000 shares (or 19.9%) of the
Company's common stock plus warrants to acquire an additional 40.1% of the
Company's common stock for an aggregate consideration of $1,990,000. The value
ascribed to the common stock was $3.33 per share while the value ascribed to the
warrants was $0.68 per share based on a Black-Scholes option pricing model. In
March 1999, Federated Department Stores, Inc. acquired Fingerhut. The Fingerhut
warrants are described below:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
COMMON EXERCISE
NUMBER OF SHARES PRICE PER
SHARES OWNED AFTER EXERCISE SHARE EXERCISE PRICE EXPIRATION DATE
- --------- -------------------- --------- -------------- ---------------
<S> <C> <C> <C> <C>
838,000 40% $3.58 $3,000,000 January 8, 1999
666,000 50% $3.00 2,000,000 January 8, 2000
1,000,000 60% $2.50 2,500,000 June 30, 2000
- --------- ----------
2,504,000 $7,500,000
========= ==========
</TABLE>
In January 1999, Fingerhut exercised warrants to purchase 838,000 shares at
an exercise price of $3.58 per share in exchange for cash proceeds of $3.0
million. In May 1999, Fingerhut exercised warrants to purchase an additional
532,800 shares at an exercise price of $3.00 in exchange for cash proceeds of
approximately $1.6 million.
The remaining warrants to purchase 1,133,200 shares of common stock shall
be exercised upon consummation of the IPO in consideration for cash proceeds of
approximately $2.9 million.
On October 22, 1998, the Company entered into a fulfillment services
agreement with Fingerhut Business Services, Inc., a wholly-owned subsidiary of
Fingerhut. Under that agreement, Fingerhut Business Services provides the
following fulfillment services for the Company's Web site, co-branded Web sites
and telephone order businesses at a per order charge, plus certain expenses: (i)
fulfillment of event-driven gift products; (ii) credit card processing and
management; (iii) order processing and management; (iv) customer service; (v)
product sourcing; (vi) returns processing; and (vii) reporting.
Fingerhut Business Services sells Fingerhut's and Figi's products to the
Company for most of its non-floral gift products from its inventory at its
actual cost plus 10%. Fingerhut Business Services provides similar goods and
services to third parties on commercial terms which may not be as favorable as
those which apply to the Company. The fulfillment services agreement terminates
on October 21, 2000, but is automatically extended for additional one-year terms
unless terminated by either party. During 1998 and the three months ended March
31, 1999, the Company incurred expenses payable to Fingerhut of approximately
$38,000 and approximately $105,000, respectively, for these services. In
addition, Fingerhut Business Services may provide other services for the Company
from time to time on a per hour charge or as specifically agreed. The Company
will pay some costs in connection with promotional and marketing activities in
Fingerhut's catalogs and mailings.
F-13
<PAGE> 71
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has a standard co-branded arrangement with Fingerhut for
its Web sites under which Fingerhut receives 6% of the net revenues generated
from such co-branded activities, as defined. During the three months ended March
31, 1999, the Company incurred expenses payable to Fingerhut of $13,000 for
these co-branded activities.
(5) CAPITAL STOCK
Authorized Shares
In February 1999 and May 1999, the Company amended its certificate of
incorporation by authorizing 10 million and 20 million shares of common stock at
a par value of $0.01 per share, respectively.
Retired Stock
On July 25, 1997, one of the founders entered into a stock repurchase
agreement with the Company to repurchase 2,000,000 shares of common stock for
$248,000 in varying installments over one and a half years. The excess of cost
over par value is charged to accumulated deficit. During 1997, the Company paid
$73,000 to the former founder as an initial payment of the $248,000 due. In
1998, the stock repurchase agreement was modified to reduce the total purchase
price of the retired stock from $248,000 to $173,000 in exchange for an
accelerated payment schedule. In 1998, the Company paid the remaining $100,000.
Stock Option Plan
In February 1999, the Board of Directors adopted the PC Flowers & Gift.com
Stock Option Plan. The plan originally provided for the issuance of 555,000
options. The plan was amended in May 1999 allowing for the issuance of an
additional 250,000 options. Incentive stock options must be issued at exercise
prices not less than the fair value of the Company's stock. As of March 31,
1999, 475,000 options were granted at an exercise price of $3.33, which was the
fair value of the Company's common stock at the date of grant.
Warrants
In connection with the July 1998 purchase of 496,000 shares of common stock
by Fingerhut (see note 4), the Company issued 2,504,000 warrants to purchase
common stock. In January 1999, Fingerhut exercised warrants to purchase 838,000
shares at an exercise price of $3.58 per share in exchange for cash proceeds of
$3.0 million. In May 1999, Fingerhut exercised warrants to purchase an
additional 532,800 shares at an exercise price of $3.00 in exchange for cash
proceeds of approximately $1.6 million.
(6) INCOME TAXES
The Company terminated its S corporation status effective July 10, 1998.
Because the Company incurred losses prior to this date, there is no pro forma
income tax provision/benefit, as the Company's history of operating losses
results in no benefit being recorded for such losses. Tax net operating losses
incurred during this period are not available to offset the Company's future
taxable income, if any.
At December 31, 1998, for income tax purposes, the Company had
approximately $212,000 of net operating loss carryforwards for the period from
July 10, 1998 through December 31, 1998. Such net operating losses begin
expiring in 2013. The net operating loss for tax purposes differs from that for
financial reporting purposes due to differences in reporting certain
transactions for income tax and financial reporting purposes.
F-14
<PAGE> 72
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss carryforwards available to be used in any given year if certain
events occur, including significant changes in ownership interests.
No provision or benefit (actual or pro forma) has been recorded for any
period presented due to the Company's history of net losses.
The Company has determined that approximately $88,000 of net deferred tax
assets at December 31, 1998, did not satisfy the realization criteria set forth
in SFAS No. 109, "Accounting for Income Taxes". Management believes that based
on all available evidence, it is more likely than not that the deferred tax
assets will not be realized. Accordingly, a valuation allowance was recorded
against the entire deferred tax asset.
The tax effects of temporary differences and tax loss carryforwards that
give rise to significant portions of federal deferred tax assets and deferred
tax liabilities at December 31, 1998, are presented below.
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 84,000
--------
Other
Gross deferred tax assets................................. 4,000
Less: valuation allowance................................. (88,000)
--------
Net deferred tax assets................................... $ --
========
</TABLE>
(7) COMMITMENTS
Leases
The Company leases facilities under agreements accounted for as operating
leases. These leases generally require the Company to pay all executory costs
such as maintenance and insurance. Rent expense for the years ended December 31,
1996, 1997, and 1998 and the three month periods ended March 31, 1998 and 1999
was approximately $20,000, $13,000, $15,000, $4,000 and $18,000, respectively.
In addition, during 1998 the Company purchased an automobile that was accounted
for as a capital lease.
Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and a capital lease as
of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASE LEASES
- ------------------------ -------- ---------
<S> <C> <C>
1999........................................................ $ 12,000 $ 65,000
2000........................................................ 12,000 71,000
2001........................................................ 12,000 6,000
2002........................................................ 7,000 --
-------- --------
Total minimum lease payments................................ 43,000 $142,000
========
Less amount representing interest........................... 4,000
--------
Present value of net minimum lease payments................. 39,000
Less current portion of capital lease obligation............ (10,000)
--------
Total capital lease obligation, less current portion........ $ 29,000
========
</TABLE>
F-15
<PAGE> 73
PC FLOWERS & GIFTS.COM INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
In the normal course of business, the Company is subject to, and may become
a party to, litigation arising out of its operations. In management's opinion,
none of the matters currently in actual or threatened litigation will have a
material impact on the Company's financial position or results of operations.
(8) RELATED PARTY TRANSACTIONS
The Company's Chairman and Chief Executive Officer loaned the Company
$150,000 during 1997 at an interest rate of 6% per annum. The Company repaid
these loans and all interest thereon during 1998.
The Chairman and Chief Executive Officer entered into an employment
agreement dated July 9, 1998, as amended February 1, 1999, which provides for an
initial three year term and an annual salary of $175,000 in the first year and
$200,000 in the second, third and any succeeding year. The agreement renews
automatically unless terminated by the Company or the Chairman and Chief
Executive Officer.
On July 9, 1998, the Company entered into a technology license agreement
with the Chairman and Chief Executive Officer and Fingerhut, which allows the
Company and Fingerhut, with some restrictions, to use certain e-commerce-related
technology royalty free for which the Chairman and Chief Executive Officer has
filed a patent application. Additionally, the Chairman and Chief Executive
Officer licensed certain intellectual property rights to the Company, which the
Company, in turn, sublicensed to Fingerhut.
On July 9, 1998, the Company entered into a stockholder agreement with the
Chairman and Chief Executive Officer and Fingerhut, which provides the Chairman
and Chief Executive Officer and Fingerhut with rights to require the Company to
publicly register their shares of common stock and pay for such registration, in
certain situations. Subject to restrictions, the Chairman and Chief Executive
Officer can demand that the Company register his shares of common stock, and
Fingerhut may join such demand, and the Chairman and Chief Executive Officer and
Fingerhut can also require the Company to register their shares when the Company
registers other shares of common stock, except in connection with the initial
public offering.
F-16
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by PC Flowers & Gifts.com Inc.
in connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $12,788
NASD filing fee............................................. $ 5,100
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky qualification fees and expenses.................... $12,000
Transfer Agent and Registrar fees........................... *
Miscellaneous fees and expenses............................. *
-------
Total....................................................... *
=======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers on terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Article Tenth of our Amended
and Restated Certificate of Incorporation (Exhibit 3.1 hereto) and Article
of our Amended and Restated Bylaws (Exhibit 3.2 hereto) provide for
indemnification of our directors, officers, employees and other agents to the
maximum extent permitted by Delaware law. In addition, we have entered into
Indemnification Agreements (Exhibit 10. hereto) with our officers and
directors. The Underwriting Agreement (Exhibit 1.1) also provides for
cross-indemnification among PC Flowers & Gifts.com and the Underwriters with
respect to certain matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, we have sold and issued the following securities:
1. On July 9, 1998, we issued 496,000 shares of Common Stock, and Warrants
to purchase 2,504,000 shares of Common Stock, to Fingerhut for an
aggregate consideration of $1,990,000.
2. In January 8, 1999, we issued 838,000 shares of Common Stock to
Fingerhut for an aggregate consideration of $3,000,000 upon the
exercise by Fingerhut of the Warrants identified in item 1 above.
3. On May 10, 1999, we issued 532,800 shares of Common Stock to Fingerhut
for an aggregate consideration of $1,598,400 upon the exercise by
Fingerhut of the Warrants identified in item 1 above.
4. Since inception, we have issued an aggregate of 475,000 options to
purchase Common Stock of PC Flowers & Gifts.com to a number of our
employees and directors.
II-1
<PAGE> 75
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 9 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of PC
Flowers & Gifts.com.
3.2 Amended and Restated By-laws of PC Flowers & Gifts.com.
4.1* Specimen Stock Certificate.
5.1* Opinion of Robinson & Cole LLP regarding the legality of the
Common Stock being registered.
10.1* Investor Subscription Agreement, dated July 9, 1998, between
PC Flowers & Gifts, William J. Tobin and Fingerhut
Companies.
10.2 Warrant Agreement, dated July 9, 1998, between PC Flowers &
Gifts and Fingerhut Companies.
10.3 Stockholders Agreement, dated July 9, 1998, between PC
Flowers & Gifts, William J. Tobin and Fingerhut Companies.
10.4 Indemnification Agreement, dated July 9, 1998, between PC
Flowers & Gifts and William J. Tobin.
10.5 Technology License Agreement, dated July 9, 1998, between PC
Flowers & Gifts, William J. Tobin and Fingerhut Companies.
10.6 Exceed Web Site and Commerce Solution Agreement, dated March
29, 1999, between Exceed Communications Group, Inc. and PC
Flowers & Gifts.
10.7 Fulfillment Services Agreement, dated October 22, 1998,
between Fingerhut Business Services Inc. and PC Flowers &
Gifts.
10.8 Agreement dated March 31, 1994, between Prodigy Services
Company and PC Gifts.
10.9 Master Service Agreement, dated March 29, 1999, between
Frontier Global Center, Inc. and PC Flowers & Gifts (as
amended).
10.10* Software Development Agreement, dated December 15, 1997,
between PC Flowers & Gifts and Exceed Communications
International, Inc.
10.11 Agreement, dated December 4, 1998, between PC Flowers &
Gifts and Teleflora.
10.12 Program Agreement, dated March 14, 1997, between PC Flowers
& Gifts and Four Farmers, Inc.
10.13* Lease Agreement, dated January 25, 1999, between PC Flowers
& Gifts and Plaza West Associates.
10.14 Employment Agreement, dated July 9, 1998, between PC Flowers
& Gifts and William J. Tobin.
10.15 PC Flowers & Gifts.com 1999 Stock Option Plan.
23.1 Consent of KPMG LLP.
23.2* Consent of Attorneys (see Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
II-2
<PAGE> 76
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut on May 10, 1999.
PC FLOWERS & GIFTS.COM INC.
By: /s/ DAVID R. CRAMPTON
------------------------------------
David R. Crampton
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose Signature
appears below hereby constitutes and appoints, jointly and severally, David R.
Crampton and William J. Tobin and each of them, as his attorney-in-fact, with
full power of substitution, for him in any and all capacities, to sign any and
all amendments to this registration statement (including post-effective
amendments), and any and all registration statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this registration statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said registration statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID R. CRAMPTON President and Chief Operating May 10, 1999
- ------------------------------------------------ Officer and Director
David R. Crampton
/s/ WILLIAM J. TOBIN Chief Executive Officer and May 10, 1999
- ------------------------------------------------ Director
William J. Tobin
/s/ ANDREW GRIMALDA Chief Financial and May 10, 1999
- ------------------------------------------------ Accounting Officer
Andrew Grimalda
/s/ DAVID HEIDECORN Director May 10, 1999
- ------------------------------------------------
David Heidecorn
Director
- ------------------------------------------------
William J. Lansing
Director
- ------------------------------------------------
Michael P. Sherman
</TABLE>
II-4
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1 Amended and Restated Certificate of Incorporation of PC
Flowers & Gifts.com.........................................
3.2 Amended and Restated By-laws of PC Flowers & Gifts.com......
4.1* Specimen Stock Certificate..................................
5.1* Opinion of Robinson & Cole LLP regarding the legality of the
Common Stock being registered...............................
10.1* Investor Subscription Agreement, dated July 9, 1998, between
PC Flowers & Gifts, William J. Tobin and Fingerhut
Companies...................................................
10.2 Warrant Agreement, dated July 9, 1998, between PC Flowers &
Gifts and Fingerhut Companies...............................
10.3 Stockholders Agreement, dated July 9, 1998, between PC
Flowers & Gifts, William J. Tobin and Fingerhut
Companies...................................................
10.4 Indemnification Agreement, dated July 9, 1998, between PC
Flowers & Gifts and William J. Tobin........................
10.5 Technology License Agreement, dated July 9, 1998, between PC
Flowers & Gifts, William J. Tobin and Fingerhut
Companies...................................................
10.6 Exceed Web Site and Commerce Solution Agreement, dated March
29, 1999, between Exceed Communications Group, Inc. and PC
Flowers & Gifts.............................................
10.7 Fulfillment Services Agreement, dated October 22, 1998,
between Fingerhut Business Services Inc. and PC Flowers &
Gifts.......................................................
10.8 Agreement dated March 31, 1994, between Prodigy Services
Company and PC Gifts........................................
10.9 Master Service Agreement, dated March 29, 1999, between
Frontier Global Center, Inc. and PC Flowers & Gifts (as
amended)....................................................
10.10* Software Development Agreement, dated December 15, 1997,
between PC Flowers & Gifts and Exceed Communications
International, Inc..........................................
10.11 Agreement, dated December 4, 1998, between PC Flowers &
Gifts and Teleflora.........................................
10.12 Program Agreement, dated March 14, 1997, between PC Flowers
& Gifts and Four Farmers, Inc...............................
10.13* Lease Agreement, dated January 25, 1999, between PC Flowers
& Gifts and Plaza West Associates...........................
10.14 Employment Agreement, dated July 9, 1998, between PC Flowers
& Gifts and William J. Tobin................................
10.15 PC Flowers & Gifts.com 1999 Stock Option Plan...............
23.1 Consent of KPMG LLP.........................................
23.2* Consent of Attorneys (see Exhibit 5.1)......................
24.1 Power of Attorney (see page II-4)...........................
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------
* To be filed by amendment.
II-5
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PC FLOWERS & GIFTS.COM INC.
The undersigned, in order to amend and restate the Certificate of Incorporation
of PC Flowers & Gifts, Inc., a Delaware corporation, under and pursuant to the
provisions of the Delaware General Corporation Law (the "DGCL"), hereby
certifies that:
FIRST: The name of the corporation is PC Flowers & Gifts.com Inc. (the
"Corporation").
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
THIRD: The registered office and registered agent of the Corporation is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware, 19801.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is twenty-one million (21,000,000), twenty million shares
(20,000,000) of which shall be Common Stock of the par value of $.01 per share
and one million shares (1,000,000) of which shall be Preferred Stock of the par
value of $.01 per share. The relative rights, preferences and limitations of the
shares of each class of stock are as follows: Each holder of Common Stock shall
be entitled to one vote for each share of stock. Subject to the provisions of
this Article FOURTH, the Board of Directors is hereby expressly authorized to
issue in series or otherwise the shares of Preferred Stock, and to fix from time
to time before issuance the number of shares to be included in any series and
the terms, limitations, relative rights and preferences of all shares of such
series. The authority of the Board of Directors with respect to each series
shall include, without limitation thereto, the authority to determine any or all
of the following and the shares of each series may vary from the shares of any
other series in the following respects: (a) the number of shares constituting
such series and the designation thereof to distinguish the shares of such series
from the shares of all other series; (b) the annual dividend rate on the shares
of such series and whether such dividends shall be cumulative, and, if
cumulative, the date from which dividends shall be cumulative; (c) the
redemption price or prices for shares of such series, if redeemable, and the
terms and conditions of such redemption; (d) the preference, if any, of shares
of such series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; (e) the voting rights, if any, of
shares of such series in addition to the voting rights prescribed by law, and
the terms of exercise of such voting rights; (f) the right, if any, of shares of
such series to be converted into shares of any other series or class and the
terms and conditions of such conversion; (g) the sinking fund provisions, if
any, for the redemption or repurchase of shares of such series; and (h) any
other terms, limitations and relative rights and preferences of such series, to
the extent permitted by law. Convertible shares surrendered upon conversion, or
redeemable shares which are redeemed, purchased or otherwise reacquired by the
<PAGE> 2
Corporation, shall be held as treasury shares until reissued, retired or
cancelled by action of the Board of Directors.
FIFTH: No holder of any of the shares of any class of the Corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any shares
of any class of the Corporation or any securities convertible into or carrying
rights or options which the Corporation proposes to grant for the purchase of
shares of any class of the Corporation or for the purchase of any shares or
other securities of the Corporation which are convertible into or exchangeable
for, or which carry any rights to subscribe for, purchase, or otherwise acquire,
shares of any class of the Corporation; and any and all of such shares or other
securities of the Corporation, whether now or hereafter authorized or created,
may be issued or transferred if the same have been reacquired and have treasury
status, and any and all of such rights and options may be granted by the Board
of Directors to such persons, firms, corporations and associations, and for such
lawful consideration, and on such terms, as the Board of Directors in its
discretion may determine, without first offering the same, or any thereof, to
any said holder.
SIXTH: Whenever, by any provision of law, the vote of shareholders of the
Corporation at a meeting thereof is required or permitted to be taken in
connection with any corporate action, such corporate action shall be taken only
at a duly constituted meeting of shareholders of the Corporation and not by
written consent.
SEVENTH: The Board of Directors shall consist of not fewer than three nor more
than fifteen directors, as shall be fixed from time to time by resolution
adopted by a majority of the Board of Directors then in office. Notwithstanding
any other provision of this Amended and Restated Certificate of Incorporation,
and in addition to any other vote that may be required by this Amended and
Restated Certificate of Incorporation or by law, this Article may not be
amended, altered, repealed or otherwise changed unless approved by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of stock of the Corporation entitled to vote thereon.
EIGHTH:. Vacancies occurring in the Board of Directors for any reason, including
the creation of new directorships, may be filled by the affirmative vote of a
majority of the directors then in office, even though such number may constitute
less than a quorum.. Directors elected by the shareholders or the Board of
Directors pursuant to this Article EIGHTH may not be removed without cause.
Notwithstanding any other provisions of this Amended and Restated Certificate of
Incorporation, and in addition to any other vote that may be required by law or
this Amended and Restated Certificate of Incorporation, this Article may not be
amended, altered, repealed or otherwise changed unless approved by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of stock of the Corporation entitled to vote thereon. Elections of directors
need not be by written ballot unless the By-laws of the Corporation shall so
provide.
NINTH: Meetings of shareholders or directors may be held within or without the
State of Delaware, as the By-laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as
2
<PAGE> 3
may be designated from time to time by the Board of Directors or in the By-laws
of the Corporation.
TENTH: In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
To make, alter or repeal the By-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for dividends
a reserve or reserves for any proper purpose and to abolish any such reserve in
the manner in which it was created.
To designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of the committee, who may replace any absent
or disqualified member at any meeting of the committee. The By-laws may not
provide that in the absence or disqualification of a member of a committee, the
member or members present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously or
otherwise appoint another member of the Board of Directors to act at the meeting
in the place of any such absent or disqualified member. Any such committee, to
the extent provided in the resolution of the Board of Directors, or in the
By-laws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the shareholders, any action or matter expressly
required by the DGCL to be submitted to shareholders for approval or (ii)
adopting, amending or repealing any by-law of the Corporation.
When and as authorized by the shareholders in accordance with law, to sell,
lease or exchange all or substantially all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other Corporation or corporations, as its Board of Directors
shall deem expedient and for the best interests of the Corporation.
ELEVENTH: The Board of Directors shall have the authority to provide in the
By-laws for the indemnification of directors and officers to the fullest extent
permitted by law and the personal liability of the Board of Directors to the
Corporation, its shareholders or otherwise in the course of fulfilling their
individual duties, is hereby eliminated to the fullest extent permitted by the
provisions of the DGCL as the same may be amended and supplemented, or any
successor provision thereto.
3
<PAGE> 4
TWELFTH: The Board of Directors of the Corporation, acting by majority vote, may
alter, amend or repeal the By-laws of the Corporation.
THIRTEENTH: The Corporation is to have perpetual existence.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon shareholders herein are granted subject to this
reservation.
FIFTEENTH: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 245 of the DGCL.
The undersigned has signed this Amended and Restated Certificate of
Incorporation as of May 10, 1999.
/s/ David R. Crampton
----------------------------------------
David R. Crampton
President
4
<PAGE> 1
Exhibit 3.2
PC FLOWERS & GIFTS.COM INC.
* * * * *
AMENDED AND RESTATED
B Y - L A W S
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Stamford, State of Connecticut, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
<PAGE> 2
Section 2. Annual meetings of stockholders, commencing with the year
1999, shall be held on the tenth day of June, if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 A.M., or at such
other date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting, at which they shall elect a
Board of Directors in accordance with the Amended and Restated Certificate of
Incorporation of the corporation (the "Certificate of Incorporation"), and
transact such other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting, stating the place,
date and hour of the meeting, shall be given to each stockholder entitled to
vote at such meeting not less than ten nor more than sixty days before the date
of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, or shall have prepared and made, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2
<PAGE> 3
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for
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<PAGE> 4
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may not be approved and
resolutions of stockholders shall not be adopted by written consent; such action
shall not be taken without a vote of the stockholders held at a meeting called
in accordance herewith.
Section 12. Prior to the earlier of (a) the sale in one or more
underwritten public offerings registered under the Securities Act of 1933, as
amended, of shares of the common stock of the corporation having an aggregate
value of at least $25 million (a "Public Offering"), or (b) the sale (a "Sale")
of the corporation to an independent third
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party pursuant to which such party or parties acquire (i) capital stock
possessing the voting power under normal circumstances to elect a majority of
the directors on the Board of Directors of the corporation (whether by merger,
consolidation or sale or transfer of the corporation's capital stock), or (ii)
all or substantially all of the corporation's assets determined on a
consolidated basis, notwithstanding anything to the contrary herein, the
unanimous written consent of all of the stockholders of the corporation shall be
required prior to taking any of the following actions:
1. the pledge or sale of all or substantially all of the
assets of the corporation;
2. the merger of the corporation with or into another
corporation or legal entity;
3. any amendment of the Certificate of Incorporation or
by-laws of the corporation; or
4. any change in the number of directors on the Board of
Directors.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be from three to fifteen. The directors shall be elected at the
annual meeting of the stockholders, except as provided below, and each director
elected shall hold office until his successor is elected and qualified.
Elections of directors need not be by written ballot. Vacancies occurring in the
Board of Directors for any reason, including the creation of new directorships,
may be filled by the affirmative vote of a majority of the directors then
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<PAGE> 6
in office, even though such number may constitute less than a quorum. Directors
elected by the stockholders or the Board of Directors may not be removed without
cause. Notwithstanding any other provisions of these by-laws, and in addition to
any other vote that may be required by law or the Certificate of Incorporation,
this Article may not be amended, altered, repealed or otherwise changed unless
approved by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of stock of the corporation entitled to vote thereon.
Section 2. Prior to a Public Offering or a Sale, notwithstanding
anything to the contrary herein, the number of directors on the Board of
Directors shall be five directors who shall be elected or replaced, as the case
may be, as follows:
(a) three directors shall be designated by the vote of those
shares of common stock (the "Tobin Shares") of the corporation
beneficially owned by William J. Tobin ("Tobin") until such time as
Fingerhut Companies, Inc. ("Fingerhut") owns more than fifty percent
(50%) of the outstanding shares of common stock of the corporation, and
thereafter two directors shall be designated by the vote of the Tobin
Shares;
(b) two directors shall be designated by the vote of shares of
common stock of the corporation owned by Fingerhut until such time as
Fingerhut owns more than fifty percent (50%) of the outstanding shares
of common stock, and thereafter three directors shall be designated by
the vote of the shares owned by Fingerhut; and
(c) in the event that any director designated pursuant to the
above clauses (a) and (b) by the vote of those shares owned by
Fingerhut or Tobin for
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any reason ceases to serve as a member of the Board during his term of
office, the resulting vacancy on the Board shall be filled by a
director designated by the vote of either those shares owned by
Fingerhut or by Tobin, as the case was with the director who ceased to
serve as a member of the Board of Directors, as provided in the above
clauses (a) and (b); provided that any representative removed for the
cause shall not be designated again as a member of the Board of
Directors.
(d) The rights of Tobin under clauses 4(a) through 4(c) shall
terminate at such time as (1) he, his heirs, successors or assigns
cease to hold an aggregate of at least 10% of the outstanding shares of
common stock of the corporation, or (2) the corporation purchases (A)
any common stock of the corporation purchased or otherwise acquired by
Fingerhut or Tobin; (B) any equity securities issued or issuable
directly or indirectly with respect to the common stock of the
corporation referred to in clause (A) above by the way of stock
dividend or stock split in connection with a combination of securities,
recapitalization, merger, consolidation or other reorganization, or (C)
any other securities of any class or series of capital stock of the
corporation held by Tobin or Fingerhut. As to any particular securities
constituting shares or securities under clauses (A) through (C) above,
any restrictions on such securities arising from clauses (A) through
(C) shall cease to be effective once such securities are sold to the
public under the Securities Act of 1933, as amended, or through a
broker, dealer or market maker pursuant to the provisions of Rule 144
promulgated thereunder.
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Section 3. The business of the corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these by-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
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Section 7. Special meetings of the board may be called by the president
on three days' notice to each director, either personally or by mail or by
facsimile communication; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors unless the board consists of only one director; in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 8. At all meetings of the board, a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the Certificate of
Incorporation or these by-laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by
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means of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at the
meeting.
Section 11. Prior to a Public Offering or a Sale, notwithstanding
anything to the contrary herein, the unanimous written consent of each member of
the Board of Directors of the corporation shall be required to take any of the
following actions:
1. issuance of any shares of common stock or securities
convertible into common stock;
2. appointment of officers of the corporation;
3. entering into any line of business other than the sale of
flowers and gifts; or
4. appointment or creation of any committee with the authority
to act on behalf of the Board of Directors..
COMMITTEES OF DIRECTORS
Section 12. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but
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no such committee shall have the power or authority in reference to the
following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the General Corporation
Law of Delaware to be submitted to stockholders for approval or (ii) adopting,
amending or repealing any by-law of the corporation. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
Section 13. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 14. Unless otherwise restricted by the Certificate of
Incorporation or these by-laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 15. Unless otherwise restricted by the Certificate of
Incorporation or by law, any director or the entire Board of Directors may be
removed, only for cause, by the holders of a majority of shares entitled to vote
at an election of directors.
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ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by facsimile telecommunication.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a president, a vice-president, a secretary and a
treasurer. The Board of Directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these by-laws otherwise provide.
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Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE PRESIDENT
Section 6. The president shall be the chief operating officer of the
corporation, shall preside at all meetings of the stockholders and the Board of
Directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall
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be expressly delegated by the Board of Directors to some other officer or agent
of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice-president (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may
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give general authority to any other officer to affix the seal of the
corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of
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the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by, the chairman or vice-chairman of the Board of
Directors, or the president or a vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
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FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting: provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual meeting
and at any special meeting of the stockholders, when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
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CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the Certificate of
Incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal
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or adoption of new by-laws be contained in the notice of such special meeting.
If the power to adopt, amend or repeal by-laws is conferred upon the Board of
Directors by the Certificate of Incorporation it shall not divest or limit the
power of the stockholders to adopt, amend or repeal by-laws.
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EXHIBIT 10.2
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement"), dated as of July 9, 1998, by and
between PC Flowers & Gifts, Inc., a Delaware corporation (the "Grantor"), and
Fingerhut Companies, Inc., a Minnesota corporation (the "Grantee").
W I T N E S S E T H:
WHEREAS, the Grantor and the Grantee are parties to an Investor
Subscription Agreement of even date herewith (as the same may be amended from
time to time, the "Investment Agreement") pursuant to which Grantee is
purchasing 248 shares of Common Stock of the Grantor, without par value ("Common
Stock") and the Grantor is to issue to the Grantee Warrants to purchase up to
1252 shares of Common Stock.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Grant of Warrant. The Grantor hereby grants to Grantee an
irrevocable warrant (the "Warrant") to purchase up to 1252 shares of Common
Stock (the "Warrant Shares") which together with 248 shares of Common Stock to
be issued to Fingerhut on the date hereof will represent sixty percent (60%) of
the outstanding Common Stock of the Grantor after exercise of such Warrant and
issuance of all shares subject to any options, warrants, convertible securities,
subscription rights or otherwise which are in existence or outstanding as of the
date hereof. The purchase price for the Warrant Shares shall be as follows:
<TABLE>
<CAPTION>
Percent of
Outstanding Exercise
Shares Owned Price Per
after Exercise Share, Aggregate
Number of ("Percentage ("Exercise Exercise
Shares Ownership") Price") Price Expiration Date
- ------ ----------- ------- ----- ---------------
<C> <C> <C> <C> <C>
419 40% $7,159.90 $3,000,000 January 8, 1999
333 50% $6,006.01 $2,000,000 January 8, 2000
500 60% $5,000.00 $2,500,000 June 30, 2000
</TABLE>
The Percentage Ownership shall be adjusted downward to reflect the issuance of
options to employees of the Grantor other than William J. Tobin, in each
instance as approved in writing by the Grantee.
SECTION 2. Exercise of Warrant. The Grantee may exercise this Warrant, in
whole or in part (but, with respect to Warrants exercisable at the same Exercise
Price, all Warrants at such Exercise Price), at any time from the date hereof by
giving to the Grantor notice to such effect, specifying a date not later than
ten business days from the date such notice is given for the
<PAGE> 2
closing of the purchase. Such closing may be by mail or by transfer of funds as
specified on such notice.
SECTION 3. Adjustment of Warrant Shares Issuable.
(a) In case at any time or from time to time after the date of
this Agreement the Grantor shall (i) declare or pay any dividend or make any
other distribution upon any capital stock of the Grantor which is payable in
Common Stock or securities convertible into Common Stock ("Convertible
Securities"), or (ii) effect a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then, in any such
event, the total number of additional shares of Common Stock, or (in the case of
any such dividend or distribution payable in Convertible Securities) Convertible
Securities issuable in payment of such dividend or distribution or to give
effect to such subdivision shall be deemed to have been issued immediately after
the close of business on the record date (or other date) for the determination
of holders of any class of securities in connection with such subdivision.
(b) In case the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, the Exercise Price in effect immediately prior to
such combination or consolidation shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(c) In case the Grantor shall take any of the actions set
forth in (a) and (b) above, the number of Warrant Shares purchasable upon
exercise of each Warrant immediately prior thereto shall be adjusted so that the
Grantee shall be entitled to receive the kind and number of Warrant Shares which
it would have owned or have been entitled to receive after any of the events
described above, had each such Warrant been exercised immediately prior to such
event or any record date with respect thereto. An adjustment made pursuant to
this clause (c) shall become effective immediately after the effective date of
such event retroactive to the record date, if any for such event.
(d) If the Grantor issues any shares of Common Stock or
Convertible Securities other than with the written consent of the Grantee, the
number of Warrant Shares issuable pursuant to this Agreement shall be increased,
as required, to provide to the Grantee that it shall receive the Percentage
Ownership.
SECTION 4. Payment and Delivery of Warrant Shares. At any closing
hereunder, (a) Grantee shall make payment to the Grantor of the Exercise Price,
and (b) Grantor shall issue the Warrant Shares to the Grantee and register such
issuance on Grantor's stock ledger.
SECTION 5. Representations and Warranties of the Grantor.
(a) Organization. The Grantor is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware.
-2-
<PAGE> 3
(b) Authorization; No Contravention. The execution, delivery and
performance by the Grantor of this Warrant Agreement are within the Grantor's
corporate powers, have been duly authorized by all necessary corporate action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (other than as may be required by state and federal
securities laws) and do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the certificate of incorporation
or bylaws of the Grantor or of any other agreement, judgment, injunction, order,
decree or other instrument binding upon the Grantor.
(c) Binding Effect. This Agreement constitutes a valid and binding
agreement of the Grantor, enforceable in accordance with its terms.
(d) Private Offering. Neither the Grantor nor any person acting on its
behalf has offered the Warrant Shares or any similar securities for sale, or
solicited any offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any persons. Neither the Grantor nor any
person acting on its behalf has taken, or will take, any action which would
subject the issuance or sale of the Warrant Shares to the registration
requirements of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act").
(e) Issuance of Shares. Upon the exercise of the Warrant pursuant to this
Agreement, the Warrant Shares reserved for issuance hereunder will be duly and
validly authorized, issued, fully paid and non-assessable, free of preemptive
rights and free and clear of any lien and any other limitation or restriction
(including any restriction on the right to vote, sell or otherwise dispose of
the Warrant Shares), other than such limitations or restrictions imposed by the
Stockholders Agreement dated as of the date hereof among Grantor, the Grantee
and William J. Tobin (the "Stockholders Agreement") and by the Securities Act.
(f) Capital Stock. On the date hereof, the authorized capital stock of the
Grantor consists of 10,000 shares of Common Stock of which 1,000 shares of
Common Stock are outstanding. The Warrant Shares plus 248 shares of Common Stock
to be issued to Fingerhut on the date hereof represent 60% of the Grantor's
outstanding Common Stock on a fully diluted basis, after the issuance of the
Warrant Shares. There are no options, warrants or other rights outstanding to
purchase any Shares of Common Stock of the Company
SECTION 6. Covenants of Grantor. The Grantor will at all times reserve and
keep available, solely for issuance pursuant to the exercise of the Warrant, the
number of shares of Common Stock which from time to time shall be issuable to
the Grantee upon the exercise of the Warrant. The Grantor shall take all action
to assure that all such shares shall be duly authorized and, when issued
pursuant to the exercise of the Warrant, shall be validly issued, fully paid and
non-assessable with no liability on the part of the holders thereof.
SECTION 7. Miscellaneous.
(a) The Grantee understands that the Warrant Shares are being offered only
in a transaction not involving any public offering within the meaning of the
Securities Act, and that, if in the future the Grantee decides to resell, pledge
or otherwise transfer any of the Warrant Shares, such Warrant Shares may be
resold, pledged or transferred only (i) in accordance with the
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<PAGE> 4
terms of the Stockholders Agreement or (ii) pursuant to an exemption from
registration under the Securities Act.
(b) The Grantee understands that the Warrant Shares will, unless otherwise
agreed by the Grantor thereof, bear a legend to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
A STOCKHOLDERS AGREEMENT. A COPY OF SUCH AGREEMENT MAY BE OBTAINED
BY THE HOLDER HEREOF AT THE CORPORATION'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE.
(c) Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
(d) Notices. All notices, requests, other communications and distributions
to any party hereunder shall be in writing (including prepaid overnight courier,
telex, facsimile transmission or similar writing) and shall be given to such
party at its address or telecopy number set forth below or at such other address
or telecopy number as such party may hereafter specify for the purpose by notice
to the other parties.
If to the Grantor:
PC Flowers & Gifts, Inc.
134 Davenport Drive
Stamford, CT 06902
If to the Grantee:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attn: Michael P. Sherman, Esq.
Each such notice, request or other communication shall be effective (i) if given
by telex or telecopy, when such telex or telecopy is transmitted to the telex or
telecopy number specified on the signature pages hereof and the appropriate
answerback is received (in the case of telex) or telephonic confirmation of
receipt thereof is obtained (in the case of telecopy) or (ii) if given by
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mail, prepaid overnight courier or any other means, when received at the address
specified on the signature pages hereof or when delivery at such address is
refused.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(f) Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same Warrant.
(g) Headings. The paragraph headings herein are for convenience only and
shall not affect the construction hereof.
(h) Assignment. This Agreement shall not be assignable by either party.
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IN WITNESS WHEREOF, the Grantor and Grantee have caused this Agreement to
be duly executed as of the day and year first above written.
PC FLOWERS & GIFTS, INC.
By: /s/ William J. Tobin, President
-------------------------------
FINGERHUT COMPANIES, INC.
By: /s/ Michael Sherman, JP
--------------------------------
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<PAGE> 1
EXHIBIT 10.3
PC FLOWERS & GIFTS, INC.
STOCKHOLDERS AGREEMENT
THIS AGREEMENT is made as of July 9, 1998, by and among PC FLOWERS &
GIFTS, INC., a Delaware corporation (the "Corporation"), William J. Tobin, a
stockholder and an employee of PC Flowers & Gifts, Inc. ("Tobin"), and Fingerhut
Companies, Inc., a Minnesota corporation ("Fingerhut"). Tobin and Fingerhut are
sometimes collectively referred to as the "Stockholders" and individually as a
"Stockholder." Capitalized terms used herein are defined in Section 18.
Contemporaneously with the execution of this Stockholders Agreement,
Fingerhut will purchase shares of the Corporation's Common Stock, without par
value (the "Common Stock"), pursuant to an Investor Subscription Agreement
between the Fingerhut, Tobin and the Corporation dated as of the date hereof
(the "Investment Agreement") and the Corporation is entering into a Warrant
Agreement with Fingerhut dated as of the date hereof (the "Warrant Agreement")
pursuant to which Fingerhut has the right to purchase additional shares of
Common Stock.
The Corporation and the Stockholders desire to enter into this Agreement
for the purposes, among others, of (i) assuring continuity in the management and
ownership of the Corporation, (ii) limiting the manner and terms by which the
Stockholder Shares may be transferred, and (iii) providing Tobin with certain
registration rights. The execution and delivery of this Agreement is a condition
to the Investor's purchase of the Common Stock pursuant to the Investment
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Restrictions on Transfer of Executive Shares. The restrictions set
forth in this Section 1 shall apply to all Stockholder Shares until a Qualified
Public Offering or an Approved Sale of the Corporation (but shall not apply to
such Qualified Public Offering or Approved Sale).
(a) Prohibition Against Transfer of Stockholder Shares. No Stockholder
shall sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose
of (collectively, a "Transfer") any interest in any Stockholder Shares or
Options unless pursuant to either (i) a Public Sale, (ii) the provisions of
Sections 1(b) through l(e) hereof, (iii) a Transfer to the Other Stockholders,
or (iv) the Transfer in connection with a sale of securities pursuant to Section
2 or Section 3.
(b) Corporation Right of First Refusal. At least forty five (45) days
prior to making any Transfer of any Stockholder Shares (other than through
l(a)(i), (iii) or (iv) or to a Permitted Transferee), the transferring
Stockholder (the "Transferring Stockholder") shall deliver an Offer Notice to
the Corporation and the other Stockholders (the "Other Stockholders"). The Offer
Notice shall be deemed to be an offer of the subject Stockholder Shares to the
Corporation and
<PAGE> 2
the Other Stockholders on the same terms and conditions as proposed by the third
party. The Corporation may elect to purchase all, but not less than all, of the
Stockholder Shares specified in the Offer Notice at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Stockholder within twenty (20) days after the delivery of the Offer
Notice (the "Election Period"). The Corporation may also assign its right to
purchase all or a part of the Stockholder Shares subject to the Offer Notice to
Other Stockholders pursuant to the procedures in Section 1(c) hereof. The
purchase of the subject Stockholder Shares shall be made in accordance with
Section l(d) hereof.
(c) Other Stockholders Right of First Refusal. In the event the
Corporation does not elect to purchase all of the Stockholder Shares subject to
the Offer Notice, the Other Stockholders shall have the right, but not the
obligation, to purchase any remaining Stockholder Shares subject to the Offer
Notice. Upon the expiration of the Election Period, the Other Stockholders shall
have an additional five (5) days to notify the Transferring Stockholder of their
intention to acquire such remaining Stockholder Shares. Each Other Stockholder
may purchase his pro rata portion ("Pro Rata Portion") of such Stockholder
Shares by multiplying the number of such Stockholder Shares by a fraction, the
numerator of which is the number of Shares held by such Other Stockholder and
the denominator of which is the number of Shares held by all Other Stockholders.
If one or more of the Other Stockholders elects not to purchase its Pro Rata
Portion of such Shares (the "Remaining Shares"), the Other Stockholders who have
elected to purchase their Pro Rata Portion may also purchase their Pro Rata
Portion of the Remaining Shares in successive rounds until all such Remaining
Shares have been purchased; provided, however, that no such purchases shall be
made unless all such Stockholder Shares are to be purchased. The purchase of the
subject Stockholder Shares shall be made in accordance with Section 1(d) hereof.
(d) Procedures for Acquiring Stockholder Shares. If the Corporation (or
the Other Stockholders) has elected to purchase Stockholder Shares from the
Transferring Stockholder, the Transfer of such shares shall be consummated as
soon as practical after the delivery of the election notices, but in any event
within fifteen (15) days after the expiration of the Election Period. To the
extent that the Corporation (or the Other Stockholders) has not elected to
purchase all of the Stockholder Shares being offered, the Transferring
Stockholder may, within sixty (60) days after the expiration of the Election
Period, transfer the Shares subject to such notice to one or more third parties
at a price no less than the price per share specified in the Offer Notice and on
other terms no more favorable to the transferees than offered to the Corporation
in the Offer Notice, and such purchases shall be conditioned upon all purchasers
of Stockholder Shares executing a counterpart of this Agreement. In the event
the Offer Notice provides for any noncash consideration for the Stockholder
Shares, the Corporation and the Transferring Stockholder shall negotiate in good
faith to determine the all cash equivalent of the consideration proposed in the
Offer Notice. The Corporation and/or the Other Stockholders shall only be
required to pay cash for the Stockholder Shares acquired from the Transferring
Stockholder. At the closing of the purchase of Stockholder Shares, the
Transferring Stockholder shall provide representations and warranties as to his
title to such securities and that there are no liens or encumbrances on such
securities and shall sign such stock powers and other documents as may
reasonably be requested by the Corporation and/or the Other Stockholders.
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<PAGE> 3
(e) Permitted Transfers. The restrictions contained in this Section 1
shall not apply to any Transfer of Stockholder Shares by Tobin pursuant to
applicable laws of descent and distribution or among such Tobin's Family Group
or to Other Stockholder (a "Permitted Transferee"), provided that, in the case
of any of the foregoing Transfers the transferees of such Stockholder Shares
shall have agreed in writing to be bound by the provisions of this Agreement
affecting the Stockholder Shares so transferred.
(f) Put and Call of Stockholder Shares.
(i) If a Qualified Public Offering has not occurred prior to June
30, 2000, or if Mr. William Lansing ceases to be President of Fingerhut,
Tobin shall have the right, at his discretion, exercisable within sixty
(60) days following the occurrence of either such event, to require the
Corporation to purchase at least one-half of the Stockholder Shares held
by Tobin and Tobin's Family Group in the aggregate, at their fair market
value. For purpose of this Section 1(f), "fair market value" shall be
determined by two appraisers, one selected by Fingerhut and one selected
by Tobin, if they are the only Stockholders, or if they are not, then one
selected by the Transferring Stockholder and one by the Corporation. If
such two appraisers do not agree on the fair market value then the two
appraisers shall select a third appraiser whose determination of the fair
market value shall be binding. The closing on such purchase shall occur
within thirty (30) days following the final determination of the fair
market value.
(ii) If Tobin or Tobin's Family Group exercises his put rights with
respect to less than all of the Stockholder Shares under subsection
(f)(i), then not later than one year after he has exercised such rights he
may require the Corporation to purchase all remaining Stockholder Shares
at the same price per share paid pursuant to subsection (f)(i). The
closing shall occur within thirty days after Tobin has given notice that
he has exercised such additional put right.
(iii) If Tobin or Tobin's Family Group fails to exercise any rights
he has to require the Corporation to purchase his Stockholder Shares under
subsection (f)(ii), then within ninety days following September 1, 2001,
the Corporation has the right to require Tobin and Tobin's Family Group to
sell to the Corporation all Stockholder Shares held by such persons at
their fair market value at September 1, 2001, determined as provided in
Section (f)(i).
(iv) If a Qualified Public Offering has not occurred prior to
September 1, 2001, the Corporation has the right within ninety days
following September 1, 2001 to require Tobin and Tobin's Family Group to
sell to the Corporation all Stockholder Shares held by such persons at
their fair market value at September 1, 2001, determined as provided in
Section (f)(i).
(v) If Tobin breaches the provisions of Section 7 of the Employment
Agreement, the Corporation has the right to require Tobin and Tobin's
Family Group to sell to the Corporation all Stockholder Shares held by
such persons at their fair market value at the date of such event,
determined as provided in Section (f)(i).
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<PAGE> 4
(vi) If Tobin or Tobin's Family Group exercises his put right with
respect to less than all of the Stockholder Shares under Subsection
(f)(i), then any rights which Tobin or Tobin's Family Group may have under
Sections 4 and 6 shall terminate.
(g) Termination of Restrictions. The restrictions on the Transfer of
Stockholder Shares set forth in this Section 1 shall continue with respect to
each Stockholder Share until the date on which such Stockholder Share has been
transferred in a Public Sale or pursuant to Section 2 or 3, or the Corporation's
consummation of a Qualified Public Offering.
2. Drag-Along Rights.
(a) In the event of an Approved Sale to an Independent Third Party, the
Corporation shall deliver twenty (20) days' prior written notice thereof to each
Stockholder. Each holder of Stockholder Shares shall vote for, consent to and
raise no objections to, bring a claim against or contest such Approved Sale. If
the Approved Sale is structured as (i) a merger or consolidation, each holder of
Stockholder Shares shall waive any dissenters rights, appraisal rights or
similar rights in connection with such merger or consolidation; or (ii) a sale
of stock, each holder of Stockholder Shares shall (A) agree to sell all of his
Stockholder Shares and rights to acquire Stockholder Shares on the terms and
conditions approved by the Board and the holders of a majority of the
Stockholder Shares then outstanding so long as such terms and conditions are as
least as favorable as for all Stockholders and (B) execute such purchase
agreement and other documents as executed by the holders of a majority of the
Stockholder Shares. Each holder of Stockholder Shares shall take such other
necessary or desirable actions in connection with the consummation of the
Approved Sale as reasonably requested by the Corporation.
(b) The obligations of the holders of Stockholder Shares with respect to
the Approved Sale of the Corporation are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, each
holder of Stockholder Shares shall receive for his Stockholder Shares the same
form of consideration and the same amount of consideration as the holders of
Stockholder Shares receive for each of their Stockholder Shares; (ii) if any
holders of a class of Common Stock are given an option as to the form and amount
of consideration to be received, each holder of such class of Common Stock shall
be given the same option; and (iii) each holder of then currently exercisable
rights to acquire shares of a class of Common Stock shall be given an
opportunity to either (A) exercise such rights prior to the consummation of the
Approved Sale or (B) receive in exchange for such rights consideration equal to
the amount determined by multiplying (1) the same amount of consideration per
share of a class of Common Stock received by holders of such class of Common
Stock in connection with the Approved Sale less the exercise price per share of
such class of Common Stock of such rights to acquire such class of Common Stock
by (2) the number of shares of such class of Common Stock represented by such
rights.
3. Tag-Along Rights. If (a) any Stockholder proposes to Transfer (other
than pursuant to a Public Sale or pursuant to Section 1(e)) at any time any of
its shares of Common Stock to any Independent Third Party, (b) the Corporation
has not exercised any rights pursuant to Section 1(b), and (c) the Other
Stockholders have not exercised their rights pursuant to Section 1(c), then the
Transferring Stockholder may transfer his Stockholder Shares provided it
complies
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<PAGE> 5
with the provisions of this Section 3. First (to the extent not already done so
pursuant to Section 1(b)), the Transferring Stockholder shall first give to the
Corporation and the Other Shareholders an Offer Notice. The Offer Notice shall
be an offer by the Transferring Stockholder to allow the Other Stockholders to
participate, upon the purchase by the proposed transferee of any shares of
Common Stock owned by the Transferring Stockholder and for the same per share
consideration and on the same terms and conditions. Each Stockholder shall have
the right, for a period of fifteen (15) days after the expiration of the
Election Period, to accept such offer in whole, exercisable by delivering a
written notice to the Transferring Stockholder and the Corporation within such
15-day period. Prior to the earlier of (x) the end of such 15-day period or (y)
the acceptance or rejection by each Stockholder of the Transferring
Stockholder's offer, as the case may be, the Transferring Stockholder shall not
complete any sale of shares of Common Stock to the proposed transferee.
At the end of such fifteen (15) day period the Corporation shall calculate
the total number of Stockholder Shares that are proposed to be sold. Each
Stockholder shall be entitled to sell to the proposed transferee that number of
Stockholder Shares (or if such number is not an integral number, the next
integral number which is greater than such number) which shall be the product of
(x) the aggregate number of Stockholder Shares proposed to be sold by such
Stockholder and (y) a fraction, the numerator of which shall be the number of
shares of Common Stock indicated in the Offer Notice as subject to purchase by
the proposed transferee and the denominator of which shall be the total number
of Stockholder Shares proposed to be sold by all Stockholders. Thereafter, for a
period of 120 days, the Transferring Stockholder may sell to the proposed
transferee for the consideration stated and on terms no more favorable to the
proposed transferee than those set forth in the Offer Notice, shares of Common
Stock stated in the Offer Notice as subject to purchase by the proposed
transferee; provided that the proposed transferee, as the case may be, shall
simultaneously purchase the number of shares of Common Stock as calculated above
from those Stockholders who have accepted the Transferring Stockholder's offer.
Any purchaser of Stockholder Shares pursuant to this Section 3 shall be subject
to, and have the rights and benefits of, the terms and conditions of this
Agreement.
4. Stockholder Preemptive Rights. Subject to Section 4(d), prior to the
earlier of a Qualified Public Offering or a Sale of the Corporation, and for so
long as any Stockholder owns any Stockholder Shares, each time the Corporation
proposes to sell shares of its capital stock, or securities convertible into
capital stock, for cash, the Corporation shall also make an offering of such
shares or securities to the Stockholders in accordance with the following
provisions:
(a) The Corporation shall deliver a notice to each Stockholder stating the
number of shares to be offered and the price and the terms on which it proposes
to offer such shares. Such notice shall be sent to the addresses set forth in
the records of the Corporation.
(b) Within 15 days after delivery of the notice, each Stockholder may
elect to purchase, at the price and on the terms specified in the notice, up to
its Pro Rata Portion of such shares by delivering written notice of such
election to the Corporation within such 15 calendar days.
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(c) Any shares referred to in the notice that are not elected to be
purchased as provided in subsection (b) above may, during the 180-day period
thereafter, be offered by the Corporation to any other person or persons at a
price not less than, and on terms no more favorable to the offeree than, those
specified in the notice.
(d) The preemptive rights set forth in this Section 4 shall not be
applicable to the issuance of (i) up to 188 shares, (which represents
approximately 7% of the fully diluted outstanding shares as of the date hereof)
(appropriately adjusted for any stock dividend, stock split or recapitalization)
of Common Stock to directors, officers, or employees of the Corporation pursuant
to the Corporation's stock option plans, (ii) shares of Common Stock issuable
upon exercise of the Warrants, (iii) capital stock in connection with a merger,
acquisition, plan of exchange or consolidation of the Corporation, or (iv) any
sale of securities to be issued pursuant to a registration statement filed
pursuant to the Securities Act with the Securities and Exchange Commission, or
(v) shares of Common Stock issued to consultants to the Corporation as payment
for services rendered.
5. Special Voting Requirements.
(a) From and after the date hereof and until the earlier to occur of a
Qualified Public Offering or a Sale of the Corporation, each Stockholder shall
vote all of his Stockholder Shares and any other voting securities of the
Corporation over which such Stockholder has voting control and shall take all
other necessary or desirable actions within his control (whether in his capacity
as a stockholder, director, member of a Board of Directors committee or officer
of the Corporation or otherwise, and including, without limitation, attendance
at meetings in person or by proxy for purposes of obtaining a quorum and
execution of written consents in lieu of meetings), and the Corporation shall
take all necessary and desirable actions within its control (including, without
limitation, calling special board and stockholder meetings), to effect the
following:
(i) The number of directors on the Board shall be five
directors.
(ii) The following persons shall be elected to the Board:
(A) three representatives designated by Tobin until such
time as Fingerhut owns more than fifty percent (50%) of the
outstanding shares of Common Stock, and thereafter two
directors; and
(B) two representative designated by Fingerhut until
such time as Fingerhut owns more than fifty percent (50%) of
the outstanding shares of Common Stock, and thereafter three
directors.
(iii) Nothing herein shall preclude the Board or the
Stockholders from removing a Director for cause under Delaware law.
(iv) In the event that any representative designated hereunder
by Fingerhut or Tobin for any reason ceases to serve as a member of
the Board during his term of office, the resulting vacancy on the
Board shall be filled by a
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<PAGE> 7
representative designated by Fingerhut or by Tobin, respectively, as
provided hereunder; provided that any representative removed for
cause shall not be designated again as a member of the Board.
(v) The Board shall not appoint any committee with the
authority to act on behalf of the Board without the consent of the
Directors designated by Fingerhut and Tobin.
(b) From and after the date hereof until the earlier to occur of a
Qualified Public Offering, a Sale of the Corporation or the exercise by
Fingerhut of all of its rights to purchase Common Stock pursuant to the Warrant
Agreement, each of the following actions shall require the approval of Tobin and
Fingerhut, or their designated directors, as applicable:
(i) the pledge or sale of all or substantially all of the
assets of the Corporation;
(ii) the merger of the Corporation with or into another
corporation or legal entity;
(iii) any amendment of the certificate of incorporation or
by-laws of the Corporation;
(iv) the issuance of any shares of Common Stock or securities
unavailable into Common Stock;
(v) the selection of officers of the Corporation; or
(vi) the entering into line of business other than the sale of
flowers and gifts.
(c) The rights of Tobin under this paragraph 5 shall terminate at such
time as he or his Permitted Transferees cease to hold 10% in the aggregate of
the outstanding shares of Common Stock or upon payment by the Corporation for
Stockholder Shares under Section 1(f)(i).
(d) Actions Consistent with Agreement. The Corporation shall not
circumvent this Agreement by taking any action through a subsidiary or affiliate
that would be prohibited under this Agreement.
6. Demand Registrations.
(a) Requests for Registration. At any one time Tobin may request
registration under the Securities Act of all or part of his Stockholder Shares
in a number not less than ten percent (10%) of the Stockholder Shares originally
issued to Tobin and not to exceed fifty percent (50%) of such number. A
registration requested pursuant to this paragraph 6(a) is referred to herein as
the "Demand Registration." The request for a Demand Registration shall specify
the approximate number of Stockholder Shares requested to be registered and the
requested per share price range,
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<PAGE> 8
if any, for such offering. The Demand Right is not exercisable during the period
specified in Section 8 hereof.
(b) Priority on Demand Registrations. Upon the Corporation's commencement
of a Demand Registration the Corporation shall mail notice thereof to all
Stockholders and the Stockholders shall have twenty (20) days after such mailing
date to notify the Corporation of the number of shares they desire to sell in
such offering. If a Demand Registration is an underwritten offering and the
managing underwriters advise the Corporation in writing that in their opinion
the number of registrable securities and, if permitted hereunder, other
securities requested to be included in such offering exceeds the number of
securities which can be sold in an orderly manner in such offering within a
price range acceptable to Tobin, the Corporation shall include in such
registration prior to the inclusion of any securities which are not Stockholder
Shares owned by Tobin the number of Stockholder Shares owned by Tobin requested
to be included which in the opinion of such underwriters can be sold in an
orderly manner within the price range of such offering. Any persons other than
Tobin who participate in Demand Registrations which are not at the Corporation's
expense must pay their share of the Registration Expenses as provided in Section
10 hereof.
(c) Restrictions on the Demand Registration. The Corporation shall not be
obligated to effect any Demand Registration within six (6) months after the
effective date of a previous underwritten registration of equity securities. The
Corporation may postpone for up to six (6) months the filing or the
effectiveness of a registration statement for a Demand Registration if the
Corporation notifies Tobin that such Demand Registration would reasonably be
expected to have an adverse effect on any business plan of the Corporation or
any of its subsidiaries; provided that in such event, Tobin will be entitled to
withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as the permitted Demand Registrations hereunder and
the Corporation shall pay all Registration Expenses in connection with such
registration.
(d) Selection of Underwriters. The Corporation will have the right to
select the investment banker(s) and manager(s) to administer any offerings.
7. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Corporation proposes to register any
of its Common Stock under the Securities Act (other than the initial public
offering, pursuant to a Demand Registration, an acquisition of or a merger with
another entity including, without limitation, a purchase of stock or assets or a
transaction described under Rule 145 of the Securities Act, a transaction
registering securities convertible into Common Stock or pursuant to Form S-8 or
its successor forms) and the registration form to be used may be used for the
registration of the Stockholder Shares of the Stockholders (a "Piggyback
Registration"), the Corporation shall give prompt written notice to the
Stockholders of its intention to effect such a registration and will include in
such registration the Stockholder Shares of the Stockholders with respect to
which the Corporation has received written requests for inclusion therein within
fifteen (15) days after the receipt of the Corporation's notice.
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(b) Piggyback Expenses. The Registration Expenses of the Stockholders
shall be paid by the Corporation in all Piggyback Registrations.
(c) Proration of Eligible Shares. In the event of any registration
pursuant to this Section 7 the full amount of the Stockholder Shares requested
to be included in such registration cannot be included in full, then the number
of Stockholder Shares available for registration shall be allocated among such
group pro rata based upon the number of Stockholder Shares requested to be
included in such registration.
8. Lockup Agreement.
Each Stockholder agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Corporation,
or any securities convertible into or exchangeable or exercisable for such
securities, during the 30-day period prior to and the 180-day period beginning
on the effective date of any (i) underwritten Demand Registration or any
underwritten Piggyback Registration in which Stockholder Shares are included
(except as part of such underwritten registration) or (ii) the initial public
offering, in each case unless the underwriters managing the registered public
offering and the Corporation otherwise agree.
9. Registration Procedures. Whenever a Stockholder has requested that any
securities be registered pursuant to this Agreement, the Corporation shall use
its best efforts to effect the registration and the sale of such securities in
accordance with the intended method of disposition thereof, and pursuant thereto
the Corporation shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Corporation shall furnish to the counsel selected by the
Stockholder covered by such registration statement copies of all such documents
proposed to be filed, which documents will be subject to the review and comment
of such counsel);
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than six months and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) keep the Stockholder fully informed and provide copies of all material
correspondence and drafts of documents related to such registration and furnish
to each seller of securities such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the securities owned by such seller;
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<PAGE> 10
(d) use its best efforts to register or qualify such securities under such
other securities or blue sky laws of such jurisdictions as any seller reasonably
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the securities owned by such seller (provided that the
Corporation shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each seller of Stockholder Shares, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Corporation shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Stockholder Shares, such prospectus will not contain an untrue statement
of a material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) provide a transfer agent and registrar for all such securities not
later than the effective date of such registration statement;
(g) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Investor or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such securities (including, without limitation, effecting a
stock split or a combination of shares);
(h) make available for inspection by any seller of securities, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(i) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Corporation's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(j) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Corporation shall use its best efforts promptly to obtain the
withdrawal of such order; and
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<PAGE> 11
(k) obtain a cold comfort letter from the Corporation's independent public
accountants in customary form and covering such matters of the type customarily
covered by cold comfort letters.
10. Registration Expenses.
(a) All expenses incident to the Corporation's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Corporation and all independent certified
public accountants, underwriters (excluding discounts and commissions) and other
persons retained by the Corporation (all such expenses being herein called
"Registration Expenses"), shall be borne as provided in this Agreement, except
that the Corporation shall, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Corporation are then listed or on the
Nasdaq-related system.
(b) To the extent Registration Expenses are not required to be paid by the
Corporation, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and Registration Expenses not so allocable
shall be borne by all sellers of securities included in such registration in
proportion to the aggregate selling price of the securities to be so registered.
11. Indemnification.
(a) The Corporation agrees to indemnify, to the extent permitted by law,
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Corporation by Tobin expressly for use
therein or by Tobin's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Corporation has
furnished Tobin with a sufficient number of copies of the same. In connection
with an underwritten offering, the Corporation shall indemnify such
underwriters, their officers and directors and each person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of Tobin.
(b) In connection with any registration statement in which Tobin is
participating, Tobin shall furnish to the Corporation in writing such powers of
attorney, custody agreements and letters of direction and other information and
affidavits as the Corporation reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent permitted by law,
shall only have to indemnify the Corporation, its directors and officers
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<PAGE> 12
and each person who controls the Corporation (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact contained
in the registration statement, a prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in any information or affidavit so furnished in writing by
Tobin to the Corporation for specific use in such registration statement,
prospectus or amendment or supplement thereto and which remained in the final
prospectus delivered to the purchaser of such securities.
(c) Any person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party shall not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent shall not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement shall remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and shall survive the transfer of securities. The Corporation
also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Corporation's
indemnification is unavailable for any reason.
12. Participation in Underwritten Registrations. No person may participate
in any registration hereunder which is underwritten unless such person (i)
agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person or persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of securities included in any underwritten registration shall be required
to make any representations or warranties to the Corporation or the underwriters
other than representations and warranties regarding such holder and such
holder's intended method of distribution.
13. Legend. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the Transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
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<PAGE> 13
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER
AGREEMENTS SET FORTH IN AN INVESTOR SUBSCRIPTION AGREEMENT AND/OR A
STOCKHOLDERS AGREEMENT. A COPY OF SUCH AGREEMENTS MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE CORPORATION'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE. "
The Corporation shall imprint such legend on certificates evidencing
outstanding Stockholder Shares. The legend set forth above shall be removed from
the certificates evidencing any shares which cease to be Stockholder Shares
pursuant to a Public Sale.
14. Confidentiality. All materials and information obtained by any
Stockholder pursuant to this Agreement or otherwise delivered by the Corporation
to any Stockholders shall be kept confidential and shall not be disclosed to any
third party except (a) as has become generally available to the public (other
than through disclosure by such Stockholder in contravention of this Agreement),
(b) to such Stockholder's directors, officers, trustees, partners, employees,
agents and professional consultants on a need to know basis, (c) to any other
holder of Common Stock, (d) to any person to which such Stockholder offers to
sell or transfer any shares of Common Stock, provided, that the prospective
transferee shall agree to be bound by the provisions of this Section 14, (e) in
any report, statement, testimony or other submission to any governmental
authority having or claiming to have jurisdiction over such Stockholder, or (f)
in order to comply with any law, rule, regulation or order applicable to such
Stockholder, or in response to any summons, subpoena or other legal process or
formal or informal investigative demand issued to such Stockholder in the course
of any litigation, investigation or administrative proceeding.
15. Conflicting Agreements. Each Stockholder represents that it has not
granted and is not a party to any proxy, voting trust or other agreement which
is inconsistent with or conflicts with the provisions of this Agreement, and no
holder of Stockholder Shares shall grant any proxy or become party to any voting
trust or other agreement which is inconsistent with or conflicts with the
provisions of this Agreement. No Stockholder shall act, for any reason, as a
member of a group or in concert or enter into any agreement or arrangement with
any other person in connection with the acquisition, disposition or voting of
Stockholder Shares in any manner which is inconsistent with the provisions of
this Agreement.
16. Actions Consistent with Agreement. The Corporation shall not
circumvent this Agreement by taking any action through a subsidiary or affiliate
that would be prohibited under this Agreement. The certificate of incorporation
and bylaws of the Corporation may be amended in any manner permitted thereunder,
except that neither the certificate nor the bylaws shall be
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<PAGE> 14
amended in any manner that would conflict with, or be inconsistent with, the
provisions of this Agreement.
17. Transfer. Prior to transferring any Stockholder Shares (other than in
a Public Sale) to any person or entity pursuant to the terms of this Agreement,
the Transferring Stockholder shall cause the prospective transferee to execute
and deliver to the Corporation and the other Stockholders a counterpart of this
Agreement. Each such counterpart shall be deemed to be an original part of this
Agreement as though executed on the date hereof. Upon the execution of this
Agreement (a) the transferee shall be treated as an Investor if the majority of
its shares were acquired from the Investors and shall be counted in all votes or
actions of the Investors or (b) the transferee shall be treated as an Executive
if the majority of its shares were acquired from the Executives and shall be
counted in all votes or actions of the Executives.
18. Definitions.
"Approved Sale" means a disposition of the Corporation, whether
pursuant to a merger, consolidation or sale of the Common Stock, to an
Independent Third Party, which disposition is approved by the Board of Directors
of the Corporation and the holders of a majority of the outstanding shares of
Common Stock.
"Common Stock" is defined in the preamble to the Agreement.
"Corporation" is defined in the preamble and shall include all of
the Corporation's subsidiaries.
"Demand Registration" is defined in Section 6(a).
"Director" is defined Section 5(a)(ii).
"Election Period" is defined in Section l(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Family Group" means a Stockholder's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of the Stockholder
and/or the Stockholder's spouse and/or descendants.
"Fingerhut" is defined in the preamble.
"Independent Third Party" means any person who, immediately prior to
the contemplated transaction, does not directly or indirectly own in excess of
5% of the Corporation's Common Stock on a fully-diluted basis (a "5% Owner)",
who is not controlling, controlled by or under common control with any such 5%
Owner and who is not the spouse or descendent (by birth or adoption) of any such
5% Owner or a trust for the benefit of such 5% Owner and/or such other persons.
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<PAGE> 15
"Investment Agreement" is defined in the preamble.
"Nasdaq" is defined in Section 9(f).
"Offer Notice" means the notice required to be given by a
Transferring Stockholder to the Corporation and/or the Other Stockholders
describing a proposed Transfer. At a minimum, the Offer Notice shall be in
writing and shall contain (i) the number of shares of Common Stock that the
Transferring Stockholder proposes to sell; (ii) the name and address of the
proposed transferee; (iii) the proposed purchase price, terms of payment and
other material terms and conditions of such proposed transfer; and (iv) an
estimate, in the Transferring Stockholder's reasonable judgment, of the fair
market value of any non-cash consideration offered by the proposed transferee.
"Option" means any right, warrant, option or arrangement which
allows a person to acquire securities of the Corporation or requires the
Corporation to issue any securities to a Person.
"Other Stockholders" is defined in Section l(b).
"Permitted Transferee" is defined in Section l(e).
"Piggyback Registration" is defined in Section 7(a).
"Pro Rata Portion" is defined in Section l(c).
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Qualified Public Offering" means the sale in one or more
underwritten public offerings registered under the Securities Act of shares of
the Corporation's Common Stock having an aggregate value of at least $25
million.
"Registration Expenses" is defined in Section 10(a).
"Remaining Shares" is defined in Section l(c).
"Sale of the Corporation" means the sale of the Corporation to an
Independent Third Party or group of Independent Third Parties pursuant to which
such party or parties acquire (i) capital stock of the Corporation possessing
the voting power under normal circumstances to elect a majority of the
Corporation's Board of Directors (whether by merger, consolidation or sale or
transfer of the Corporation's capital stock) or (ii) all or substantially all of
the Corporation's assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
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<PAGE> 16
"Stockholder" is defined in the preamble and includes permitted
successors and assigns.
"Stockholders" is defined in the preamble.
"Stockholder Shares" means (i) any Common Stock purchased or
otherwise acquired by any Stockholder, (ii) any equity securities issued or
issuable directly or indirectly with respect to the Common Stock referred to in
clause (i) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization, and (iii) any other shares of any class or series of capital
stock of the Corporation held by a Stockholder. As to any particular shares
constituting Stockholder Shares, such shares shall cease to be Stockholder
Shares when they have been sold to the public through a Public Sale even if
thereafter they are reacquired by a Stockholder.
"Tobin" is defined in the preamble.
"Transfer" is defined in Section l(a).
"Transferring Stockholder" is defined in Section l(b).
"Warrant Agreement" is defined in the preamble.
19. Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Stockholder Shares in violation of any provision of this
Agreement shall be void, and the Corporation shall not record such Transfer on
its books or treat any purported transferee of such Stockholder Shares as the
owner of such shares for any purpose.
20. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Corporation, Fingerhut or Tobin unless such modification,
amendment, termination or waiver is approved in writing by the Corporation,
Fingerhut or Tobin; provided, however, that the Corporation may from time to
time add additional shareholders of the Corporation to this Agreement without
the consent or additional signatures of the parties hereto (and amend and/or
restate the Agreement to reflect such additions) and upon the Corporation's
receipt of such additional stockholders' signature pages, such additional
stockholders shall be deemed to be a party hereto and such additional signature
pages shall be a part of this Agreement. The failure of any party to enforce any
of the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
21. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
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<PAGE> 17
22. Entire Agreement. This document embodies the complete agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
23. Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Corporation and its successors and assigns and the Stockholders and any
permitted subsequent holders of Stockholder Shares and the respective successors
and permitted assigns of each of them, so long as they hold Stockholder Shares.
24. Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
25. Remedies. The Corporation, Fingerhut and Tobin shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that the Corporation, Fingerhut and Tobin may
in its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief (without posting
a bond or other security) in order to enforce or prevent any violation of the
provisions of this Agreement.
26. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed first class mail (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Corporation at the address set forth below and to any other recipient at the
address indicated on Schedule 1 hereto and to any subsequent holder of
Stockholder Shares subject to this Agreement at such address as indicated by the
Corporation's records, or at such address or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party. Notices will be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Corporation's
address is:
PC Flowers & Gifts, Inc.
134 Davenport Drive
Stamford, CT 06902
27. Governing Law. This Agreement will be construed and interpreted in
accordance with and governed by the laws of the State of Delaware.
28. Termination. The provisions of Sections 1, 2, 3, 4, 5, 14 and 15 shall
terminate on the date on which any of the following events first occurs: (i) a
Qualified Public Offering (or, with respect to an individual Stockholder Share,
the date such Stockholder Share has been transferred in a Public Sale), (ii) a
Sale of the Corporation or (iii) the tenth anniversary of the
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<PAGE> 18
date of this Agreement. The remaining sections of this Agreement expire on the
tenth anniversary of the date of this Agreement.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders Agreement on the day and year first above written.
FINGERHUT COMPANIES, INC.
By: /s/ Michael Sherman JP
---------------------------------
PC FLOWERS & GIFTS, INC.
By: /s/ William J. Tobin Pres
---------------------------------
/s/ William J. Tobin
------------------------------------
William J. Tobin
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<PAGE> 20
SCHEDULE 1
List of Shareholders
<TABLE>
<CAPTION>
Name Address
- ---- -------
<S> <C>
William J. Tobin PC Flowers & Gifts, Inc.
134 Davenport Drive
Stamford, CT 06902
Fingerhut Companies, Inc. 4400 Baker Road
Minnetonka, MN 55343
Attn: Michael P. Sherman, Esq.
</TABLE>
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<PAGE> 1
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made as of July 9, 1998, by and between PC Flowers &
Gifts, Inc., a Delaware corporation (the "Corporation") and William J. Tobin, an
individual (the "Executive").
WITNESSETH:
WHEREAS, the Corporation, the Executive and Fingerhut Companies, Inc., a
Minnesota corporation, have have entered into an Investor Subscription Agreement
dated the date hereof (the "Investment Agreement"); and
WHEREAS, in order to induce the Executive to enter into the Investment
Agreement and certain other agreements contemplated thereby the Corporation has
agreed to indemnify the Executive with respect to certain liabilities, as
hereinafter provided;
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth below, the parties hereto hereby agree as follows:
Section 1. Indemnification of the Executive by the Corporation.
The Corporation shall reimburse, indemnify and hold harmless the Executive
from, against and in respect of the following ("Claim(s)"): (i) any and all
damage, loss, liability, claim or deficiency resulting from, or which exists or
arises due to the purchase by the Executive or the Corporation of Common Stock
of the Corporation at any time subsequent to June 1, 1996; and (ii) any and all
actions, suits, claims, proceedings, investigations, audits, demands,
assessments, fines, judgments, costs and other expenses (including, without
limitation, reasonable audit and legal fees) resulting from the circumstances
described in clause (i).
Section 2. Method of Asserting Claims. The Executive will give prompt
written notice to the Corporation of any Claims which he discovers or of which
he receives notice after the date hereof and which might give rise to a Claim
stating the nature, basis and (to the extent known) amount thereof. In case of
any Claim arising from a suit by a third party or by any governmental body, or
any legal, administrative or arbitration proceeding with respect to which the
Corporation may have liability hereunder, the Corporation shall be entitled to
control the defense thereof upon giving of notice to the Executive of its intent
to do so. Each of the Corporation and the Executive will render to each other
such assistance as may reasonably be required of each other in order to insure
proper and adequate defense of any such suit or proceeding which may give rise
to a Claim.
Section 3. Notices. All notices, requests, other communications and
distributions to any party hereunder shall be in writing (including prepaid
overnight courier, telex, facsimile transmission or similar writing) and shall
be given to such party at its address or telecopy number set forth below or at
such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties.
<PAGE> 2
If to the Corporation:
PC Flowers & Gifts, Inc.
134 Davenport Drive
Stamford, CT 06902
If to the Executive:
William J. Tobin
134 Davenport Drive
Stamford, CT 06902
In each case with a copy to:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attn: Michael P. Sherman, Esq.
Each such notice, request or other communication shall be effective (i) if given
by telex or telecopy, when such telex or telecopy is transmitted to the telex or
telecopy number specified on the signature pages hereof and the appropriate
answerback is received (in the case of telex) or telephonic confirmation of
receipt thereof is obtained (in the case of telecopy) or (ii) if given by mail,
prepaid overnight courier or any other means, when received at the address
specified on the signature pages hereof or when delivery at such address is
refused.
Section 4. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
Section 5. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Executive and the Corporation and their respective successors and assigns.
Section 6. Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Corporation and
the Investor.
Section 7. Applicable Law. This Agreement shall be interpreted under the
internal laws of the State of New York.
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
PC FLOWERS & GIFTS, INC.
By /s/ William J. Tobin, President
-------------------------------
/s/ William J. Tobin
----------------------------------
William J. Tobin
-3-
<PAGE> 1
EXHIBIT 10.5
TECHNOLOGY LICENSE AGREEMENT
This TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is made as of July 9,
1998, between William J. Tobin, an individual residing at 134 Davenport Drive,
Stamford, Connecticut 06902 ("Tobin"), PC Flowers & Gifts, Inc., a Delaware
corporation, the principal office of which is located at 134 Davenport Drive,
Stamford, Connecticut 06902 ("PCF&G"), and Fingerhut Companies, Inc., a
Minnesota corporation, the principal office of which is located at 4400 Baker
Road, Minnetonka, Minnesota 55343 ("Fingerhut").
R E C I T A L S
WHEREAS, Tobin and PCF&G have entered into an Employment Agreement, dated
as of the date hereof (the "Employment Agreement"), Tobin, PCF&G and Fingerhut
have entered into an Investor Subscription Agreement, dated as of the date
hereof (the "Investment Agreement"), and Tobin, PCF&G and Fingerhut have entered
into a Stockholders Agreement, dated as of the date hereof (the "Stockholders
Agreement"); and
WHEREAS, as an inducement to Fingerhut to enter into the Employment
Agreement and the Investment Agreement, Tobin and PCF&G have agreed to enter
into this Technology License Agreement.
NOW, THEREFORE, in consideration of the agreements, grants and obligations
set forth herein and for other good and valuable consideration, the parties
hereby agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.1 Definitions
As used in this Agreement:
"Affiliate" means with respect to a specified legal entity, any other
legal entity that directly or indirectly controls, is controlled by, or is under
common control with, the specified legal entity. As used in this definition, the
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a legal entity,
whether through ownership of voting securities, by contract or otherwise.
"Employment Termination Date" means that date under the Employment
Agreement on which PCF&G's payment obligations to Tobin terminate.
<PAGE> 2
"Field of Use" shall have the meaning ascribed thereto in Exhibit A
attached hereto and made a part hereof.
"Fingerhut Field of Use" shall have the meaning ascribed thereto in
Exhibit B attached hereto and made a part hereof.
"Know-How" means any and all inventions, discoveries, concepts, ideas,
techniques, developments, designs, works, information, know-how, trade secrets,
data, formulae, codes, processes, instructions, software, methods, mask works
and improvements.
"Licensed Patents" means (1) U.S. patent application 08/785,321 filed
January 21, 1997 naming William J. Tobin as the sole inventor, as well as
continuations and divisionals of such U.S. patent application, and any and all
U.S. patents issuing on any of the foregoing, and (2) Patent Cooperation Treaty
application PCT/US98/00975, filed January 20, 1998, applicant: William J. Tobin,
and any and all national phase and regional phase applications of such Patent
Cooperation Treaty application, and any and all patents granted on any of such
national and regional phase applications.
"Non-Competition Termination Date" means that date under the Employment
Agreement on which Tobin's non-competition obligations to PCF&G terminate.
"Other Intellectual Property Rights" shall mean patents, copyrights,
trademarks, service marks, trade names, trade secrets and any applications for
or registrations of any thereof, and all other forms of intellectual property
rights that (1) are related to the past, present or future (as contemplated at
the Employment Termination Date) business of PCF&G if made or acquired by Tobin
prior to the Non-Competition Termination Date, or (2) are made using the
equipment, supplies, facilities, intellectual property rights or Know-How of
PCF&G.
"Technology" means any and all inventions, discoveries, concepts, ideas,
techniques, developments, designs, works, information, know-how, trade secrets,
data, formulae, code, processes, instructions, software, methods, mask works and
improvements that (1) are related to the past, present or future (as
contemplated at the Employment Termination Date) business of PCF&G if made or
acquired by Tobin prior to the Non-Competition Termination Date, or (2) are made
using the equipment, supplies, facilities, intellectual property rights or
Know-How of PCF&G.
ARTICLE II
ASSIGNMENT
Section 2.1 Assignment of Existing Rights
Tobin hereby assigns to PCF&G all of his right, title and interest in and
to all Technology and Other Intellectual Property Rights (together with the
goodwill of the business symbolized thereby), but not including the Licensed
Patents, whether or not patentable or copyrightable, and whether made,
controlled or owned solely by Tobin or jointly by Tobin with others, free and
clear of all liens, claims, encumbrances, restrictions and retained rights of
any kind.
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Section 2.2 Assignment of Future Rights
Tobin agrees to assign to PCF&G all of his right, title and interest in
and to all Technology and Other Intellectual Property Rights (including the
goodwill of the business symbolized thereby), made or acquired by Tobin prior to
the Non-Competition Termination Date, whether or not patentable or
copyrightable, and whether made, controlled or owned solely by Tobin or jointly
by Tobin with others, free and clear of all liens, claims, encumbrances,
restrictions and retained rights of any kind.
Section 2.3 Further Assurances
Tobin hereby agrees to perform any and all acts as reasonably requested by
PCF&G to assure that the Technology and Other Intellectual Property rights shall
be held and enjoyed by PCF&G as well as to enable PCF&G to protect and enforce
same to the fullest extent possible, including but not limited to executing and
delivering to PCF&G all appropriate applications, declarations, oaths,
petitions, assignments, and disclaimers in form and substance as may be
reasonably requested by PCF&G, communicating to PCF&G or its designee all facts
known to Tobin relating to the Technology and the Other Intellectual Property,
and furnishing PCF&G with any and all documents, photographs, prototypes,
models, samples and other physical exhibits, devices and records relating to the
Technology and the Other Intellectual Property. PCF&G will reimburse Tobin for
all reasonable third party costs and expenses incurred in connection with this
Section 2.3.
ARTICLE III
LICENSE
Section 3.1 Grants
(a) Tobin hereby grants to PCF&G and its subsidiaries a fully paid-up,
royalty-free, worldwide, perpetual, non-terminable, unrestricted, non-exclusive
right and license under the Licensed Patents to carry out all lawful activities
within the Field of Use (the PCF&G License"). Tobin hereby grants to PCF&G a
non-terminable right to sublicense the rights licensed hereunder to Fingerhut
and to its Affiliates for any and all uses within the Fingerhut Field of Use
under such terms and conditions as PCF&G may determine in its sole discretion.
(b) PCF&G hereby grants to Fingerhut and its Affiliates (i) a fully
paid-up royalty-free, worldwide, perpetual, non-terminable, unrestricted,
non-exclusive right and license under the Licensed Patents during the term of
this Agreement, and thereafter at a royalty rate to be determined by the parties
hereto at such time, and failing an agreement by the parties within 90 days, at
a royalty rate determined to be commercially reasonable at such time for the
Licensed Patents by an expert appointed by the parties or, failing an agreement
of the parties as to the expert, by an expert appointed pursuant to the rules of
the American Arbitration Association and (ii) a fully paid-up, royalty-free,
worldwide, perpetual, non-terminable, unrestricted, non-exclusive right and
license under the Technology and Other Intellectual Property Rights, in each
case for use within the Fingerhut Field of Use (the "Fingerhut License").
Neither Fingerhut nor any of its Affiliates shall be deemed to assume or be
bound by any obligation to refrain from competing with PCF&G or anyone else
whether as a result of any such sublicense or otherwise.
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Section 3.2 Further Assurances
(a) Tobin hereby agrees to perform any and all acts as reasonably
requested by PCF&G to assure that PCF&G shall enjoy the full benefits of its
licenses and rights hereunder, as well as to enable PCF&G to protect and enforce
such licenses and rights to the fullest extent possible, including but not
limited to communicating to PCF&G or its designee all facts known to Tobin
relating to the Licensed Patents, and furnishing PCF&G with any and all
documents, photographs, prototypes, models, samples and other physical exhibits,
devices and records relating to the Licensed Patents.
(b) PCF&G hereby agrees to perform any and all acts as reasonably
requested by Fingerhut to assure that Fingerhut shall enjoy the full benefits of
its sublicenses, licenses and rights hereunder.
ARTICLE IV
PATENTS AND COPYRIGHTS
Section 4.1 Cooperation
Tobin shall assist PCF&G fully at any and all times and at its reasonable
request and expense in pursuing and obtaining patents, copyright registrations
and other legal rights relating to the Technology and Other Intellectual
Property Rights, including but not limited to:
(a) promptly and fully disclosing to PCF&G in writing any and all
developments, concepts and ideas relating to the Technology or Other
Intellectual Property Rights; and
(b) assisting and participating with PCF&G in the preparation, filing and
prosecution of any and all applications for patents, copyright registrations and
other legal rights relating to the Technology and Other Intellectual Property
Rights, including but not limited to executing and delivering to PCF&G all
appropriate applications, declarations, oaths, petitions, assignments, and
disclaimers in form and substance as may be requested by PCF&G.
Section 4.2 Control of Prosecution
(a) Prior to the Employment Termination Date, PCF&G shall have the sole
right in its discretion to control the preparation, filing and prosecution of
any and all applications within the Licensed Patents, and Tobin shall execute
and deliver such papers and do such acts as PCF&G may reasonably request in its
sole discretion to enable it to exercise such control. Notwithstanding any other
provision of this Agreement, PCF&G shall have no obligation (i) to prepare or
prosecute any application for patent, copyright registration or other legal
right, (ii) to accept instructions or directions from Tobin or any other entity
regarding such preparation or prosecution, (iii) to continue the preparation or
prosecution of any such application, or (iv) to maintain any such application,
or any patent or other legal right based thereon.
(b) PCF&G shall keep Tobin timely informed of application filings, office
actions and responses in the case of applications within the Licensed Patents,
and shall give reasonable consideration of any written recommendations regarding
the prosecution of such applications
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<PAGE> 5
received from Tobin, provided that such applications are under the control of
PCF&G pursuant to Section 4.2 hereof. In the event that PCF&G determines not to
pursue or to continue to pursue the prosecution of any patent application under
its control pursuant to Section 4.2 hereof, then PCF&G shall give notice to
Tobin sufficiently prior to any deadline for taking action in the prosecution of
such patent application so that Tobin may choose, in his sole discretion,
whether to pursue such prosecution at his sole expense.
(c) Following the Employment Termination Date, within sixty days of such
date, Tobin shall have the right, upon notice given to PCF&G, to choose, in his
sole discretion, to control the preparation, filing and prosecution of any and
all applications within the Licensed Patents, and PCF&G shall execute and
deliver such papers and do such acts as PCF&G may reasonably request in its sole
discretion to enable it to exercise such control. If Tobin does not timely
exercise such right, then PCF&G may, in its sole discretion, continue to
prosecute such applications.
ARTICLE V
INFRINGEMENT
Section 5.1 Notice to PCF&G
Tobin shall give PCF&G and Fingerhut prompt notice of any known or
presumed infringement of any of the rights licensed hereunder of which he has
knowledge.
Section 5.2 Prosecution of Infringers
(a) Prior to the Employment Termination Date, PCF&G shall have the sole
right, but not the obligation, to pursue any and all infringements and
violations of the rights under the PCF&G License at its sole discretion and
expense, including but not limited to the rights to discontinue, settle or
compromise any claim, controversy or cause of action on such terms and
conditions as it may determine in its sole discretion. PCF&G shall have the sole
right, but not the obligation, to commence and control any and all lawsuits,
arbitrations, and other legal proceedings related to any such infringements or
violations through all levels of appeal and review, as well as to discontinue,
dismiss, settle or compromise same in its sole discretion.
(b) Following the Employment Termination Date, Tobin shall have the sole
right, but not the obligation, to pursue any and all infringements and
violations under the Licensed Patents, except for infringements for which
litigation has not been instituted by PCF&G, under Section 5.2(i) at his sole
discretion and expense.
(c) If Tobin does not timely exercise such right under Section 5.2(b),
then PCF&G may, in its sole discretion, continue to pursue any or all of such
infringements.
Section 5.3 Cooperation by Tobin
Tobin agrees to assist fully in any and all enforcement efforts pursued by
PCF&G at PCF&G's expense, including but not limited to providing such facts,
documents and physical exhibits, devices and records as PCF&G may reasonably
request and attending such proceedings as PCF&G may reasonably request to
provide testimony. Tobin agrees that he shall, at PCF&G's
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<PAGE> 6
reasonably request, participate as a party, either solely or jointly with PCF&G
in any suit, arbitration or other legal proceeding at any time and in any
jurisdiction in furtherance of PCF&G's enforcement efforts, provided that PCF&G
shall pay Tobin's out of pocket expenses in connection therewith.
Section 5.4 Recoveries
(a) Any and all monies, judgments, awards and settlements obtained either
by Tobin or PCF&G, pursuant to actions under Section 5.2(a) or 5.2(c), as a
result of any enforcement of the rights under the PCF&G License, shall be
applied first to reimburse any and all costs of enforcing such licensed rights
(including reasonable attorneys' fees), and any amount recovered as royalties in
addition to such enforcement costs shall be distributed fifty percent (50%) to
Tobin and fifty percent (50%) to PCF&G.
(b) Any and all monies, judgments, awards and settlements obtained either
by Tobin or PCF&G, pursuant to actions under Section 5.2(b), as a result of any
enforcement of rights to the Licensed Patents shall be applied first to
reimburse any and all costs of enforcing such rights (including reasonable
attorneys' fees), and any amount recovered as royalties in addition to such
enforcement costs shall be solely for the benefit of Tobin.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties
Tobin represents and warrants to PCF&G and Fingerhut as follows:
(a) The execution and performance of this Agreement by Tobin will not
violate any order, judgment, contract or other obligation binding him.
(b) The Licensed Patents and all rights assignable hereunder are owned
solely by Tobin free and clear of any and all claims, liens, encumbrances,
licenses, restrictions, reservations or other rights of any third party.
(c) Tobin has no personal knowledge of any patent, copyright, trade secret
or any other intellectual property right which would be infringed by the
business of PCF&G as conducted using the Licensed Patents, the Technology or the
Other Intellectual Property as of the date hereof. Tobin makes no representation
with respect to U.S. Patent No. 5,712,979 issued January 27, 1998 entitled:
METHOD AND APPARATUS FOR ATTACHING NAVIGATIONAL HISTORY INFORMATION TO UNIVERSAL
RESOURCE LOCATOR LINKS ON A WORLD WIDE WEB PAGE; Inventors: Graber et al., and
U.S. Patent No. 5,717,860 issued February 10, 1998 entitled: METHOD AND
APPARATUS FOR TRACKING THE NAVIGATION PATH OF A USER ON THE WORLD WIDE WEB;
Inventors: Graber et al.
(d) Tobin has fully disclosed in writing to PCF&G and Fingerhut each and
all of the Licensed Patents and all rights assignable hereunder.
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<PAGE> 7
(e) Tobin makes no representations as to the patentability of the Licensed
Patents, copyrightability of any software within the Technology, or
merchantability of the Licensed Patents, the Technology or the Other
Intellectual Property. Tobin is personally unaware of any fact, circumstance or
combination of facts or circumstances which would (1) render any claim of the
Licensed Patents unpatentable in any jurisdiction designated therein, or (2)
prevent the successful assertion of a valid copyright in any software within the
Technology.
Section 6.2 Incorporated Representations and Warranties
The representations and warranties made by Tobin in the Investment
Agreement are expressly repeated and incorporated herein by reference in their
entirety.
ARTICLE VII
TERMINATION
Section 7.1 Termination by Tobin
Tobin may terminate this Agreement and the rights and licenses granted
hereunder only upon the dissolution of PCF&G, provided, however, that the rights
and licenses granted hereunder shall continue thereafter to the extent necessary
to liquidate the assets of PCF&G and to carry out any and all other obligations
of any party under the Investment Agreement. Neither the termination of this
Agreement, or of the license or rights granted hereby, nor any amendment
thereof, shall terminate or otherwise affect any sublicense granted hereunder to
Fingerhut or any Affiliate thereof, including under the Fingerhut License, which
shall, despite any such termination or amendment, continue in full force and
effect in accordance with its terms. Upon the dissolution of PCF&G, the
sublicense granted hereunder to Fingerhut shall terminate.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Notices
All notices, requests, other communications and distributions to any party
hereunder shall be in writing (including prepaid overnight courier, telex,
facsimile transmission or similar writing) and shall be given to such party at
its address or telecopy number set forth below or at such other address or
telecopy number as such party may hereafter specify for the purpose by notice to
the other parties.
If to PCF&G:
PC Flowers & Gifts, Inc.
134 Davenport Drive
Stamford, CT 06902
If to Fingerhut:
Fingerhut Companies, Inc.
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4400 Baker Road
Minnetonka, MN 55343
Attn: Michael P. Sherman, Esq.
If to Tobin:
William J. Tobin
134 Davenport Drive
Stamford, CT 06902
Each such notice, request or other communication shall be effective (i) if given
by telex or telecopy, when such telex or telecopy is transmitted to the telex or
telecopy number specified on the signature pages hereof and the appropriate
answerback is received (in the case of telex) or telephonic confirmation of
receipt thereof is obtained (in the case of telecopy) or (ii) if given by mail,
prepaid overnight courier or any other means, when received at the address
specified on the signature pages hereof or when delivery at such address is
refused.
Section 8.2 Failure to Pursue Remedies
The failure of any party to seek redress for violation of, or to insist
upon the strict performance of, any provision of this Agreement shall not
prevent a subsequent act, which would have originally constituted a violation,
from having the effect of an original violation.
Section 8.3 Cumulative Remedies
Except as expressly provided herein, the rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies and
such rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
Section 8.4 Binding Effect
This Agreement shall be binding upon and inure to the benefit of all of
the parties and, to the extent permitted by this Agreement, their successors,
legal representatives and permitted assigns. PCF&G may assign its rights under
this Agreement to any subsidiary, to any successor to its business or to the
transferee of substantially all of its assets. The obligations of Tobin shall
not be assignable.
Section 8.5 Interpretation
Throughout this Agreement, nouns, pronouns and verbs shall be construed as
masculine, feminine, neuter, singular or plural, whichever shall be applicable.
All references herein to "Articles," "Sections" and paragraphs shall refer to
corresponding provisions of this Agreement.
Section 8.6 Severability
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<PAGE> 9
The validity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision were
omitted.
Section 8.7 Counterparts
This Agreement may be executed in any number of counterparts with the same
effect as if all parties hereto had signed the same document. All counterparts
shall be construed together and shall constitute one instrument.
Section 8.8 Integration
This Agreement, the Investment Agreement and the other agreements
contemplated thereby constitute the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
Section 8.9 Governing Law
This Agreement and the rights of the parties hereunder shall be
interpreted in accordance with the laws of the State of New York and all rights
and remedies shall be governed by such laws without regard to principles of
conflict of laws.
Section 8.10 Headings
The headings and subheadings in this Agreement are included for
convenience and identification only and are in no way intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above stated.
/s/ William J. Tobin
-----------------------------------
William J. Tobin
PC FLOWERS & GIFTS, INC.
By: /s/ William J. Tobin, President
-------------------------------
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FINGERHUT COMPANIES, INC.
By: /s/ Michael Sherman, Vice President
-----------------------------------
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EXHIBIT A
to
Technology License Agreement
between William J. Tobin,
PC Flowers & Gifts, Inc. and
Fingerhut Companies, Inc.
FIELD OF USE
All activities relating to retail distribution of consumer goods and
services by means of server based communications systems, including but not
limited to (l) advertising, offering for sale, sale and distribution of such
goods and services, (2) the manufacture, assembly and supply of such systems,
and of hardware and software for use therein (solely in connection with carrying
out distribution of such goods and services), and (3) all services rendered in
connection therewith.
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<PAGE> 12
EXHIBIT B
to
Technology License Agreement
between William J. Tobin,
PC Flowers & Gifts, Inc., and
Fingerhut Companies, Inc.
FINGERHUT FIELD OF USE
All activities within the Field of Use except those activities with
respect to usage of Licensed Patents with PCF&G's marketing partners, as exist
now or may exist from time to time in the future.
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<PAGE> 1
EXHIBIT 10.6
EXCEED WEB SITE AND COMMERCE SOLUTION AGREEMENT
AGREEMENT between EXCEED COMMUNICATIONS INTERNATIONAL, INC., with offices
at 524 Broadway, New York, New York 10012 ("Exceed"), and PC FLOWERS & GIFTS,
INC., with offices at 2001 West Main Street, Suite 175, Stamford, CT 06902
("Client"). All capitalized terms used herein without definition shall have the
meanings provided therefor in the attached Standard Terms and Conditions unless
the context otherwise requires.
I. INTERNET WEB SITE AND COMMERCE SOLUTION PACKAGE
Number of Products and Product categories to be sold through the Web Site:
Unlimited
Client agrees to engage Exceed as Client's exclusive Web site developer
and Internet commerce provider and to use the Exceed Internet Commerce Solution
to promote and offer for sale up to the number of Products stated above, in
accordance with the attached Standard Terms and Conditions.
II. FEES
Client shall pay to Exceed the following fees, in accordance with the
attached Standard Terms and Conditions:
A. A one-time "Design and Development Fee" equal to two hundred fifty
thousand dollars ($250,000), of which one hundred twenty five thousand
($125,000) shall be payable upon the execution of this Agreement (as defined
below), and the balance of which shall be payable on the first day that the Web
Site is accessible over the Internet by the public ("Launch Date").
B. An annual "Maintenance Fee" of two hundred thousand dollars ($200,000)
plus a "Variable Maintenance Fee" equal to two and one half percent (2.5%) (the
"Variable Maintenance Fee Percentage") of the dollar amount of all Electronic
Orders placed by Customers in a given month, plus or minus the net amount of any
Adjustments; provided, however, that Client's obligation to pay the Variable
Maintenance Fee shall only apply to the aggregate dollar amount of all
Electronic Orders placed during any Term (plus or minus the net amount of any
Adjustments) in excess of five million dollars ($5,000,000), calculated pursuant
to the attached Standard Terms and Conditions.
C. Reimbursement for all documented reasonable out-of-pocket expenses.
Hosting services shall be provided in accordance with the agreement
between Frontier GolbalCenter, Inc. ("Frontier") and Client, attached hereto as
Exhibit C.
This agreement consists of this Face Sheet, the attached Standard Terms
and Conditions and the Exhibits thereto (this "Agreement").
This Agreement shall be effective as of the date last written below, and
shall remain in effect until terminated in accordance with its terms.
PC FLOWERS & GIFTS, INC. EXCEED COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ David Crampton By: /s/ Robert A. Day
------------------------------ -------------------------------------
Name: DAVID CRAMPTON Name: ROBERT A. DAY
Title: PRESIDENT Title: PRESIDENT
Date: March 29, 1999 Date: March 29, 1999
<PAGE> 2
1
STANDARD TERMS AND CONDITIONS
1. GENERAL
Subject to the terms and conditions of this Agreement, Exceed shall
provide Client with the ability to offer Products for sale to Customers through
the Internet, utilizing the Exceed Internet Commerce Solution by means of an
Internet Web Site containing an online store.
2. DEFINITIONS
For purposes of this Agreement, the terms set forth below shall have
the meanings provided therefor in this Section 2. Additional definitions appear
throughout this Agreement.
(a) "Adjustments" -- the net dollar amount of any increases or
decreases in the dollar amount of any Electronic Order due to changes in the
nature of the order or refunds, chargebacks and discounts with respect to such
Electronic Order.
(b) "Content" -- any graphical or textual material which is provided
by Client for use in connection with the Web Site. Content includes, without
limitation, Client's trademarks, service marks or trade names used in connection
with the Web Site.
(c) "Customer" -- any person accessing or navigating the Web Site
(collectively, "Customers").
(d) "Customer Information" -- any information submitted by or
collected from a Customer while such Customer is accessing or navigating the Web
Site or inquiring about or ordering a Product through the Web Site.
(e) "Design and Development Fee" -- the amount stated in Section
II(A) of the Face Sheet of this Agreement.
(f) "Electronic Order" -- any order for a Product placed by a
Customer through the Web Site.
(g) "ExceedCommerce(TM) Application" -- each and every application
(including the management console capabilities) forming part of the Exceed
Internet Commerce Solution, including binary code, but not source code.
(h) "Exceed Internet Commerce Solution" -- any one or more
applications, integrations, functions or services developed or provided by
Exceed to create and maintain the Web Site, or otherwise utilized by Exceed in
connection with this Agreement.
(i) "Intellectual Property Rights" -- any and all patent, trademark,
service mark, copyright, trade secret or other intellectual property or similar
rights or interests.
(j) "Maintenance Fee" -- the amount stated in Section II(B) of the
Face Sheet of this Agreement.
(k) "Order Information" -- that portion of Customer Information
which is required by Client to process Electronic Orders in accordance with the
terms hereof, including without limitation, any payment information or
instructions provided by Customers.
(l) "Product" -- any product, service, advertisement, link, space or
information which Client makes available or accessible to Customers, whether by
sale or otherwise.
<PAGE> 3
2
(m) "Specifications" -- any description, format, instruction,
explanation or condition regarding the size, structure, format, capacity and
other criteria required by each ExceedCommerce(TM) Application or the Exceed
Internet Commerce Solution.
(n) "Variable Maintenance Fee" -- the amount stated in Section II(B)
of the Face Sheet of this Agreement.
(o) "Variable Maintenance Fee Percentage" -- the percentage stated
in Section II(B) of the Face Sheet of this Agreement.
(p) "Web Site" -the exclusive Internet domain (pcflowers.com) from
which the Products of Client are offered for sale from a single database,
utilizing one copy of the ExceedCommerce Application, provided, however, that
any domain names (e.g. "pcgifts.com"), used exclusively as referring domain
names utilizing such ExceedCommerce Application, shall be included in this
definition.
3. FEES
(a) For each Term, commencing upon the Launch Date, Client shall pay
Exceed the Maintenance Fee which shall be payable monthly in advance, in equal
installments, pursuant to an invoice provided by Exceed to Client. In addition
to the Maintenance Fee, for each such Term, Client shall pay to Exceed the
Variable Maintenance Fee.
(b) For purposes of determining the Variable Maintenance Fee, all
calculations relating to percentages of Electronic Orders shall be made based on
the price actually payable by Customers, after applying all applicable discounts
or coupons, less chargebacks, applicable sales tax, service charge, discounts,
credits or returns.
(c) Following the end of each calendar quarter of any Term,
commencing upon the first full calendar quarter-end following the Launch Date,
Exceed shall provide an invoice for its estimate of the Variable Maintenance Fee
applicable to the preceding quarter (the "Estimated Variable Maintenance Fee"),
with accompanying documentation listing all Electronic Orders placed by
Customers during the preceding quarter, listed by order number. Client shall
remit an amount equal to:
(i) the amount of the Estimated Variable Maintenance Fee,
reduced or increased, as applicable, by an amount equal to:
(ii) the Variable Maintenance Fee Percentage multiplied by the
net dollar amount of any Adjustments applicable to the given
month.
Such remittance shall be accompanied by (or, in the event that no Variable
Maintenance Fee for a particular quarter is due and owing, Client shall provide
Exceed with) a report containing a calculation, in reasonable detail, of all
applicable Adjustments, including without limitation, order numbers for the
Electronic Orders corresponding to such Adjustments.
(d) All fees payable under this Agreement shall be due and payable
within fifteen (15) days following the date of the applicable invoice. A charge
of 1.5% per month may be payable by Client on any past due balances. If any
amount is not paid when due, Exceed may, upon twenty-five (25) days' prior
written notice to Client, discontinue any or all services rendered. Following
payment of all outstanding amounts, Exceed may charge its then-current fees for
reinstatement of services.
(e) Exceed shall have the right, no more than twice in any twelve
(12) month period during any Term (as defined in Section 9 below), and for a
period of twelve (12) months after the expiration of the final Term or the
termination of this Agreement in accordance with Section 9 below, and upon ten
(10) days' prior notice to Client, to inspect Client's books and records
regarding Electronic Orders and amounts payable to Exceed pursuant
<PAGE> 4
3
to this Agreement. Such inspection shall be conducted by a certified public
accounting firm reasonably acceptable to Client (the "Auditors") at Client's
place of business during regular business hours. Costs and expenses associated
with any such inspection shall be paid by Exceed unless the results of such
inspection reveal a shortfall in amounts owed or paid to Exceed during the
period covered by the inspection in excess of five percent (5%) of the correct
amount which should have been paid to Exceed during such period. In such case,
the costs and expenses of the inspection shall be paid by Client. The final
report of the Auditors shall be conclusive and binding on the parties hereto.
4. REQUIRED ELEMENTS OF THE WEB SITE
The Web Site shall contain, at a minimum, the following elements:
(a) A database of Products (i) delivered to Exceed by Client in an
electronic file format consistent with Specifications provided by Exceed or (ii)
created by Exceed pursuant to the instructions of Client.
(b) An e-mail address uniquely designated for messages to Client
from Customers.
(c) Copy, provided by Client, describing the specific payment
methods accepted by Client.
(d) Copy, provided by Client, describing the shipping methods
offered by Client, as well as the costs of each such method.
(e) Copy, provided by Client, describing Client's return policies
and detailed instructions for the return of purchased Products to Client.
5. OBLIGATIONS OF CLIENT
In addition to Client's other obligations under this Agreement:
(a) Client agrees to respond to all e-mail messages from Customers
within one (1) business day following receipt thereof by Client.
(b) Client agrees to dedicate the staff necessary to fulfill
Client's obligations hereunder.
(c) Client shall be solely responsible for fulfilling all Electronic
Orders.
(d) Client shall provide warranties and customer services for
Products offered or ordered through the Web Site equivalent to those it
otherwise provides for the same or similar products. Exceed shall have no
responsibilities or obligations regarding any Product offered or ordered through
the Web Site.
(e) Client shall, at all times, abide by all applicable portions of
the Direct Marketing Association's then-current Guidelines for Ethical Business
Practices, and all federal, state and local laws and regulations applicable to
any advertisements, promotions or offers made by Client through or relating to
the Web Site or any Products offered, ordered or requested through the Web Site.
Client shall comply fully with all relevant regulations of the United States
Department of Commerce and with the U. S. Export Administration to assure that
any ExceedCommerce(TM) Application or the Exceed Internet Commerce Solution is
not exported in violation of any such regulations.
(f) Client agrees to download Electronic Orders and messages from
Customers at least once daily.
(g) Client shall provide to Exceed all information required by
Exceed to update the Web Site and perform its other obligations hereunder.
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(h) Client shall be solely responsible for the collection and
payment of any federal, state or local tax of any nature whatsoever (except any
taxes which relate to Exceed's corporate tax requirements) relating to any
Electronic Order or otherwise arising out of this Agreement.
6. OBLIGATIONS OF EXCEED
In addition to Exceed's other obligations under this Agreement:
(a) Exceed shall perform all services hereunder in a workmanlike and
professional manner.
(b) Exceed shall develop, implement, operate, maintain and update
the Web Site and the Exceed Internet Commerce Solution in accordance with the
terms of this Agreement and shall correct any material nonconformances from the
description of functions and services set forth in Exhibit A attached hereto of
which it is notified by Client. Client acknowledges that it may access the space
from which hosting services will be provided by Frontier, only pursuant to the
written consent, and on terms and conditions acceptable to Exceed. Exceed shall
have sole and exclusive access to and control of any and all hardware and
software on and through, and the space which, the Web Site is hosted.
(c) Exceed shall use commercially reasonable efforts to insure that
updates and/or changes to the Web Site database are integrated promptly
following delivery of such updates and/or changes to Exceed by Client, provided
that such updates and/or changes are configured and furnished according to the
applicable Specifications.
(d) Exceed shall supply to Client all Order Information provided by
Customers for each Electronic Order. Exceed shall have no obligation or
responsibility with respect to payment for any Electronic Orders, and, as
between Client and Exceed, Client shall bear all risk associated therewith.
(e) Exceed represents and warrants that the ExceedCommerce
Application is designed to be used prior to, during, and after the calendar year
2000 and that the ExceedCommerce Application will operate during each such time
period without error relating to date data, specifically including any error
relating to, or the product of, date data which represents or references
different centuries or more than one century. Without limiting the generality of
the foregoing, Exceed further represents and warrants (i) that the
ExceedCommerce Application has been designed to ensure year 2000 compatibility,
including, but not limited to date data century recognition, calculations which
accommodate same century and multi-century formulas and date values, and date
data interface values that reflect the century; and (ii) that the ExceedCommerce
Application will manage and manipulate data involving dates, including single
century formulas and multi-century formulas, and will not cause an abnormally
ending scenario within the application or generate incorrect values or invalid
results involving such dates; and will provide that all date-related user
interface functionalities and data fields include the indication of century; and
will provide that all date-related data interface functionalities include the
indication of century. Exceed further warrants and represents that the data
outside of the range 1900-1999 will be correctly processed in any level of
computer hardware or software including, but not limited to, microcode,
firmware, application programs, files and databases. All date processing by
ExceedCommerce Application will include a format that allows entry or processing
of a four-digit year date: the first two digits will designate the century and
the second two digits shall designate the year within the century. The
ExceedCommerce Application will recognize and correctly process dates for leap
years, i.e., those years in which and extra day is added in February (February
29th) . Additionally, all date sorting by Product that includes a "year
category" shall be done based on the four-digit year format code.
Notwithstanding, anything to the contrary set forth in this Agreement, nothing
contained in this Agreement shall in any way limit the foregoing warranties. In
the event the warrants and representations made by Exceed to Client regarding
the calendar year 2000 functionality of the ExceedCommerce Application are not
operational for any continuous 24 hour period of time during the term of this
Agreement, Exceed will be materially in breach of this Agreement.
(f) During any Term hereof, Exceed shall use its best efforts to
continually utilize for and integrate within the Web Site the most current
technology utilized by Exceed in the performance of similar services for
Exceed's other clients of similar size and product volume.
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7. DISPLAYED MATERIAL
(a) Exceed shall accept Content only upon the representation and
warranty that Client has the right (including without limitation, all necessary
consents) to publish and to permit Exceed to publish the entire contents and
subject matter thereof. Submission (including without limitation, electronic
transmission) of any Content by Client constitutes such representation and
warranty and Client's consent to display the Content on the Web Site in the form
submitted.
(b) Consent to display Content shall entitle Exceed to use the
Content (in any form) for demonstration, testing and operation of the Web Site
and Exceed's services. Client hereby grants to Exceed a nonexclusive, worldwide
perpetual right to use, at no cost to Exceed, Client's name and trademarks in a
list of Exceed's clients and in widely distributed advertising and promotion of
Exceed's products and services with the consent of Client, which consent shall
not be unreasonably withheld, and provided, that the use of such Content shall
not be used by Exceed to materially adversely affect Client or Client's
business. Upon request by Client, any use by Exceed of Client's trademarks shall
be accompanied by a (R) or (TM) notice as applicable.
(c) Only material which is approved by Client and Exceed shall be
displayed on the Web Site. Notwithstanding the foregoing, however, Exceed's
approval with respect to the display of any Content shall not be unreasonably
withheld and shall not relieve Client of any of its obligations hereunder,
including without limitation, its obligations under Sections 7(a), 7(d) and 10.
(d) Client retains the right to develop Content, and assumes all
responsibility and liability associated with the Content and Product information
provided by Client.
8. INTELLECTUAL PROPERTY RIGHTS AND RESTRICTIONS ON USE
(a) Except for Content and any materials supplied to Exceed by third
parties, Exceed shall retain all right, title and interest in and to all
Intellectual Property Rights in (i) each ExceedCommerce(TM) Application, and
(ii) all other software, elements or other materials utilized, developed or
derived by Exceed in connection with the provision of services by Exceed
hereunder. However, Exceed shall have no right, title or interest in any
trademarks, patents, domain names, artwork, or logos of Client or Client's
employees.
(b) Client shall retain all right, title and interest in and to all
Intellectual Property Rights in the Content. Client grants Exceed only those
rights relating to Content which are necessary for Exceed to perform its
obligations and exercise its rights, including without limitation, those rights
provided for under Section 7(b) above, under this Agreement.
(c) Client hereby grants to Exceed a nonexclusive, nontransferable,
worldwide, perpetual right to use, at no cost to Exceed, any Customer
Information, provided, however, that Exceed shall not have the right to sell or
otherwise convey any Customer Information without the prior written consent of
Client. Notwithstanding the foregoing, however, Exceed's right to use the
Customer Information shall include, without limitation, the right to sell or
otherwise disclose general information, conclusions, trends and other analyses
derived from Order Information, provided that Exceed does not disclose any
information concerning specific Customers or transactions; or any conclusions,
trends or analyses where Client's Customer Information comprises more than fifty
percent (50%) of the information on which such conclusions, trends or analyses
are based. In addition, in the event that any company that is a competitor of
Client, makes an investment in or forms a strategic relationship with Exceed,
Exceed shall forfeit all rights granted herein to use Client's Customer
Information and shall be prohibited from providing such competitors with any
form of access to Client's Customer Information.
(d) Each party shall take all commercially reasonable steps and
shall provide such materials, cooperation and assistance as may be reasonably
required to assist the other, at the other party's cost and expense, in
registering, protecting, maintaining and enforcing such other party's
Intellectual Property Rights.
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(e) Client and Exceed each acknowledge and agree that each is and
shall be the sole and exclusive owner of all right, title and interest in and to
its respective Intellectual Property Rights and that neither Client nor Exceed
shall have any rights or attempt to acquire any rights in or to the Intellectual
Property Rights of the other. Notwithstanding the foregoing, Fingerhut Business
Service ("FSB") shall have the right to access and use the management console
capabilities of the ExceedCommerce Application, pursuant to the same terms and
conditions upon which Client is provided access to such features, and so long as
such use by FSB is solely to support Client's business.
(f) Client shall not make the ExceedCommerce(TM) Applications
available to any person or entity, in connection with any timesharing, service
bureau, rental, service or other arrangements, without the express, prior
written consent of Exceed.
(g) Client shall not cause or permit the reverse engineering,
disassembly or decompilation of any ExceedCommerce(TM) Application.
9. TERM AND TERMINATION
(a) This Agreement shall be effective as of the date it is executed
by both parties, by signature of both parties on the attached Face Sheet, shall
remain in effect for a period of one (1) year following the Launch Date and
shall be automatically renewed for subsequent one (1) year periods, unless
either party receives sixty (60) days written notice to the contrary from the
other party prior to the expiration of the then-current term of this Agreement
(each such period, a "Term").
(b) Exceed shall be entitled to terminate this Agreement, upon
written notification to Client:
(i) if Client materially breaches any of the terms contained
in this Agreement;
(ii) if Client fails to pay amounts due and owing Exceed
within the time specified herein; or
(iii) upon Client's insolvency, dissolution, voluntary or
involuntary filing for bankruptcy, liquidation,
reorganization or assignment for the benefit of its
creditors.
Prior to any termination by Exceed, Exceed shall notify Client in
writing of any such breach or event giving rise to termination and Client shall
have fifteen (15) days from the date of such notice to cure such breach or
event, except for failure to pay amounts due and owing, in which case Client
shall have twenty five (25) days to cure. If Client cures such breach or event
within the applicable aforementioned period, Exceed shall not be entitled to
terminate this Agreement with respect to such breach or event.
(c) Client shall be entitled to terminate this Agreement, upon
written notification to Exceed:
(i) if Exceed materially breaches any of the terms contained
in this Agreement; or
(ii) upon Exceed's insolvency, dissolution, voluntary or
involuntary filing for bankruptcy, liquidation,
reorganization or assignment for the benefit of its
creditors.
Prior to any termination by Client, Client shall notify Exceed in
writing of any such breach or event giving rise to termination and Exceed shall
have fifteen (15) days from the date of such notice to cure such breach or
event. If Exceed cures such breach or event within the applicable aforementioned
period, Client shall not be entitled to terminate this Agreement with respect to
such breach or event.
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(d) Upon the expiration of the final Term of this Agreement (the
"Expiration Date") and upon receipt of the Annual License Fee (as defined
below), Exceed shall provide Client with one executable copy of the version of
the ExceedCommerce Application (together with the Content and other such
components necessary to operate the Web Site at a performance level consistent
with the performance level at which it was being operated on the Expiration
Date) then being used to operate the Web Site, and Client shall have a
nonexclusive, nontransferable, worldwide right to use such ExceedCommerce
Application version solely for the purpose of operating the Web Site. In the
event the Client elects to license the ExceedCommerce Application, Client will
have the option to engage a company of its choice to operate the Web Site and
utilize the ExceedCommerce Application for the sole purpose of operating the Web
Site during the term of the license. Client acknowledges that the company chosen
to operate the Web Site shall have the right to use the ExceedCommerce
Application to maintain the Web Site only under the terms of the annual license
agreement, and any such company shall be required to enter into a
confidentiality and proprietary rights agreement directly with Exceed in a
reasonable form which is acceptable to Exceed in its sole discretion. Client
shall remit to Exceed an annual license fee of seventy five thousand dollars
($75,000) (the "Annual License Fee") in consideration for the license granted in
the previous sentence. Client may renew such license, on an annual basis, by
remitting to Exceed the Annual License Fee no later than the annual anniversary
of the Expiration Date. In the event that Exceed does not receive the Annual
License Fee on or before such anniversary of the Expiration Date, the
aforementioned license shall immediately terminate and Client shall cease any
and all use of the ExceedCommerce Application and certify same to Exceed, in
writing, upon request. Anything in this Agreement to the contrary
notwithstanding, Exceed shall have no obligation for maintenance, support or
hosting services for the Web Site or any ExceedCommerce Application after the
Expiration Date. During each annual period for which Client has remitted the
Annual License Fee to Exceed, Exceed shall provide Client with a replacement
component developed by or for Exceed to correct failures, malfunctions, defects
or programming flaws which prevent the specific version of the ExceedCommerce
Application licensed to Client pursuant to this Section 9(d) from functioning in
a manner substantially similar to the manner such ExceedCommerce Application
functioned on the Expiration Date. Notwithstanding anything to the contrary
contained herein, Exceed shall be under no obligation to develop any such
component. Upon Client's request, Exceed shall provide Client with such
maintenance, support or hosting services at Exceed's then-current demonstrated
rates and charges for same.
(e) In the event of termination of this Agreement by either party,
all fees previously due and owing by Client as of the date of termination shall
be immediately due and payable in full by Client. Termination or expiration of
this Agreement shall not cancel or terminate any rights and/or obligations which
arose prior to the effective date of termination or expiration and which must
continue to give effect to their meaning at the time such right and/or
obligation arose. In addition to and not in lieu of the foregoing, Sections
7(b), 8, 9(d), 10, 11, 12 and 13 shall survive any termination or expiration of
this Agreement.
10. INDEMNIFICATION
(a) Client agrees to indemnify, defend and hold harmless Exceed and
its directors, officers, employees and agents against any claim, demand, cause
of action, debt or liability, including without limitation, reasonable
attorneys' fees, to the extent that such claim, demand, cause of action, debt or
liability is based upon or arises out of: (i) a claim that any of the Content
infringes or violates any rights of third parties, including without limitation,
Intellectual Property Rights; (ii) the sale of any Product offered by, or
ordered or requested from, Client by means of the Web Site; or (iii) Client's
use of any Customer Information or Client's failure to adequately safeguard
same.
(b) Exceed agrees to indemnify, defend and hold harmless Client and
its directors, officers, employees and agents against any claim, demand, cause
of action, debt or liability, including without limitation, reasonable
attorneys' fees, to the extent that such claim, demand, cause of action, debt or
liability is based upon or arises out of: (i) a claim that any of the
ExceedCommerce(TM) Applications infringes or violates any rights of third
parties, including without limitation, Intellectual Property Rights; or (ii)
Exceed's use of any Customer Information or Exceed's failure to adequately
safeguard same.
(c) The party seeking indemnification pursuant to this Section 10
(the "Indemnified Party") shall promptly notify the other party (the
"Indemnifying Party") of any claim, demand, suit or proceeding for which the
Indemnifying Party has agreed to indemnify, defend and hold the Indemnified
Party harmless, and the
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Indemnifying Party, upon written request from the Indemnified Party, shall
promptly defend and continue the defense of such claim, demand, suit or
proceeding at the Indemnifying Party's expense. Failure of the Indemnified Party
to promptly notify the Indemnifying Party of any such claim, demand, suit or
proceeding shall only relieve the Indemnifying Party of its obligations
hereunder to the extent that it is actually prejudiced by such failure. If the
Indemnifying Party fails to undertake and continue such defense, the Indemnified
Party shall have the right (but not the obligation) to make and continue such
defense as it considers appropriate, and the expenses and costs thereof,
including without limitation, attorneys' fees, out-of-pocket expenses and the
costs of an appeal and bond thereof, together with the amounts of any judgment
rendered against the Indemnified Party, shall be paid by the Indemnifying Party.
11. LIMITATION OF LIABILITY
(a) EXCEPT AS SPECIFICALLY STATED HEREIN, EXCEED MAKES NO WARRANTIES
HEREUNDER AND EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
(b) Except for liability arising out of Section 10 above, in no
event shall either party be liable to the other for incidental, special,
punitive or consequential damages of any kind (including without limitation,
damages for lost profits) even if such party has been advised of the possibility
of such damages. Except for liability arising out of Section 10 above, in no
event shall Exceed's liability to Client for any cause of action arising out of
this Agreement exceed the amount paid by Client to Exceed during the three (3)
months immediately preceding such claim
12. CONFIDENTIALITY
(a) Each party agrees that all code, specifications, inventions,
algorithms, know-how and ideas and all business, technical and financial
information ("Proprietary Information") it obtains from the other are the
confidential and proprietary property of the disclosing party, provided that
such Proprietary Information is marked as such or the manner in which the
Proprietary Information is presented to the receiving party reasonably puts such
receiving party on notice as to the confidential or proprietary nature of the
Proprietary Information. Anything to the contrary in this Agreement
notwithstanding, each and every ExceedCommerce Application shall be considered
Proprietary Information of Exceed. The receiving party shall hold in confidence
and not use or disclose any such Proprietary Information of the disclosing party
(except as permitted hereunder or in writing by such disclosing party).
Notwithstanding the foregoing, the terms of this Agreement shall be considered
Proprietary Information. Exceed and Client agree to extend, for the term of this
Agreement, the Mutual Non-Disclosure Agreement executed on November 18, 1997.
(b) The receiving party shall not be obligated under this Section 12
with respect to Proprietary Information the receiving party can document (i) is
or has become publicly available without restriction through no breach of this
Agreement or fault of the receiving party; (ii) is received without restriction
from a third party lawfully in possession of such Information; (iii) was
rightfully in the possession of the receiving party without restriction prior to
its disclosure by the other party; (iv) was independently developed by the
receiving party; or (v) was compelled to be disclosed by law or regulation but
only to the extent of and for the purposes of such law or regulation; provided,
however, that the recipient shall have first notified the disclosing party of
such disclosure and permitted the disclosing party to seek an appropriate
protective order.
(c) The parties acknowledge that the disclosure of any aspect of the
Proprietary Information of the other shall immediately give rise to continuing
irreparable injury to the non-disclosing party, inadequately compensable at law
and, without prejudice to any other remedy available to the non-disclosing
party, shall entitle the non-disclosing party to injunctive relief.
13. GENERAL
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(a) Exceed shall have no liability for any action, any failure to
take action or any representation of any Customer.
(b) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York without giving effect to
choice of law or conflict principles of that or any other jurisdiction. Except
with respect to an action brought to enforce a party's rights under Section 12
above, any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association then in
effect, and judgment upon the award rendered by the arbitrator(s) may be entered
in any court having jurisdiction thereof. There shall be one (1) arbitrator for
disputes involving less than one hundred thousand dollars ($100,000.00) and
three (3) arbitrators for disputes involving one hundred thousand dollars
($100,000.00) or more. In such latter case, each party shall name one (1)
arbitrator and the two (2) so named shall name the third arbitrator, who shall
act as chairman. The arbitration shall be conducted in New York City, New York.
The arbitrators may order disclosure by one party to the other of documents
relevant to the claim or controversy being arbitrated. No other form of
discovery may be ordered absent agreement of the parties. The arbitrators shall
include in the award payment to the prevailing party of its attorneys' fees and
other expenses incurred in connection with the arbitration.
(c) Neither party shall represent itself as an agent, employee,
partner or representative of the other party for any purpose. Neither party has
granted to the other party any right or authority to assume or create any
obligation or responsibility, expressed or implied, for or on behalf of the
other party. Any such act shall create a separate liability in the party so
acting to any and all third parties affected thereby. The rights, duties,
obligations and liabilities of the parties shall be several and not joint or
collective, and nothing contained in this Agreement shall be construed as
creating a partnership, joint venture, agency, trust or other association of any
kind, each party being individually responsible only for its obligations as set
forth in this Agreement and an independent contractor of the other. Neither
party's employees, agents or representatives shall be construed as employees,
agents or representatives of the other party or otherwise entitled to any
benefits or insurance provided by such other party, including without
limitation, unemployment or disability benefits.
(d) The attached Face Sheet, these Standard Terms and Conditions and
the attached exhibits represent the entire understanding and agreement between
the parties and supersede any and all prior written or oral communications,
agreements and understandings and may only be amended or modified by a separate
writing of subsequent or even date, signed by both Exceed and Client.
Notwithstanding the foregoing, however, the current written Agreement between
the parties (the "Prior Agreement") shall remain in full force and effect until
the Launch Date, at which time the Prior Agreement shall be terminated and of no
further force or effect except for those provisions that survive such
termination as expressly provided therein. If any provision of this Agreement
proves to be invalid, unenforceable or illegal, the remaining terms shall
continue in full force and effect. Any term or condition of this Agreement may
be waived or qualified at any time by a party entitled to the benefit thereof by
a written instrument executed by such party. No omission, delay or failure on
the part of either party in exercising any rights hereunder, and no partial or
single exercise thereof, will constitute a waiver of such rights or of any other
rights hereunder. Acceptance of this Agreement by the parties is expressly
limited to the terms and conditions contained in this Agreement. Either party's
commencement of performance shall not be deemed or construed to be acceptance of
any additional or inconsistent terms or conditions. The section headings used
herein are for reference and convenience only and shall have no effect upon the
construction or interpretation of this Agreement or any part thereof.
(e) Neither party shall be responsible or liable for, and such party
shall be excused from, any non-performance or delay in the performance of any of
its obligations hereunder if and to the extent that such non-performance or
delay could not have been prevented by commercially reasonable precautions and
is caused by factors beyond the commercially reasonable control of that party,
whether or not foreseeable, which factors could include, to the extent that they
are consistent with the foregoing, any failure by the other party to perform its
obligations hereunder. However, neither party's financial condition or inability
to make payments hereunder shall be a basis for excusing the performance of any
of that party's obligations hereunder.
(f) All notices required or permitted hereunder shall be in writing
and sent by facsimile transmission or electronic mail confirmed by first class
mail, by registered or certified mail, or by messenger or
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overnight delivery service, shall be deemed delivered five (5) days after
deposit in the U.S. Mail, or upon the earlier of receipt of the facsimile or
electronic mail copy or the confirmation copy thereof, or upon receipt if by
messenger or overnight delivery service, and shall be directed as follows (or to
such other addresses, facsimile numbers, electronic mail addresses or
individuals as may be requested by either party by notice in writing to the
other):
If to Exceed: If to Client:
Exceed Communications PC Flowers & Gifts, Inc.
International, Inc. 2001 West Main Street
524 Broadway Suite 175
New York, New York 10012 Stamford, CT 06902
Attn: John F. Fisher Attn: David Crampton
Facsimile No.: (212) 334-4925 Facsimile No.: 203-977-8593
E-mail: [email protected] E-mail: [email protected]
(g) Except for the indemnity obligations contained in Section 10
above, this Agreement shall be for the benefit of the parties hereto and none of
the provisions of this Agreement shall be for the benefit of or enforceable by
any third party.
(h) Neither this Agreement nor any rights hereunder may be assigned
or transferred by either party, in whole or in part, except to a successor to
the business and substantially all of the assets of such party, without the
prior written consent of the other; provided that, notwithstanding the
foregoing, Exceed may assign its rights to any payments hereunder.
(i) The parties are sophisticated businesses with legal counsel to
review the terms of this Agreement and the parties represent that they have
fully read this Agreement and understand and accept its terms.
(j) On a quarterly basis, Exceed shall produce, and maintain at a
separate location from Frontier's hosting facility, a back-up copy of the Web
Site. In addition, Client and Exceed shall work together to implement a back-up
hosting environment substantially similar to the environment described in
Exhibit C hereto, provided that any agreement regarding such environment shall
contain substantially the same terms and conditions as those contained in
Exhibit C hereto.
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EXHIBIT A
Web Site and Internet Commerce Services
Subject to the terms and conditions of this Agreement, Exceed will be
responsible for the design, creation and hosting of the Web Site, including
implementation of the appropriate ExceedCommerce(TM) Applications, which shall
include the ability of Client to remotely update and manage the Web Site and
obtain Customer Information and related reports via a Web interface. The Web
Site shall contain the functionality provided below. In addition to the
foregoing, the nature of the hosting and other services to be provided is set
forth below. Any capitalized terms used herein without definition shall have the
meanings provided in the attached Face Sheet and Standard Terms and Conditions
unless the context otherwise requires.
1. Planning, Design, and Testing
o project schedule identifying all deliverables, milestones, and
approvals
o user paths document, site map, and complete site architecture
o user interface creative concepts based upon site architecture
o creation of Customer interface that compels and encourages purchase
completion
o optimization of navigation and site efficiency to support new and
diversified product line
o integration of Content
o new database schema
o test plan for all applications and user paths will be developed and
executed by production staff in conjunction with Client
o stress, load, and synthetic transaction testing will be carried out
using Exceed developed tool set
o management site for accessing project schedules, creative concepts,
relevant documentation and correspondence
o define management console queries and exportable information
2. Publicly accessible Web-based Internet commerce applications, including
without limitation, the following functionality:
o ability to search for and purchase products online
o ability to accept pre-defined payment methods
o wallet of payment options per user
o welcome back Customers by name
o multiple shipping and billing addresses
o line item shipping
o one-click ordering on certain products
o e-mail confirmation upon completion of order
o email reminder services but not direct email marketing
o ability to save/modify/view Customer accounts, including multiple
shipping and billing addresses
o ability to deliver customized Content or other materials based on
Customer preferences
o selectively restrict information from unqualified Customers
o calculate sales and value added taxes
o ability to select pre-defined shipping options (domestic and
international)
o ability for Customers to view order history and shipment tracking
information (if provided by fulfillment center)
o replenishment services, quick reorder
o different sizes, colors, and price points per product
o start order process or login on each product focus page
o up sell in shopping basket between linked products
o cross sell between products
o enhanced search page of all categories, price ranges, shipping
options, occasions
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o pre-built card message suggestions
o specific card categories (i.e. thank you)
o gift wrapping (dependent on fulfillment)
o start order process or login on each product focus page
o advanced domestic and international shipping and tax support (i.e.
FedEx delivery areas)
o value added features
o gift registry
o flowers of the month club/purchases
o wish lists
o make virtual bouquets register in order to gain demographics
o gift reminder upgrade to include calendar scrolling device,
import of selected holidays, product suggestions
o feature sections
o product features on homepage
o best sellers
o gift ideas
o sale items
3. Password protected Web-based interface (Exceed Management Console) for
managing the Web Site, including the following functionality:
o real time Web Site usage analysis and sales reports
o add, view, and modify Product attributes, including upload of
graphical elements
o Content management of selected copy blocks and email confirmations
o view log of data transfer to single fulfillment center
o rebatch orders to fulfillment center if necessary
o OLAP and SQL 7 integration
o mine Customer and purchase data using OLAP, including custom queries
requested by Client
o access and manipulate Customer order and shipping information
contingent upon data received from single fulfillment center
o selection of templates for page layout
o standardized data formats
o complete coupon manager
o coupon tracker
o export to multiple data formats
o paging mechanism for tables
o view and mine Customer, email, sweepstakes, virtual bouquet lists
o tagging mechanism for entry points
o custom query area
o image upload
o advanced graphing component
o ad placement support
o affiliate creation and tracking capability
o enhanced Customer data information: number of purchases, $ spent,
demographic information
o promotions functionality including but not limited to discounting
per marketing partner, user or SKU set; coupons and digital gift
certificates; rewards for frequent purchases or combination
purchases
o advanced sale item features
o gift certificates
o advanced cobranding application permitting select content and
products to be delivered per marketing partner
o complete private label support
o discounted cobrands ability to use coupons
o lock out SKUs per cobrand
<PAGE> 14
3
o secure login per marketing partner to view restricted data
4. Order Transfer and Fulfillment Integration
o bi-directional (dependent on fulfillment facility) encrypted
transfer of sensitive Order Information to and from single
fulfillment center using transfer protocols agreed upon by Exceed
and Client
o import of phone order records
o shipment tracking
o unidirectional integration, on a case by case basis, to other
internet storefronts as agreed to by Client and Exceed
5. Hosting Services (See Exhibit C for details)
6. Ongoing Services Included in Maintenance Fees
o maintain and update the Web Site on a weekly/monthly schedule as
agreed to with Client; time estimates will be created for all
significant tasks
o implement major functionality upgrades every four months to the
extent such features enhance the overall effectiveness of the Web
Site; functionality that represents a significant deviation in
Client business model or current scope of Web site may be outside
realm of maintenance agreement
o continued evaluation and improvement of site effectiveness (sales,
speed, visits, marketing, efficiency and industry trends)
o maintain and update the Customer interface and graphical elements on
schedule agreed to with Client
o maintain qualified e-mail database and provide third-party mail
provider data as necessary; Exceed does not act as a direct mailer
o develop and maintain foreign language sites in format that is
agreeable to Exceed and Exceed
<PAGE> 15
EXHIBIT B
Hosting Services
1. Hosting Services
Hosting services shall be provided in accordance with the Agreement attached
hereto as Exhibit C.
2. Hosting Equipment
Client shall order, pay for and arrange to have delivered to Fronier
GlobalCenter the following hardware and software: (The following hardware and
software was recommended by Exceed.)
<TABLE>
<CAPTION>
Item Description Qty
<S> <C> <C>
HARDWARE
Commerce Web Server Dell 4350 Rack Mt Server, Dual 450 PIII, 512 MB 3
Ram,3x9 GB 10,000rpm HD (RAID 5, 16 MB Cache)
SQL Database Server Dell 6350 Rack Mt Server, Dual Xeon 450, 512 MB 1
Ram, 3x9 GB 10,000rpm HD (RAID 5, 128MB cache),
including backup software
OLAP/Backup SQL Server Dell 6350 Rack Mt Server, Dual Xeon 450, 512 MB 1
Ram, 3x9 GB 10,000rpm HD (RAID 5, 128MB cache)
Management Server, running Dell 4350 Rack Mt Server, Dual 450 PIII, 512 MB 1
PDC, WINS, Remote Control, Ram,3x9 GB 10,000rpm HD (RAID 5, 16 MB Cache)
Performance Monitoring, Online
Backups
Batching Server/Mgt Console Dell 4350 Rack Mt Server, Dual 450 PIII, 512 1
MB Ram,3x9 GB 10,000rpm HD (RAID 5, 16 MB Cache)
SMTP/DNS Server Dell 4350 Rack Mt Server, Dual 450 PIII, 512 MB 1
Ram,3x9 GB 10,000rpm HD (RAID 5, 16 MB
Cache)
Load Balancing Switch Holontech Hyperflow SP800 in failover config 2
Ethernet Switch Cisco Catalyst 2916 16-port 10/100 ethernet 1
switch
Dedicated Firewall Cisco PIX 233 PIX Firewall 520, two 10/100 1
nics, unlimited user license
KVM (keyboard, video, mouse) Switch Box for keyboard and monitor for Dell 1
Switch PowerEdge server rack w/ 8 cables
AC Power Switch APC Masterswitch web-managed AC power 8-port 2
switch
DLT Backup Tape Library ADIC Faststor 4000 DLT Type IV 7-tape 1
autoloader
Commerce Web Server Type IV DLT backup tapes 14
Category 5e Patch Cables Server grade patch cables, misc. sizes (1', 5', 25
7', 14')
Shelving Vented cantilever shelf for 19" rack 1
Keyboard and mouse Keyboard and mouse, PS2 style 1
Monitor 15" monitor, SVGA 1
</TABLE>
<PAGE> 16
2
<TABLE>
<CAPTION>
Item Description Qty
<S> <C> <C>
SOFTWARE
NT Server Adv Server 4.0 NT Server Adv Server 4.0 License 7
Windows NT Server Maintenance 2 Year agreement 7
Site Server Site Server 3.0 Commerce Ed. 3
Site Server Internet Conn. Site Server 3.0 Internet Connector License 3
Site Server 3.0 Commerce 2 Year agreement 3
Edition Maintenance
SQL Server 7.0 SQL Server 7.0 License 2
Microsoft SQL Server Version 2 Year agreement 2
7.0 Maintenance
SQL Server 7.0 Internet Conn. SQL Server 7.0 Internet Conn. (per processor) 4
DiskKeeper 4.0 Disk Fragmentation Utility, 10-server license 1
Linux Operating System Red Hat V5.1 1
Backup Software Seagate Backup Exec 7.0 Mult-server 1
Backup Software Seagate Backup Exec 7.0 Autoloader Module 1
Backup Software Seagate Backup Exec 7.0 SQL Server Agent 1
</TABLE>
Client shall retain title to the hardware and software described above and shall
bear all risk of loss associated therewith. Client shall be responsible for
obtaining any insurance that it deems necessary. Exceed shall have sole and
exclusive possession and control of all such hardware and software and no
individual or entity shall have access to same without the prior written consent
of Exceed.
Upon termination or expiration of the final Term of the Agreement, Client shall
have the right to repossess the hard ware and software described above, at a
time which is mutually agreed upon by Client and Exceed.
Exceed shall monitor the Web Site performance, and from time to time, Exceed
will recommend that additional hosting equipment, software and services be added
in order to maintain the highest level of site performance. Exceed's
recommendations will be based on site traffic and will generally take into
account the number of concurrent users. Client shall be soley responsible for
any cost incurred in connection with the addition of any such equipment,
software or services.
3. Escalation Plan and Procedure
Exceed shall manage issues relating to hosting in accordance with the Service
Tickets, Escalation and Notification Procedures set forth in Schedule 1,
attached hereto.
4. 99% Uptime Guarantee
In the event of Software Downtime (as defined below), the Maintenance Fee shall
be reduced as follows:
(a) If the total Software Downtime in the calendar month is more than seven
and two-tenths (7.2) hours, but does not exceed fourteen and four-tenths
(14.4) hours, the Maintenance Fee for that month shall be reduced by
one-third (33.3%);
(b) If the total Software Downtime in the calendar month is more than fourteen
and four-tenths (14.4) hours, but does not exceed twenty-one and six
tenths (21.6) hours, the Maintenance Fee for that month shall be reduced
by two-thirds (66.6%); and
(c) If the total Software Downtime in the calendar month is more than
twenty-one and six-tenths (21.6) hours, the Maintenance Fee for that month
shall be waived.
<PAGE> 17
3
For the purposes of this Section 4, Software Downtime shall mean any
interruption of one (1) minute or more in the availability to users of any Web
Site, only if such interruption is due to any failure by Exceed to manage a
server anomaly so as to avoid interruption in Web Site availability. For
purposes of this Section, Software Downtime shall not include (w) any regularly
scheduled downtime or preventive or other maintenance of which the Client has
been notified in advance; (x) any Client requested maintenance or service
interruptions; (y) downtime or service interruptions resulting from the Client's
acts or failure to act in a timely and/or proper manner when notified to do so
by Exceed; or (z) any acts or omissions of Frontier Global Center or any similar
facility or service provider, or any failings of or defects in any software or
hardware provided by a third party. For purposes of measurement, Software
Downtime shall begin at such time as Exceed is notified by Client or Client is
notified by Exceed or a third party, that the Web Site is unavailable to a
majority of Client's Customers, and shall end upon the restoration of
availability.
Client agrees that the foregoing is Client's sole remedy and exclusive measure
of damages for Downtime.
<PAGE> 18
SCHEDULE 1
Service Tickets, Escalation and Notification Procedures
All network connections and the Web Site are monitored via industry standard
tools and internally developed software. Exceed Client Services (ECS) handles
any network, Web Site or server disruption, or any incoming Client requests or
issues as incidents, tracking each incident through Exceed's service ticket
system. Service tickets are given unique numbers based on the date of the
incident. Client shall be provided with an incident ticket number when Client
contacts ECS.
There are three types of service tickets that can be opened for hosting or Web
Site related Client service requirements:
1. Web Site Functionality or Performance: A Web Site Functionality (WSF)
ticket will be opened if Client identifies a Web Site deficiency or
performance issue;
2. Scheduled Maintenance: A Scheduled Maintenance ticket will be opened for
Exceed or Frontier GlobalCenter scheduled network maintenance and a
notification will be sent to Client providing the necessary details; and
3. Hosting Service Interruption: A Hosting Service Interruption (HSI) ticket
will be opened if a network link or Client server is down or unreachable.
While Exceed makes every effort to keep Clients informed, there are situations
that call for emergency action. All outages and maintenance events are tracked
through our Response Ticketing System. Clients can call Exceed Client Services
at (212) 334-4920, Ext. 22, any time to check on a ticket's progress.
The procedure for contacting ECS and/or opening service tickets is as follows:
Web Site Functionality Ticket: A WSF ticket is opened by taking the following
steps:
(1) Open the Management Console at management.pcflowers.com,go into
"Customer Service", go into "Service Ticket", and complete the
ticket; and
(2) Contact Client's Account Manager by beeper at 888-SKY-8888, pin
1362183.
Hosting Service Interruption: An HSI ticket is opened by taking the following
steps:
(1) Send Email to [email protected] (Alerts Chief Technology
Officer), Systems Administrator and Account Manager); and
(2) Contact Client's Account Manager by beeper at 888-SKY-8888, pin
1362183; or
(3) Contact Exceed's Chief Technology Officer by beeper at 888-SKY-8888,
pin 1647189.
<PAGE> 19
EXHIBIT C
FRONTIER GLOBALCENTER
MASTER SERVICE AGREEMENT NO. ____
This Master Services Agreement (this "Agreement") is entered into as the
______ day of ______________, 1999 ("Effective Date") by and between the entity
indicated on the Services Order Form attached hereto, with an office at the
address listed on the Services Order Form, ("Client"), and Frontier
GlobalCenter, Inc., a corporation with offices at
_________________________________________________________ ("Frontier
GlobalCenter"), and describes the terms and conditions pursuant to which
Frontier GlobalCenter shall license to Client certain software and provide
certain Services (as defined below). In consideration of the mutual promises and
upon the terms and conditions set forth below, the parties agree as follows:
1. NATURE OF AGREEMENT
This is an Agreement for the provision by Frontier GlobalCenter of Internet
connectivity services (the "Bandwidth"), the lease of equipment to provide such
services (the "Hardware"), the availability of space to store and operate such
Hardware ("Space") and the licensing of software to provide such Services (the
"Software"), together comprising an Internet connectivity and collocation
package to be provided by Frontier GlobalCenter under this Agreement (together,
the "Services").
2. SERVICE ORDERS
2.1. Orders. Client may issue one or more service orders describing the
Bandwidth, Space, Hardware, and Software that Client desires ("Service Order").
Each Service Order will set forth the prices, initial term of Services and other
information in the form set forth in the Service Order Form. No Service Order
shall be effective until accepted by Frontier GlobalCenter. All Service Orders
will be subject to the terms and conditions of this Agreement, and the terms of
this Agreement shall supersede any terms and conditions which may appear on
Client's order form, or purchase order.
2.2. Cancellation. In the event that Client cancels or terminates a Service
Order at any time for any reason whatsoever other than expiration of a Service
Order or a Service Interruption (as defined below), Client agrees to pay
Frontier GlobalCenter as a cancellation fee all Monthly Recurring Charges
specified in the Service Order for the balance of the term therefor, which shall
become due and owing as of the effective date of cancellation or termination.
2.3. IP Addresses. Frontier GlobalCenter may assign on a temporary basis a
reasonable number of Internet Protocol Addresses ("IP Addresses") from the
address space assigned to the Frontier GlobalCenter by InterNIC. Client
acknowledges that the IP Addresses are the sole property of Frontier
GlobalCenter, are assigned to Client as part of the Service, and are not
"portable," as such term is used by InterNIC. Frontier GlobalCenter reserves the
right to change the IP Address assignments at any time; however, Frontier
GlobalCenter shall use reasonable efforts to avoid any disruption to Client
resulting from such renumbering requirement. Frontier GlobalCenter will give
Client reasonable notice of any such renumbering. Client agrees that it will
have no right to IP Addresses upon termination of this Agreement, and that any
renumbering required of Client after termination shall be the sole
responsibility of Client.
3. SOFTWARE LICENSE AND RIGHTS
3.1. License. During the term of the applicable Service Order, Frontier
GlobalCenter grants Client a non-transferable, nonexclusive license to use the
Software in object code form only, solely on the Hardware in conjunction with
the Services.
<PAGE> 20
3.2. Proprietary Rights. This Agreement transfers to Client neither title nor
any proprietary or intellectual property rights to the Software, Hardware,
documentation, or any copyrights, patents, or trademarks, embodied or used in
connection therewith, except for the rights expressly granted herein.
3.3. License Restrictions. Client agrees that it will not itself, or through any
parent, subsidiary, affiliate, agent or other third party:
3.4.1. copy the Software except as expressly allowed under this Agreement. In
the event Client makes any copies of the Software, Client shall reproduce all
proprietary notices of Frontier GlobalCenter on any such copies;
3.4.2. reverse engineer, decompile, disassemble, or otherwise attempt to derive
source code from the Software;
3.4.3. sell, lease, license or sublicense the Software or the documentation;
3.4.4. write or develop any derivative software or any other software program
based upon the Software or any Confidential Information (as defined below); or
3.4.5. use the Software to provide processing services to third parties, or
otherwise use the Software on a 'service bureau' basis.
4. HARDWARE TERMS AND CONDITIONS
4.1. Installation. Frontier GlobalCenter will use commercially reasonable
efforts to install the Hardware as the Hardware is shipped to Frontier
GlobalCenter. At Client's request, Frontier GlobalCenter will work with the
Client on an installation plan to define installation time frame and
requirements.
4.2. Purchase and Title of Hardware. If so indicated on the Service Order,
Client shall purchase the Hardware and deliver, at Client's expense, the
Hardware to the Space. Client agrees that the Hardware shall reside at the Space
during the term of this Agreement.
4.3. Lease of Hardware. If so indicated on the Service Order, Client shall lease
the Hardware, and Frontier GlobalCenter shall obtain and deliver to the Space
the Hardware. In the event Client leases the Hardware, the following terms and
conditions shall apply: The Hardware is and shall remain the property of
Frontier GlobalCenter. Client shall not have taken, or attempt to take, any
right, title or interest therein or permit any third party to take any interest
therein. Client will not transfer, sell, assign, sublicense, pledge, or
otherwise dispose of, encumber or suffer a lien or encumbrance upon or against
the Hardware or any interest in the Hardware. Client will use the Hardware only
at the Space. Client will not move the Hardware from that facility without
Frontier GlobalCenter's prior written permission. Client shall be responsible
for any damage to the Hardware. Client will use the Hardware only for the
purpose of exercising its rights under this Agreement.
4.4. Rent to Own. If so indicated on the Service Order, Client shall lease the
Hardware on a "rent to own" plan. In such event, all of the terms and conditions
in Section 4.3 shall apply, and the following terms and conditions shall also
apply. At the end of the term of the Service Order, providing Client is not in
breach of this Agreement, Client shall have the option to purchase the Hardware.
The purchase price shall be as indicated on the Service Order. Upon payment by
Client of the purchase price, title in the Hardware shall pass to Client at the
Space. Unless the Service Order is extended by mutual agreement, Client shall
immediately delete, or shall allow Frontier GlobalCenter to delete, all copies
of the Software, associated documentation, or any other materials of Frontier
GlobalCenter resident on the Hardware.
5. SPACE
5.1. License to Occupy. Frontier GlobalCenter grants to Client a non-exclusive
license to occupy the Space. Client acknowledges that it has been granted only a
license to occupy the Space and that it has not been granted any real property
interests in the Space. In the event, however, that this arrangement shall be
construed by the owner of
<PAGE> 21
the building in which the Space is situated to be such a grant and if the
landlord of the building asserts such a grant to be a violation of the lease
under which Frontier GlobalCenter occupies its premises, Frontier GlobalCenter
agrees to cooperate with Client in obtaining the approvals Client may need to
obtain from the landlord.
5.2. Material and Changes. Client shall not make any construction changes or
material alterations to the interior or exterior portions of the Space,
including any cabling or power supplies for the Hardware, without obtaining
Frontier GlobalCenter's prior written approval for Client to have the work
performed. Alternatively, Client may request Frontier GlobalCenter to perform
the work. Frontier GlobalCenter reserves the right to perform and manage any
construction or alterations within the Space areas at rates to be negotiated
between the Parties hereto. Client agrees not to erect any signs or devices to
the exterior portion of the Space without submitting the request to Frontier
GlobalCenter and obtaining Frontier GlobalCenter's advance written approval.
5.3. Damage. Client agrees to reimburse Frontier GlobalCenter for all reasonable
repair or restoration costs associated with damage or destruction caused by
Client's personnel, Client's agents, Client's suppliers/contractors, or Client's
visitors during the term or as a consequence of Client's removal of the Hardware
or property installed in the Space.
5.4. Insurance. Unless otherwise agreed, Client agrees to maintain, at Client's
expense, (i) Comprehensive General Liability Insurance in an amount not less
than One Million Dollars ($1,000,000) per occurrence for bodily injury or
property damage, (ii) Employer's liability in an amount not less than Five
Hundred Thousand Dollars ($500,000) per occurrence, and (iii) Worker's
Compensation in an amount not less than that prescribed by statutory limits.
Prior to taking occupancy of the Collocation Space, Client shall furnish
Frontier GlobalCenter with certificates of insurance which evidence the minimum
levels of insurance set forth herein. Client shall also maintain insurance
covering Hardware or property owned or leased by Client against loss or physical
damage.
5.5. Regulations. Client shall comply with and not violate all of Frontier
GlobalCenter's safety, health and operational rules and regulations, which may
be amended by Frontier GlobalCenter from time to time. Client's failure to
comply with Frontier GlobalCenter's rules and regulations shall constitute a
material default under this Agreement. Frontier GlobalCenter may, in its sole
discretion, limit Client's access to a reasonable number of authorized Client
employees or designees. Client shall not interfere with any other clients of
Frontier GlobalCenter, or such other clients' use of the Space.
5.6. Disclaimer. Frontier GlobalCenter does not make any representation or
warranty whatsoever as to the fitness of the Space for Client's use. Client
hereby assumes any and all risks associated with Client, its agents or
employees' use of the Space and shall indemnify, defend and hold harmless
Frontier GlobalCenter from any and all claims, liabilities, judgments, causes of
action, damages, costs, and expenses (including reasonable attorneys' and
experts' fees), caused by or arising in connection with such use.
6. SERVICE INTERRUPTIONS
6.1. 99% Uptime Guarantee. In the event of Downtime (as defined below), the
monthly fee payable for the Services shall be reduced as follows:
6.1.1. if the total Downtime in the calendar month is more than seven and
two-tenths (7.2) hours, but does not exceed fourteen and four-tenths (14.4)
hours, the monthly fee for that month shall be reduced by one-third (33.3%);
6.1.2. if the total Downtime in the calendar month is more than fourteen and
four-tenths (14.4) hours, but does not exceed twenty-one and six tenths (21.6)
hours, the monthly fee for that month shall be reduced by two-thirds (66.6%);
and
6.1.3. if the total Downtime in the calendar month is more than twenty-one and
six tenths (21.6) hours, the monthly fee for that month shall be waived.
<PAGE> 22
For the purposes of this Section, Downtime shall mean any interruption of one
(1) minute or more in the availability to users of any Web site residing on the
Hardware and made available through the Services, only if such interruption is
due to either (i) failure by Frontier GlobalCenter to manage a server anomaly so
as to avoid interruption in Web availability, or (ii) a disruption in the
connection between any such server and the Internet. For purposes of this
Section, the Internet is deemed to consist of services that commence where
Frontier GlobalCenter transmits a Client's content to Frontier GlobalCenter's
carrier(s) at the Frontier GlobalCenter border router port(s). Such carriers
provide Frontier GlobalCenter with private and dedicated bandwidth. Frontier
GlobalCenter undertakes no obligation for the circuit or link between Frontier
GlobalCenter's facilities and such carrier's services. If router packet loss is
excess of seventy percent (70%) and is sustained for sixty (60) seconds or more,
Frontier GlobalCenter will classify this an "outage." If an "outage" continues
for a period of more than two (2) minutes, then such outage will be deemed
Downtime.
6.2. Investigation of Service Interruptions. At Client's request, Frontier
GlobalCenter will investigate any report of Downtime, and attempt to remedy any
Downtime expeditiously. Frontier GlobalCenter reasonably determines that all
facilities, systems and equipment furnished by Frontier GlobalCenter are
functioning properly, and that Downtime arose from some other cause, Frontier
GlobalCenter reserves the right to recover labor and materials cost for services
actually performed at the usual and customary rates for similar services
provided by Frontier GlobalCenter to clients in the same locality.
6.3. Termination. Client may terminate a Service Order in the event of Downtime
of either twenty-four (24) hours of cumulative time during any continuous twelve
(12) month period, or any continuous Downtime of eight (8) hours or more.
6.4. Sole Remedy. The terms and conditions of this Section 6 shall Client's sole
remedy and Frontier GlobalCenter's sole obligation for any Downtime.
7. USER CONTENT. Client is solely responsible for the content of any postings,
data, or transmissions using the Services ("Content"), or any other use of the
Services by Client or by any person or entity Client permits to access the
Service (a "User"). Client represents and warrants that it and any User will not
use the services for unlawful purposes (including without limitation
infringement of copyright or trademark, misappropriation of trade secrets, wire
fraud, invasion of privacy, pornography, obscenity and libel), or to interfere
with or disrupt other network users, network services or network equipment.
Disruptions include without limitation distribution of unsolicited advertising
or chain letters, repeated harassment of other network users, wrongly
impersonating another such user, falsifying one's network identity for improper
or illegal purposes, sending unsolicited mass e-mailings, propagation of
computer worms and viruses, and using the network to make unauthorized entry to
any other machine accessible via the network. If Frontier GlobalCenter has
reasonable grounds to believe that Client or a User is utilizing the Services
for any such illegal or disruptive purpose, Frontier GlobalCenter may suspend or
terminate Services immediately upon notice to Client. Client shall defend,
indemnify, hold harmless Frontier GlobalCenter from and against all liabilities
and costs (including reasonable attorney's fees) arising from any and all claims
by any person arising out of Client's use of the Services, including without
limitation any content.
8. PRICING AND PAYMENT TERMS
8.1. Payment Terms. Client shall pay the fees set forth in the Services Order
Form according to the terms set forth therein. Client agrees to pay a late
charge of two percent (2%) above the prime rate as reported by the Wall Street
Journal at the time of assessment or the maximum lawful rate, whichever is less,
for all undisputed amounts not paid within thirty (30) days of receipt of
invoice.
8.2. Late Payments. In the event of non-payment by Client of sums over-due
hereunder for more than sixty (60) days, Frontier GlobalCenter may upon written
notice to Client either retain any equipment or other assets of Client then in
Frontier GlobalCenter's possession and sell them in partial satisfaction of such
unpaid sums, or request Client to remove equipment from Frontier GlobalCenter's
premises within then (10) days. If Client fails to so remove, Frontier
GlobalCenter may deliver the equipment to Client at the latter's address for
notices at Client's expense for shipment and insurance, and Client shall be
obligated to accept such delivery.
<PAGE> 23
8.3. Price Increases. Frontier GlobalCenter shall not increase the prices for
services during the initial term of any Service Order, but may thereafter change
prices upon sixty (60) days written notice.
9. MAINTENANCE AND SUPPORT. Frontier GlobalCenter shall provide Client with
maintenance and support of the Software and Hardware, if any ("Maintenance and
Support") as specified in the Service Specification.
9.1. Exclusions. Maintenance and Support shall not include services for problems
arising out of (a) modification, alteration or addition or attempted
modification, alteration or addition of the Hardware or Software undertaken by
persons other than Frontier GlobalCenter or Frontier GlobalCenter's authorized
representatives; or (b) programs or hardware supplied by Client.
9.2. Client Duties. Client shall document and promptly report all errors or
malfunctions of the Hardware or Software to Frontier GlobalCenter. Client shall
take all steps necessary to carry out procedures for the rectification of errors
or malfunctions within a reasonable time after such procedures have been
received from Frontier GlobalCenter. Client shall maintain a current backup copy
of all programs and data. Client shall properly train its personnel in the use
and application of the Hardware and Software.
10. TERM AND TERMINATION
10.1. Term. The term of this Agreement shall commence on the Effective Date and
continue indefinitely until terminated in accordance with this Section 10. The
term of each Service Order shall be as indicated therein.
The term of any Service Order may be extended upon mutual agreement.
10.2. Termination Upon Default. Either party may terminate this Agreement in the
event that the other party materially defaults in performing any obligation
under this Agreement and such default continues unremedied for a period of
thirty (30) days following written notice of default. In the event this
Agreement is terminated due to Frontier GlobalCenter's breach, Frontier
GlobalCenter shall refund to Client any Services fees on a straight line
prorated basis.
10.3. Termination Upon Insolvency. This Agreement shall terminate, effective
upon delivery of written notice by a party, (i) upon the institution of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of debts of the other party; (ii) upon the making of an
assignment for the benefit of creditors by the other party; or (iii) upon the
dissolution of the other party.
10.4. Effect of Termination. The provisions of Sections 1, 2.3, 3.2, 3.3,
7.10.4, 11, 12, 13 and 14 shall survive termination of this Agreement. All other
rights and obligations of the parties shall cease upon termination of this
Agreement. The term of any license granted hereunder shall expire upon
expiration or termination of this Agreement.
11. CONFIDENTIAL INFORMATION. All information identified disclosed by either
party ("Disclosing Party") to the other party ("Receiving Party"), if disclosed
in writing, labeled as proprietary or confidential, or if disclosed orally,
reduced to writing within thirty (30) days and labeled as proprietary or
confidential ("Confidential Information") shall remain the sole property of
Disclosing Party. Except for the specific rights granted by this Agreement,
Receiving Party shall not use any Confidential Information of Disclosing Party
for its own account. Receiving Party shall use the highest commercially
reasonable degree of care to protect Disclosing Party's Confidential
Information. Receiving Party shall not disclose Confidential Information to any
third party without the express written consent of Disclosing Party (except
solely for Receiving Party's internal business needs, to employees or
consultants who are bound by a written agreement with Receiving Party to
maintain the confidentiality of such Confidential Information in a manner
consistent with this Agreement). Confidential Information shall exclude
information (i) available to the public other than by a breach of this
Agreement; (ii) rightfully received from a third party not in breach of an
obligation of confidentiality; (iii) independently developed by Receiving Party
without access to Confidential Information; (iv) known to Receiving Party at the
time of disclosure; or (vi) produced in compliance with applicable law or a
court order, provided Disclosing Party is given reasonable notice of such law or
order and an opportunity to attempt to preclude or limit such production.
Subject to the above, Receiving Party
<PAGE> 24
agrees to cease using any and all materials embodying Confidential Information,
and to promptly return such materials to Disclosing Party upon request.
12. LIMITATION OF LIABILITY. FRONTIER GLOBALCENTER'S LIABILITY FOR ALL CLAIMS
ARISING OUT OF THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNT OF FEES PAID BY
CLIENT TO FRONTIER GLOBALCENTER UNDER THIS AGREEMENT. IN NO EVENT SHALL FRONTIER
GLOBALCENTER BE LIABLE FOR ANY LOSS OF DATA, LOSS OF PROFITS, COST OF COVER OR
OTHER SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING FROM OR IN
RELATION TO THIS AGREEMENT OR THE USE OF THE SERVICES, HOWEVER CAUSED AND
REGARDLESS OF THEORY OF LIABILITY. THIS LIMITATION WILL APPLY EVEN IF FRONTIER
GLOBALCENTER HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES.
13. DISCLAIMER OF WARRANTIES. FRONTIER GLOBALCENTER SPECIFICALLY DISCLAIMS ALL
WARRANTIES EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NON-INFRINGEMENT OF THE SYSTEM OR SERVICES PROVIDED BY FRONTIER GLOBALCENTER
HEREUNDER.
14. MISCELLANEOUS
14.1. Independent Contractor. The relationship of Frontier GlobalCenter and
Client established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to (i) give either party
the power to direct and control the day-to-day activities of the other; (ii)
constitute the parties as partners, joint ventures, co-owners or otherwise as
participants in a joint undertaking; or (iii) allow either party to create or
assume any obligation on behalf of the other party for any purpose whatsoever.
14.2. Notices. Any notice required or permitted hereunder shall be in writing
and shall be given by registered or certified mail addressed to the addresses
first written above. Such notice shall be deemed to be given upon the earlier of
actual receipt or three (3) days after it has been sent, properly addressed and
with postage prepaid. Either party may change its address for notice by means of
notice to the other party given in accordance with this Section.
14.3. Assignment. Client may not assign this Agreement, in whole or in part,
either voluntarily or by operation of law, and any attempt to do so shall be a
material default of this Agreement and shall be void.
14.4. Governing Law. This Agreement shall be interpreted according to the laws
of the State of California without regard to or application of choice-of-law
rules or principles. The parties hereby agree to the exclusive jurisdiction of
the state and federal courts located in Santa Clara County, California.
14.5. Entire Agreement and Waiver. This Agreement shall constitute the entire
agreement between Frontier GlobalCenter and Client with respect to the subject
matter hereof and all prior agreements, representations, and statement with
respect to such subject matter are superseded hereby, including without
limitation any non-disclosure agreement previously executed between the parties.
This Agreement may be changed only by written agreement signed by both Frontier
GlobalCenter and Client. No failure of either party to exercise or enforce any
of its rights under this Agreement shall act as a waiver of subsequent breaches;
and the waiver of any breach shall not act as a waiver of subsequent breaches.
14.6. Severability. In the event any provision of this Agreement is held by a
court of other tribunal of competent jurisdiction to be unenforceable, that
provision will be enforced to the maximum extent permissible under applicable
law, and the other provisions of this Agreement will remain in full force and
effect.
14.7. Non-Solicitation. During the term of this agreement and for a period of
one (1) year thereafter, Client shall not solicit, nor attempt to solicit the
services, of any employee or subcontractor of Frontier GlobalCenter without the
prior written consent of Frontier GlobalCenter.
<PAGE> 25
14.8. Substitution. Frontier GlobalCenter may substitute, change or modify the
Software or Hardware at any time, but shall not thereby alter the technical
parameter of the Services.
Frontier GlobalCenter Client: /s/ David Crampton
By: By: David Crampton
-------------------------- ----------------------------
Title: Title: President
-------------------------- ----------------------------
<PAGE> 26
SERVICE SPECIFICATION
Frontier GlobalCenter will provide a level of service that includes the
following features and options:
General Features:
Maintenance of the Space (Including Janitorial Services):
In connection with the Space made available hereunder, Frontier GlobalCenter or
its landlord shall perform services that support the overall operation of each
space at no additional charge to Client. Those services include the following:
o Janitorial Services
o 24 x 7 Access to the Space
o Authorized Security System Access to Raised Floor Collocation Space
o Primary A/C 110 volt Power to the Space
o Backup Power - UPS Systems & Battery Plan (30 - 60 minutes survivability
objective)
o Generator Back-up (sustained backup power)
o HVAC Systems for facility air conditioning
o Fire Control Systems
o Network Monitoring Systems
o Redundant Network Connectivity and Hardware
o 19" Rack Spaces for installation of Hardware
o 10-base-T or 100-base-T's switched port with direct high speed Internet
backbone connection.
24x7 NOC Support: Will provide proactive site monitoring with ExpressLane(TM)
statistics on Client information base; including bandwidth usage, statistics and
network availability reporting, host monitoring and management interface, access
to Frontier GlobalCenter incident tracking system to expedite fault resolution
and remote server reboot.
24x7 Console Access: Frontier GlobalCenter facilities in Sunnyvale and Herndon
will provide systems that allow Clients access to a terminal with a connection
to servers inside the Data Centers.
Frontier GlobalCenter Escalation Plan and Procedures: To be provided in the
Frontier GlobalCenter Customer Information Packet 5-10 days after contract
signing.
Right of Way and Access:
Frontier GlobalCenter will allow 24 x 7 access and right-of-way to Client
Hardware located in Frontier GlobalCenter facility at no charge. Clients will be
escorted at all times while in the facility. Access to the facilities will not
be unreasonably be withheld by Frontier GlobalCenter to Clients for performing
appropriate procedures and maintenance of Hardware, facilities, and systems.
<PAGE> 27
EXHIBIT C
FRONTIER GLOBALCENTER
Master Service Agreement Addendum:
PC Flowers and Gifts
This Addendum to the Master Services Agreement shall be incorporated by
reference into said MSA, and shall control all conflicting terms in the Master
Services Agreement and in any Service Order(s) executed thereunder.
Delete paragraph 4.1 in its entirety and replace with the following:
"Installation. Client's Internet Commerce Provider, Exceed Communications
International Inc. ("Exceed") is hereby authorized to use commercially
reasonable efforts to install the Hardware as the Hardware is shipped to
Frontier GlobalCenter. At Exceed's request, Frontier Global Center will work
with Exceed on an installation plan to define installation time frame and
requirements."
In Paragraph 5.5 of the MSA, the following is added to the end of the paragraph:
"Notwithstanding anything to the contrary contained herein, Client acknowledges
that it may access the Space only pursuant to the written consent, and on terms
and conditions acceptable to Exceed."
In Paragraph 8.2 of the MSA, the following is added to the end of the paragraph:
"Notwithstanding anything to the contrary contained herein, Frontier
GlobalCenter shall not retain, sell, request Client to remove or deliver to
Client such equipment or other assets until such time as Exceed has removed
Exceed's proprietary materials from such equipment or other assets."
In Paragraph 10.4 of the MSA, replace the following words appearing on the first
line of the paragraph:
"13 and 14" with the following words:
"13, 14 and 15".
In Paragraph 14.5 of the MSA, replace the sentence beginning:
"This Agreement may be changed..." with the following sentence:
"This Agreement may be changed only by written agreement signed by both Frontier
Global Center and Client and approved in writing by Exceed".
Delete Paragraph 14.8 of the MSA and replace with the following:
"Substitution. Frontier GlobalCenter may substitute, change or modify Frontier
GlobalCenter's software or hardware at any time, but shall not thereby alter the
technical parameters of the Services. In the event that any such substitution,
change or modification requires access to the Hardware or Space, Frontier
GlobalCenter shall obtain Exceed's written consent prior to such action."
After Paragraph 14 of the MSA, add the following Paragraph (#15) :
"15. Client Relationship with Exceed Communications International Inc.
Notwithstanding anything to the contrary contained herein, Exceed and any of its
employees, agents and servants, as it shall designate in writing, shall have
sole and exclusive access to and control of all or any hardware and software and
the Space covered under this MSA.
The following changes apply to the "Service Specification" page of the MSA In
the "Maintenance of the Space" Paragraph delete the words "10 base-T or"
Delete the "Right of way and Access" paragraph in its entirety and replace with
the following:
"Frontier GlobalCenter will allow 24 x 7 access and right-of-way to Exceed, in
order for Exceed to maintain Hardware located in Frontier GlobalCenter facility
at no charge. Exceed will be escorted at all times while in the facility. Access
to the facilities will not be unreasonably be withheld by Frontier
<PAGE> 28
EXHIBIT C
FRONTIER GLOBALCENTER
Master Service Agreement Addendum:
PC Flowers and Gifts
GlobalCenter to Exceed for performing appropriate procedures and maintenance of
Hardware, facilities, and systems."
Frontier GlobalCenter Client
/s/ David Crampton
- --------------------------------- -----------------------------------
By: By: DAVID CRAMPTON
-------------------------- ----------------------------
Title: Title: PRESIDENT
-------------------------- ----------------------------
<PAGE> 1
EXHIBIT 10.7
FULFILLMENT SERVICES AGREEMENT
THIS FULFILLMENT SERVICES AGREEMENT (the "Agreement") is made as of
this 22nd day of October, 1998, by and between Fingerhut Business Services, Inc.
("FBS"), a Minnesota corporation with offices located at 4400 Baker Road,
Minnetonka, Minnesota 55343, and PC Flowers & Gifts, Inc., a Delaware
corporation with offices located at 2001 West Main Street, Suite 175, Stamford,
Connecticut 06902 ("PC").
WHEREAS, FBS desires to provide to PC, and PC desires to receive
from FBS, fulfillment services for PC under the terms and conditions of this
Agreement and any Schedule (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, FBS and PC hereby agree as follows:
1. SCHEDULES
(a) The parties acknowledge and agree that the detailed terms and
conditions of any and all projects entered into between the parties shall be set
forth in a form and format substantially similar to Schedule A. Schedule A sets
forth Order Management & Customer Service PC Flowers fulfillment project. The
parties acknowledge and agree that in addition to the terms and conditions of
the Schedules, the general terms of this Agreement shall apply to each project
and the overall relationship between the parties. If there is a conflict between
the terms of any Schedule and this Agreement, the terms of the Schedule shall
control.
(b) Commencing as of the date hereof and continuing during the term of
this Agreement, FBS hereby agrees, subject to the terms and conditions of this
Agreement and any Schedule hereof to provide PC or cause its various affiliates
(all of which are collectively referred to as "FBS") to provide the services
identified on any attached Schedules (collectively referred to as the
"Fulfillment Services").
(c) From time to time during the term of this Agreement, PC may request
Fulfillment Services for a new project(s). Any such request shall be in writing.
FBS reserves the right to accept or decline any project from PC for any reason
with a response due to PC no later than 30 days from the date of FBS' receipt of
the request. In the event a new project is accepted, a Schedule with pricing
will be created pursuant to this Article.
(d) Pricing of Fulfillment Services: The pricing of Fulfillment Services
shall be set forth in each Schedule. FBS reserves the right to adjust the price
of Fulfillment Services on a quarterly basis from the Effective Date (as defined
in Article 4).
(e) Postage and Freight: Postage and freight shall be determined by FBS on
a project by project basis. FBS reserves the right to adjust these rates at any
time to reflect actual increases or decreases in costs to the same extent such
decreases are provided to other FBS clients. Any increase in these rates shall
be substantiated in writing by FBS. FBS considers all postage and freight
information to be Proprietary Information (as defined in Article 10).
<PAGE> 2
(f) Sales and Use Tax: PC acknowledge that it is solely responsible for
identifying and resolving sales and use tax collection issues for product
orders, including the necessity for charging and collecting such amounts. FBS
acknowledges that it will provide PC with a 90 day notice of any changes in the
fulfillment location of PC orders which may cause nexus in states other than MN,
CT, and TN.
(g) Reports: The parties agree to provide each other such reports as are
mutually agreed upon and set forth in each Schedule.
2. PAYMENT TERMS
(a) Fulfillment Services: FBS shall provide PC with an invoice for the
Fulfillment Services provided to PC on a monthly basis setting forth the prior
month's Fulfillment Services and associated charges. Within 30 days from the
date of the invoice, PC shall pay each such invoice by check or wire transfer of
immediately available funds pursuant to wire instructions provided by FBS to PC.
(b) Postage and Freight: On a weekly basis, FBS shall provide PC with an
invoice for the postage and freight provided to PC the prior week with detail
substantiation available. Within 7 days from the date of the invoice, PC shall
pay each such invoice by check or wire transfer of immediately available funds
pursuant to wire instructions provided by FBS to PC. PC may dispute specific
charges but must remit the balance of the invoice.
(c) Penalty for Late Payment: Any payment not received within the above
stated time period shall accrue interest at a rate of 1 1/2 % per month until
all outstanding amounts, including interest, are paid in full to FBS.
3. BOOKS AND RECORDS
FBS agrees to keep complete and accurate books of account, records and other
documents with respect to Fulfillment Services provided hereunder ("Books and
Records"). The Books and Records shall be available for inspection and copying
by a qualified accounting representative of PC, at the expense of PC, subject to
the following terms and conditions: (a) such examination shall take place at
FBS' principal place of business, during normal business hours and only to the
extent necessary for PC to verify inventory levels and payment amounts relating
to Fulfillment Services provided hereunder; (b) PC shall give FBS at least 15
business days' written notice prior to any such examination; (c) PC shall keep
all information disclosed to it during the examination confidential and shall
not disclose such information to any third party unless required by law or
necessary to enforce its rights under this Agreement; and (d) PC shall not
conduct more than one such inspection during any twelve-month period during the
term of this Agreement.
4. TERM AND TERMINATION
(a) Term. Unless terminated earlier, the term of this Agreement shall be
for a period of one (1) year commencing on October
Page -2-
<PAGE> 3
22, 1998 ("Effective Date") and terminating on October 21, 1999 ("Expiration
Date"). Thereafter, this Agreement shall automatically renew for one (1) year
terms ("Renewal Term(s)") unless either party gives written notice of
non-renewal at least 60 days prior to the expiration of the Renewal Term..
(b) Termination. This Agreement may be terminated as follows:
(1) Breach - by either party, upon 30 days prior written notice to
the other party, in the event of a material breach of this Agreement by
the other party. The written notice shall specify the precise nature of
the breach. In the event the breaching party cures the breach within 30
days after the non-breaching party's written notice, this Agreement shall
not terminate.
(2) Insolvency - by either party, immediately upon written notice to
the other party, in the event the other party voluntarily files or has
filed involuntarily against it a petition under the United States
Bankruptcy Code, including a petition for Chapter 11 reorganization as set
forth in the United States Bankruptcy Code.
(3) Without Cause - upon sixty (60) days written notice to either
party.
(c) Other Rights. The rights of the parties to terminate this Agreement or
any Schedule are not exclusive of any other rights and remedies available at law
or in equity, and such rights shall be cumulative. The exercise of any such
right or remedy shall not preclude the exercise of any other rights and
remedies.
(d) Post-Termination Performance. Notwithstanding any termination by
either party of this Agreement or any Schedule, FBS shall continue to fulfill
all orders from customers in connection with any product orders made prior to
such termination, and PC shall continue to remit amounts due to FBS under this
Agreement or any Schedule.
Upon termination of this Agreement for any reason, each party shall
immediately return to the other all property (including without limitation,
Proprietary Information and all material related to any customers) that it has
received from the other party in connection with the performance of its
obligations hereunder, except to the extent such property is needed by the other
party in connection with its obligations under this Article. Such property shall
thereafter be returned immediately upon the party's fulfillment of such
obligations. This provision shall survive the termination of this Agreement.
5. LICENSE
(a) License. PC hereby grants to FBS and its affiliates a limited,
nonexclusive license to use certain names, including any related marks, service
marks, logos, or artwork owned or licensed to PC and/or its affiliates
(collectively referred to the "Marks") solely for the purpose of fulfillment of
FBS' obligations under this Agreement and any Schedule. The Marks relevant to
any project shall be identified in an Exhibit to a Schedule. FBS may not make
any other use of any name or logo or any related marks or intellectual property
of PC.
Page -3-
<PAGE> 4
(b) Customers. FBS recognizes that customer information (including e mail
addresses) from PC orders is confidential information and such information is
only to be utilized in the fulfillment of a customer order ( including
subsequent customer service follow up). Such customer information is not to be
utilized by FBS, its' parent company or any affiliated or non-affiliated
companies in any manner without the express written consent of PC, such consent
to be not unreasonably withheld.
(c) Representation and Warranty. PC hereby represents and warrants to FBS
that it is authorized to grant the aforementioned license and shall fully
indemnify FBS and its affiliates against any and all claims by a third party
alleging a violation of such third party's intellectual property or other
proprietary rights in connection with FBS' use of the Marks pursuant to the
license or this Agreement. The indemnification granted under this Article
expressly includes indemnification with respect to attorneys fees, expense
costs, legal fees, defense costs, court costs, or amounts paid in settlement or
in satisfaction of any judgment or award.
6. RELATIONSHIP OF THE PARTIES
(a) Independent Contractors. The relationship created hereunder between
FBS and PC shall be solely that of independent contractors entering into an
agreement. No representations or assertions shall be made or actions taken by
either party which could imply or establish any agency, joint venture,
partnership, employment or trust relationship between the parties, or between or
among any of FBS, and PC with respect to the subject matter of this Agreement
and any Schedule. FBS and PC shall not have any authority or power whatsoever to
enter into any agreement, contract or commitment on behalf of the other, or to
create any liability or obligation whatsoever on behalf of the other, to any
person or entity.
(b) Subcontractors. FBS reserves the right to subcontract with other
individuals and businesses for similar services required to be performed
pursuant to this Agreement or any Schedule. Use of any such subcontractor shall
be subject to receipt of prior consent of PC, which consent shall not be
unreasonably withheld. FBS shall be responsible for the direction and control of
the work to be performed by it and its subcontractors, if any, pursuant to this
Agreement and any Schedule. FBS reserves the right to increase its pricing at
any time in accordance with any rate increases by subcontractors.
7. REPRESENTATIONS AND WARRANTIES
(a) Representations and Warranties of FBS. With the knowledge that PC is
relying thereon in entering into this Agreement and any Schedule, FBS hereby
represents and warrants as follows:
(1) FBS is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota.
(2) This Agreement and any and all Schedules constitute the legal,
valid, and binding obligation of FBS, enforceable against FBS in accordance with
its terms except as enforcement may be limited by any applicable bankruptcy,
insolvency, reorganization or similar
Page -4-
<PAGE> 5
laws affecting creditors' rights generally and except as enforcement may be
limited by general principles of equity, FBS has the absolute and unrestricted
right, power, authority and capacity to execute and deliver this Agreement and
any Schedule and to perform its obligations under this Agreement and any
Schedule.
(3) To FBS' actual knowledge, neither the execution and delivery of
this Agreement nor the consummation or performance of any obligations hereunder
shall, directly or indirectly (with or without notice or lapse of time), in any
material respect, contravene, conflict with, or result in a violation or breach
of any provision of, or give any person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any relevant contract to which FBS is a party.
(4) To its actual knowledge, FBS is not and shall not be required to
give any notice to or obtain any consent from any person in connection with the
execution and delivery of this Agreement and any Schedule or the consummation or
performance of any of its obligations. If such consent is required, FBS shall
use its best efforts to obtain such consents.
(5) FBS represents that its facilities and computer system utilized
to provide the Fulfillment Services have been designed or will be modified to
ensure continuous operation and use prior to, during, and after the calendar
year 2000, and to operate during such time periods so that PC will not
experience any loss of information or assets, interruption in service, invalid
and/or incorrect reporting or results.
(6) FBS represents that it is in material compliance with all rules
and regulations of the Federal Trade Commission and the Direct Marketing
Association that are relevant to its performance hereunder.
(7) To its actual knowledge, FBS is not currently in default under
any contract that is material to this Agreement.
(b) Representations and Warranties of PC. With the knowledge that FBS is
relying thereon in entering into this Agreement and any Schedule, PC hereby
represents and warrants as follows:
(1) PC is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
(2) This Agreement and any and all Schedules constitute the legal,
valid, and binding obligation of PC, enforceable against PC in accordance with
its terms except as enforcement may be limited by any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and except as enforcement may be limited by general principles of equity. PC has
the absolute and unrestricted right, power, authority and capacity to execute
and deliver this Agreement and any Schedule and to perform its obligations under
this Agreement and any Schedule.
(3) To PC actual knowledge, neither the execution and delivery of
this Agreement and any Schedule nor the consummation or performance of any
obligations hereunder
Page -5-
<PAGE> 6
shall, directly or indirectly (with or without notice or lapse of time), in any
material respect, contravene, conflict with, or result in a violation or breach
of any provision of, or give any person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any relevant contract to which PC is a party.
(4) To its actual knowledge, PC is not and shall not be required to
give any notice to or obtain any consent from any person in connection with the
execution and delivery of this Agreement and any Schedule or the consummation or
performance of any of its obligations. If such consent is required, PC shall use
its best efforts to obtain such consents.
(5) PC represents that it is in material compliance with all rules
and regulations of the Federal Trade Commission and the Direct Marketing
Association that are relevant to its performance hereunder.
(6) To its actual knowledge, PC is not currently in default under
any contract that is material to this Agreement.
(c) NEITHER FBS NOR PC MAKES ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY REPRESENTATION OR WARRANTY
AS TO NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
ARISING OUT OF THIS AGREEMENT AND ANY SCHEDULE AND THE SERVICES TO BE PROVIDED
UNDER THIS AGREEMENT AND ANY SCHEDULE EXCEPT AS OTHERWISE SPECIFICALLY SET
FORTH.
(d) The representations and warranties under this Article shall survive
the termination of this Agreement and any Schedule.
8. INDEMNIFICATION AND LIMITATIONS ON LIABILITY
(a) Indemnification by FBS. Subject to the limitations specified in this
Section, FBS shall indemnify, hold harmless and defend PC and each person or
entity that is a stockholder, officer, director, partner, employee, affiliate or
agent of PC from and against any and all losses, claims, damages, liabilities,
expenses (including reasonable legal fees and expenses), judgments, fines and
other amounts paid in settlement incurred or suffered by any such person or
entity arising out of or in connection with (i) the inaccuracy of any
representation or warranty made by FBS hereunder, (ii) any breach of this
Agreement by FBS, or (iii) any negligent act or omission by FBS or its employees
or agents in connection with the performance by FBS or its respective employees
or agents of the Fulfillment Services hereunder, provided such negligent act or
omission was not done or omitted at the direction of PC or the result of
information provided by PC to FBS or its employees or agents.
(b) Indemnification by PC. Subject to the limitations specified in this
Section, PC shall indemnify, hold harmless and defend FBS and each person or
entity that is a stockholder, officer, director, partner, employee, affiliate or
agent of FBS from and against any and all losses, claims, damages, liabilities,
whether joint or several, expenses (including reasonable legal fees
Page -6-
<PAGE> 7
and expenses), judgments, fines and other amounts paid in settlement incurred or
suffered by any such person arising out of or in connection with (i) the
inaccuracy of any representation or warranty made by PC hereunder, (ii) any
breach of this Agreement by PC, (iii) any negligent act or omission by FBS or
its employees or agents in connection with the performance by FBS or its
employees or agents of the Fulfillment Services hereunder done or omitted at the
direction of PC or based upon information provided by PC to FBS or its employees
or agents, (iv) any act or omission by PC or any of its employees, agents or
shareholders in connection with any project for which Fulfillment Services are
provided to PC hereunder, or (v) any claim or action for personal injury, death,
property damage or other cause of action (A) involving a product liability claim
arising from or relating to products for which Fulfillment Services are provided
to PC hereunder, or (B) resulting from defects or the inherently dangerous
nature of PC' products that are the subject of this Agreement and any Schedule.
(c) Notice and Defense of Third-Party Claims. If a claim for
indemnification hereunder arises from a claim or demand from a third party, the
rights of the indemnified parties to be indemnified pursuant to this Agreement
and any Schedule shall be governed by the following:
(1) Promptly after receipt by an indemnified party of notice of any
claim, allegation or facts which may result in a claim for indemnification
hereunder, an indemnified party will give the indemnifying party prompt notice
thereof. The failure to give such notice shall not affect the indemnified
party's ability to seek reimbursement unless such failure has materially and
adversely affected the indemnifying party's ability to defend the claims.
(2) An indemnified party shall have the right (i) to employ separate
counsel in any action as to which indemnification may be sought under any
provision of this Agreement and to participate in the defense thereof, or (ii)
to the extent that it may wish, jointly with any other indemnified party, to
assume the defense of any such action with counsel reasonably satisfactory to
the indemnifying party but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (x) the indemnifying party has agreed
in writing to pay such fees and expenses, (y) the indemnifying party has failed
to assume the defense thereof without reservation and employ counsel within a
reasonable period of time after being given the notice required above, and as a
consequence thereof the indemnified party has employed separate counsel to
protect its rights, or (z) the named parties to any such action (including any
impleaded parties) include both such indemnified party and the indemnifying
party and such indemnified party shall have been advised by its counsel that
representation of such indemnified party and the indemnifying party by the same
counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them. It is
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
indemnified parties having actual or potential differing interest with the
indemnifying party.
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<PAGE> 8
(3) The indemnifying party shall not be liable for any settlement of
any such action effected without its written consent, which consent shall not be
unreasonably withheld, but if settled with such written consent, or if there be
a final judgment against any indemnified party in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified parties
to the extent provided above from and against any loss, claim, damage, liability
or expense by reason of such settlement or judgment.
(d) Limitations on Liability.
(1) IN NO EVENT SHALL EITHER PARTY'S LIABILITY OF ANY KIND
HEREUNDER INCLUDE ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF SUCH PARTY SHALL HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR
DAMAGE.
(2) Each of the parties hereto shall be liable to the other for
damages arising out of or in connection with any breach of
this Agreement or any Schedule by such party to the extent
permitted by law, subject to the duty of the non-breaching
party to take all reasonable actions in order to mitigate such
damages; provided, however, that (i) FBS' liability for any
Fulfillment Service provided hereunder shall be limited to the
recovery by PC of the amount actually paid to FBS by PC for
such Fulfillment Service, and (ii) FBS' aggregate amount of
liability hereunder shall be limited to the aggregate amount
actually paid by PC to FBS for Fulfillment Services provided
to PC hereunder.
(e) Government Actions. PC hereby agrees that it will promptly provide FBS
copies of all complaints or inquiries received by PC from any governmental
agency in any way relating to, having potential effect on, or in connection
with, the Fulfillment Services provided to PC hereunder. In the event FBS is
required, as a result of any such action, to change the manner in which it does
business in any material respect, FBS shall have the option to terminate
immediately the availability of such Fulfillment Services hereunder. FBS hereby
agrees that it will promptly forward to PC copies of all written complaints or
written inquiries addressed to FBS from any governmental agency in any way
relating to, having a potential effect on or in connection with the Fulfillment
Services provided to PC hereunder.
(f) Survival. The provisions of this Article shall survive the termination
of this Agreement and any Schedule.
9. MARKETING MATERIALS
Both parties hereby agree to be a reference for each other in regard to the
subject matter of this Agreement during the term of this Agreement. Each party
agrees to allow the other to incorporate mutually agreed upon information and
results in regard to the subject matter of this Agreement for the term of this
Agreement in publicly distributed marketing materials ("Marketing Materials").
Each party must submit to the other all Marketing Materials for its
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<PAGE> 9
prior review and consent. The parties have final approval rights in any
Marketing Materials to be distributed using any names, related marks, service
marks, logos, or artwork owned or licensed to PC or FBS and/or their affiliates.
10. PROPRIETARY INFORMATION
(a) Proprietary Information. The parties hereto agree that certain
information of the other party hereto used or made available in connection with
this Agreement and any Schedule is proprietary and not publicly available (the
"Proprietary Information") and each of them agrees that during and after the
term of this Agreement and any Schedule, it shall not permit the duplication,
use or disclosure of the other party's Proprietary Information by or to any
person (other than employees, agents or representatives who must have such
information in connection with this Agreement and any Schedule), unless the
duplication, use or disclosure is specifically authorized in writing by the
other. The parties shall use reasonable measures and take reasonable action with
respect to its employees, agents or representatives to ensure that its
obligation of non-use and non-disclosure hereunder is satisfied.
(b) Remedies. Each party agrees that neither party would have an adequate
remedy at law in the event of any breach by the other party of any of the
provisions of this Article. Accordingly, in the event of any actual or
threatened breach of such provisions of this Article, each party agrees that the
non-breaching party shall (in addition to any other available remedies) be
entitled to seek temporary and/or permanent injunctive relief to enforce such
provisions.
11. MISCELLANEOUS PROVISIONS
(a) Notices. All notices, demands, requests or other communications to be
given or delivered under or by reason of this Agreement will be in writing and
will be deemed to have been given when personally delivered or upon confirmation
of receipt when sent by certified mail, return receipt requested or facsimile.
Notices, demands and communications to FBS and PC will, unless another address
is specified in writing, be sent to the addresses indicated below:
(1) If to FBS:
FBS
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: Vice President of Sales
Facsimile: (612) 936-5106
With a copy to: Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attention: General Counsel, Mailstop A-260
(2) If to PC:
Page -9-
<PAGE> 10
PC Flowers & Gifts, Inc.
2001 West Main Street, Suite 175
Stamford, Connecticut 06902
Attention: William Tobin
Facsimile: 203-977-8593
(b) Severability. Whenever possible, each provision of this Agreement and
any Schedule shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement or any Schedule is
held to be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement and any Schedule.
(c) Amendment and Waiver. This Agreement and any Schedule may be amended,
and any provision of this Agreement and any Schedule may be waived; provided
that any such amendment or waiver will be binding upon any party hereto only if
such amendment or waiver is set forth in a writing executed by such party. No
course of dealing between or among any persons having any interest in this
Agreement and any Schedule will be deemed effective to modify or amend any part
of this Agreement and any Schedule or any rights or obligations of any person
under or by reason of this Agreement and any Schedule. The waiver of any
default, or the remedying of any default in a reasonable manner, shall not
operate as a waiver of any other prior or subsequent default. No extension of
time for the performance of any obligation or act shall be deemed to be an
extension of time for the performance of any other obligation or act hereunder.
No delay or omission by a party to exercise rights hereunder shall impair any
such rights or shall be construed to be a waiver of any such default or any
acquiescence therein.
(d) Complete Agreement. This Agreement, all Schedules, and exhibits
hereto, contain the complete agreement between the parties relating to the
Fulfillment Services and supersede any prior understandings, agreements or
representations by or between the parties, written or oral, which may be related
to the subject matter hereof in any way.
(e) Headings. Section headings contained in this Agreement and any
Schedule are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement and any Schedule, respectively, or any purpose, and
shall not in any way define or affect the meaning, construction or scope of any
of the provisions hereof.
(f) Governing Law. The internal law, and not the law of conflicts, of the
State of Minnesota will govern all questions concerning the construction,
validity and interpretation of this Agreement and any Schedule and the
performance of the obligations imposed by this Agreement and any Schedule.
(g) Agreement. This Agreement and any Schedule and all of the provisions
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
and any Schedule nor any of the rights, interest or obligations may be assigned
by any party hereto without the prior written consent of
Page -10-
<PAGE> 11
the other party hereto; provided, however, that FBS shall have the right,
without the prior written consent of PC, to assign or otherwise transfer its
rights and obligations under this Agreement and any Schedule to any affiliate of
FBS.
(h) Interpretation. Each party acknowledges it has participated in the
drafting and preparation of this Agreement, and has reviewed and revised this
Agreement and consulted with its counsel and accountants with respect to its
terms. For this reason each Party agrees that the normal rule of construction,
to the effect that any ambiguities in a document shall be interpreted against
the drafting party, shall not be utilized in the interpretation, construction,
or enforcement of this Agreement, and no consideration shall be given to the
issue of which party hereto actually prepared, drafted or requested any term or
condition of this Agreement or any agreement or instrument subject hereto.
(i) Disputes. If there is a dispute under this Agreement or any Schedule,
each party agrees attempt to resolve such dispute in good faith. If the parties
are unable to resolve their dispute after using such good faith efforts, then
either party may submit the dispute for binding arbitration under the commercial
Arbitration Rules of the American Arbitration Association. The prevailing party
in any such proceedings shall be entitled to its attorneys' fees.
(j) Force Majeure. No party shall be liable for any failure of or delay in
the performance of this Agreement and any Schedule for the period that such
failure or delay is due to acts of God, public enemy, war, strikes or labor
disputes, or any other cause beyond the parties' reasonable control, it being
understood that lack of financial resources is not to be deemed a cause beyond a
party's control. Each party shall notify the other party promptly of the
occurrence of any such cause and carry out this Agreement and any Schedule as
promptly as practicable after such cause is terminated; provided, however, that
the existence of any such cause shall not extend the term of this Agreement and
any Schedule.
IN WITNESS WHEREOF, the parties hereto executed this Agreement effective
as of the date first set forth above.
FINGERHUT BUSINESS SERVICES, INC.
By
---------------------------------
Its
----------------------------
PC FLOWERS & GIFTS, INC.
By /s/ William J. Tobin
---------------------------------
Its CEO
----------------------------
Page -11-
<PAGE> 12
SCHEDULE A
This Schedule A is made as of this 22nd day of October, 1998 (the
"Schedule"), by and between Fingerhut Business Services, Inc. ("FBS") and PC
Flowers & Gifts, Inc. ("PC").
RECITALS:
WHEREAS, the parties have entered into a Fulfillment Services Agreement
dated as of October 22, 1998, (the "Agreement");
WHEREAS, the Agreement provides that the parties shall set forth the
specifics of the Order Management & Customer Service PC Flowers fulfillment
project as Schedule A to the Agreement and execute the same.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, FBS and PC hereby agree as follows:
1. FULFILLMENT SERVICES*
*FBS is relying on information provided by PC, which is noted herein, to
successfully complete certain Fulfillment Services under this Schedule.
**Performance standards are noted in bold print.
FBS will provide the following fulfillment services:
- Division and Product Setup
- Order Management
- Customer Service/Customer Service Policies
- Order Fulfillment
- Returns Processing
- Reporting
(a) Division and Product Setup
FBS will complete necessary setups to establish PC as a separate division within
the Fingerhut Logistics System ("FLS") to facilitate the processing and
fulfillment of PC orders. The following services will take place:
o FBS will set up PC as a separate division in FLS.
o FBS will set up PC as a separate inventory company within the Corporate
Inventory System to facilitate the maintenance and reporting of PC
inventory separate and distinct from all other inventory maintained in the
Corporate Inventory System.
o FBS will provide the necessary setups in the Vertex Tax System for the
collection of sales tax in the states designated by PC. Currently, taxes
are collected for the state of Connecticut, Tennessee, and Minnesota, but
additional states may be setup at the direction of PC.
Page -12-
<PAGE> 13
o Fingerhut Treasury staff will secure merchant ID's from First National
Bank Omaha for Visa, Mastercard and Discover for the processing of credit
card orders. The same staff will work with PC to secure a merchant ID for
American Express. PC will provide FBS with a merchant ID for Diners Club.
o FBS will perform any other related setups required by any FBS system.
o FBS will coordinate any required setups necessary to provide credit
services through Fingerhut National Bank.
o Fingerhut will use its best efforts to enable the Fingerhut Credit
Advantage Card (CAC) to be utilized for the purchase of PC products by
March 15, 1999. Fingerhut will use its best efforts to develop and enable
a PC credit card.
FBS will provide for the setup and maintenance of PC products and shipping and
handling information into the various FBS merchandise information systems, based
on information supplied by PC. PC will supply this information in an Excel
spreadsheet document based on a format supplied by FBS. The following services
will take place:
o Fingerhut Treasury staff will assign vendor numbers to all vendors
supplying product to PC including Figi's, FTD, Four Farmers, Teleflora,
USA Floral Products, and Fingerhut Corporation. Additional vendors
supplying product to PC may be added in the future.
o FBS will set up all PC products in the Fingerhut Merchandise Management
System using the vendor numbers described above, and information provided
by PC. FBS will assign each product a unique Fingerhut product code that
will be provided to PC for inclusion on the various websites as the number
to be used for ordering purposes.
o FBS will maintain a cross-reference file of PC product numbers to FBS
product codes and provide this information to PC. Additional products will
be set up on an as-needed basis from information provided by PC.
o Any product identified by PC as discontinued will be flagged in the
Merchandise Management System as discontinued.
o FBS will assign each product code to a system generated source and segment
# to accommodate the processing of the order in FLS.
o All shipping and handling charge information provided by PC will be set up
in the appropriate FBS systems.
(b) Order Processing
PC customers will submit orders to FBS using the PC internet site, the
1-800-PCFLOWERS telephone number, the Prodigy Classic website, the Yahoo Store,
the Figi's catalog. FBS will work with PC on a case by case basis to enable
other shopping platforms, both on and off the Internet, as they become
available. FBS will gather these orders and process them in the FLS using
standard FBS order processing procedures and policies. Approved orders will be
routed systematically to one of the vendors providing product fulfillment - FTD,
Four Farmers, Figi's or Fingerhut. The following services will be provided:
o Shipment area will be in the continental United States and International
Page -13-
<PAGE> 14
o All PC orders will be processed as credit card orders using the credit
authorization and bank settlement processing systems of FBS. Credit cards
accepted for payment will include: VISA, Mastercard, Discover, American
Express, Diners Club, and Fingerhut Credit Advantage Card. The PC credit
card will be accepted for payment when developed and implemented. Credit
card authorization will occur as orders are received. Settlement will
occur same day.
o Diners Club authorization is not supported in the FLS system and will be
handled manually by FBS Order Processing staff in St Cloud.
o FBS will take customer orders via the telephone. Customer order calls will
be taken by FBS staff and entered into FLS via the order entry system. FBS
staff will be available for order calls as follows:
- 24 hours per day, 7 days per week
o The standard for handling order line calls as noted below is based on the
assumption that FBS will receive reasonably accurate order forecasts from
PC:
- 98% answered
Note: This standard may be adjusted on a quarterly basis after the initial 6
months based on the accuracy of the forecasts provided by PC.
o FBS staff will be given upsell capabilities based on guidelines jointly
developed by PC and FBS. Upsell products will be determined by PC.
o As mutually determined by the parties, FBS IS staff will systematically
"pull" orders from the various websites including Exceed, Prodigy Classic,
Yahoo, and Figi's and bring the orders into the FLS system. If other sites
are subsequently added, FBS will use it's best efforts to systematically
gather orders from them. FBS will pull the orders from Exceed at the
following times:
- 5:00 a.m. Central time
- 6:00 a.m. Central time
- 7:00 a.m. Central time
- 8:00 a.m. Central time
- 9:00 a.m. Central time
- 10:00 a.m. Central time
- 11:15 a.m. Central time
- 1:00 p.m. Central time
- 3:00 p.m. Central time
- 6:00 p.m. Central time
NOTE: These times will be adjusted as necessary to accommodate anticipated
changes in order volume. Times will be mutually agreed upon by FBS and PC.
o FBS Order Processing in STC will pull orders from Prodigy Classic three
(3) times per day at the following times:
- 8:00 a.m. Central time
- 11:00 a.m. Central time
- 3:30 p.m. Central time
Note: These times will be adjusted as necessary to accommodate anticipated
changes in order volume. Times will be mutually agreed upon by FBS and PC.
o FBS IS will make all non-rejected orders available for "scrubbing" by St.
Cloud Order Processing immediately after the pull is completed
Page -14-
<PAGE> 15
- St. Cloud Order Processing will complete the scrubbing process
within one (1) hour of receiving the information
o FBS IS will send information to the various fulfillment vendors (FTD, Four
Farmers, Figi's, Teleflora, USA Floral Products) in the following manner:
- Orders for FTD will be provided to St. Cloud Order Processing
in a report format for entry into the Mercury terminal one (1)
hour after each pull.
- Orders for Four Farmers will be sent via data file to Four
Farmers one (1) hour after each pull was completed.
- Orders for Figi's will be sent via data file to Figi's one (1)
hour after the the original pull from Figi's.
- Orders will be routed to Teleflora and USA Floral in a manner
to to be defined by FBS IS and the respective fulfillment
vendor.
(c) Customer Service
FBS Customer Service will provide all customer service support to PC customers
via telephone or email following FBS' standard policies and procedures,
which may be mutually modified by FBS and PC. The following services will
be provided:
o FBS Customer Service will provide service:
Between the hours of 7:00 a.m. Central Standard Time and 7:00 p.m. Central
Standard Time Monday through Friday, and between the hours of 8:00 a.m.
Central Standard Time and 1:00 p.m. Central Standard Time on Saturday.
o A specific #800 telephone number will be established for inbound customer
service calls. Customer service for orders originated via telephone will
be handled via telephone. The standard service level for customer service
calls will be:
- 95% of calls answered
o A specific email address will be established for inbound customer service
inquiries and outbound responses. Customer service inquiries for orders
originating via the web, with accompanying email addresses, will be
responded to via email. Emails will be responded to in a timeframe as
close as possible to the following guidelines:
- 2 hr. response for emails received after 7:00 a.m.
- 12 hr. response for emails received after 7:00 p.m.
o Problems or issues regarding FTD products or Teleflora products will be
communicated back to FBS via the Mercury network or the Dove system. FBS
Customer Service will provide communication back to the customer via
telephone or email, and then back to FTD via the Mercury terminal, or to
Teleflora via the Dove system, with the customer's response.
o Problems or issues concerning Figi's products will be handled by FBS
Customer Service staff with customer response communicated back to Figi's.
o Problems or issues regarding Four Farmers or USA Floral products will be
communicated back to FBS Customer service via email. FBS Customer Service
will communicate this to the customer via telephone or email, and then
back to Four Farmers or USA Floral via email with the customer's response.
Page -15-
<PAGE> 16
(d) Customer Service Policies
Customer service policies specific to PC will be established by FBS Customer
Service in conjunction with PC. These policies will be published internally and
communicated to all FBS Customer Service staff. These policies include:
o Returns Policy - complete customer satisfaction via
replacement, discount or refund. Jewelry
returns will be accepted for full credit
within 30 days, and 90 days for partial
credit
o Exchanges - same as above
o Return Authorization less - specifically refers to gifts, not floral
Shipping/Handling arrangements
o Return Postage Refunded - Specific policy refers to gifts, not
at Customer Request floral arrangements. Complete
satisfaction guarantee.
o Postage Paid Label/Call - food items should be referred to local
Tag Customer Request non-profit organizations if possible.
Damaged/Defective - offer 25% discount or complete
Merchandise parts exchange/refund
o Merchandise Not Received - call florist responsible for delivery.
To Customer (MNR-TC) Determine if customer still wants and
offer adjustment if necessary to satisfy
customer
o Gift Certificates/Discount - will be offered on websites and other
Coupons advertising media. Discounts will be
given at time of order.
o External Competitive Price - not offered
o Upsales - will be offered by Fingerhut Call Centers
o Substitutions - yes, will work with customer and florist
o Free Gifts - no. Buy 1, get I free from grower.
o Remove from Promotion - yes.
o Deferred Billing - no
o Promotional Media - Figi's, Fingerhut, and other websites
o Method of Payment - full pay.
(e) Order Fulfillment
FBS will provide all fulfillment functions necessary to prepare and ship PC
customer orders routed to FBS for order fulfillment. These orders will contain
products stored in FBS facilities, or FBS product stored in a remote facility.
These functions include, but are not limited to, the receipt and put away of PC
product, the storage of product, the picking and packing of product, customer
invoice generation, and the shipping of product to the customer.
FBS will work with PC to mutually determine the optimal physical location for
use in the fulfillment of the orders described above. Once a location is
determined, this section will be updated with a detailed description of the
services to be provided.
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<PAGE> 17
(f) Returns Processing
FBS will provide all functions necessary to complete the receipt and return
processing of any merchandise returned from PC orders. FBS will determine the
optimum location for the processing of returns. FBS will work in conjunction
with PC to develop guidelines for the disposition of returned merchandise. These
guidelines will be updated as necessary depending on the type of merchandise
offered by PC.
(g) Reporting
FBS will provide PC with all daily, weekly, and month end reporting currently
available in the FLS system. In addition FBS will work with PC and FBS IS to
develop reporting specific to the business of PC. Specific reports from the
various FBS and FLS systems include the following:
o Open Orders and Shipped Sales Report (Daily)
o Daily Orders Received and Shipped Report (Daily)
o Month to Date Received and Shipped Report (Weekly)
o Daily Ship Detail Report/Daily Ship Summary Report
o Month to Date Ship Detail Report/Month to Date Ship Summary Report
o Daily Marketed Detail Report/Daily Marketed Summary Report
o Month to Date Marketed Detail Report/Month to Date Marketed Summary
o Return Activity Summary (Weekly)
o Released Refund Summary (Weekly)
o Released Reship/Exchange Summary (Weekly)
o Customer Call Activity Summary (Weekly)
o Month End Tax Report (Monthly)
FBS will work with PC and FBS IS to develop reports or queries based on samples
of existing PC reporting.
2. FULFILLMENT SERVICES PRICING
FBS will invoice PC for the services listed below at the listed rates:
- Web order processing
- Phone order processing
- Customer Service
- Order Fulfillment
- Custom Programming
- Special Work Requests
(a) Web Order Processing - $2.40 per order
This rate includes the cost of taking the orders from the various sites and
entering them into the FLS system for transfer to the fulfillment vendors. It
also includes the keying of FTD orders into the Mercury terminal or Teleflora
orders into the Dove system
Page -17-
<PAGE> 18
(b) Phone Order Processing/Customer Service - $8.60 per order
This rate includes the cost of taking orders via the phone and entering the
order information into the FLS system. It also includes the cost of providing
all aspects of customer service including phone or email responses to customer
inquiries
(c) Order Fulfillment
The rate for order fulfillment will be established and mutually agreed to after
the determination of the location in which fulfillment activities will take
place, and prior to the initiation of fulfillment activity.
(d) Returns Processing
The rate for returns processing will be mutually determined after the
determination of the location in which returns will be processed, and prior to
the initiation of any return activity.
(e) Custom Programming - $70 per hour
This rate includes the cost of providing any system enhancements beyond what is
being initially provided to implement PC.
(f) Special Work Requests - Salaried @ $40 per hour
- Hourly @ $16 per hour
This rate would be used in cases where PC has special work requests not covered
in any of the above categories.
3. WEBSITE FULFILLMENT SERVICES, PRICING & SALE OF PRODUCTS
(a) Web Site Fulfillment: FBS shall provide all necessary Fulfillment
Services for the fulfillment of customer orders placed on the PC Flowers & Gifts
web site (www.pcflowers.com) or a PC Flowers Co-branded Site.
(b) Sale of Product: FBS and Figi's shall sell to PC products on a per
order basis on terms and conditions mutually agreeable to both parties. The cost
of the products shall be actual product cost plus ten percent (10%) (hereafter
referred to as the "Product Cost").
(c) PCFlowers & Gifts Web Site Fulfillment: For all Fulfillment Services
provided for orders from the PC Flowers & Gift web site [www.pcflowers.com], or
PC co-branded web sites, with the exclusion of flowers, PC shall pay to FBS as
follows: Product Cost, plus actual cost of fulfillment services + ten percent
(10%), plus actual postage or freight cost.
(d) Co-Branded Web Site Fulfillment: For all Fulfillment Services provided
for orders from a PC Flowers Co-branded Site, PC shall pay to the relevant
Fingerhut entity as follows: Product Cost, plus actual cost of fulfillment
services + ten percent (10%), plus actual postage and freight cost. In addition,
PC shall pay to any relevant Fingerhut entity commissions on Net Sales as
defined and set forth in Co-brand agreements between PC and the relevant
Fingerhut entity.
Page -18-
<PAGE> 19
4. LICENSED MARKS
<TABLE>
<CAPTION>
Reg No. Mark
<S> <C>
1,990,239 PC Gifts
1,787,646 1-800-PC Flowers
1,623,072 P.C. Flowers
1,781,553 PC Balloons
1,905,177 TV FLOWERS
2,090,415 PC FLOWERS & GIFTS
</TABLE>
5. RATIFICATION
The parties acknowledge, confirm and agree that, except as explicitly
inconsistent with this Schedule, the terms and conditions of the Agreement shall
continue to be in full force and effect and are hereby ratified and confirmed.
If there is a conflict between the terms of this Schedule and the Agreement, the
terms of the Schedule shall control.
6. TERMS
Any term, phrase used herein with an initial capital letter shall have the same
meaning as defined herein, or if not so defined, shall have the same meaning set
forth in the Agreement.
IN WITNESS WHEREOF, the parties hereto execute this Schedule A effective
as of the date first set forth above.
FINGERHUT BUSINESS SERVICES, INC.
By
-----------------------------------
Its
----------------------------------
PC FLOWERS & GIFTS, INC.
By /s/ William J. Tobin
-----------------------------------
Its CEO
----------------------------------
Page -19-
<PAGE> 1
EXHIBIT 10.8
SE: P Turner
PRODIGY(R) Interactive Personal Service
Service Package Order Form for Merchants
AGREEMENT between Prodigy Services Company, 445 Hamilton Avenue, White Plains,
New York 10601 ("Prodigy") and PC Gifts, 2944 Hunter Mill Road, Suite 103,
Oakton, VA 22124 ("Participant").
I. SERVICE PACKAGE |_| CRMP Number of Products 150
|_| CRMDB
Participant hereby purchases the above service package (the "Service Package")
to promote and offer for sale up to the number of Products stated, as described
on the attached Service Package Description.
II. FEES
A. $12,000.00 COMMITMENT FEE, payable in full following the execution
of this Agreement on the terms stated in the attached Exhibit A.
B. DISPLAY FEE: For Display of the Service Package, Participant shall
pay Prodigy the fee indicated below each month this Agreement is in
effect, as detailed in the attached Exhibit A.
Eleven Percent (11%) of each Member Order, with Adjustments
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
This Agreement consists of this Order Form and the attached Exhibit A, Service
Package Description, and Standard Terms and Conditions.
THIS AGREEMENT MAY BE ACCEPTED BY SIGNING AND RETURNING ONE COPY OF THIS ORDER
FORM TO PRODIGY, WITH ALL ATTACHMENTS, NO LATER THAN March 31, 1994. This
Agreement will be effective as of the date last written below, and will remain
in effect until terminated in accordance with its terms.
Participant Prodigy Services Company
By: /s/ Peter H. MacMurray By: /s/ Leo J. Border
--------------------------------- ------------------------------------
Name: Peter H. MacMurray Name: Leo J. Border
------------------------------- ----------------------------------
Title: CEO Title: Director
------------------------------ ---------------------------------
Date: 3/31/94 Date: 4/18/94
------------------------------- ----------------------------------
<PAGE> 2
EXHIBIT A
Display Fee, based on Member Orders, with Adjustments
1. Display Fee. Participant shall pay Prodigy the Display Fee stated in the
"DISPLAY FEE" section of the Order Form during the term of this Agreement.
Except as may be expressly stated on the Order Form, any Display Fee based
on the dollar value of member orders shall be calculated without regard to
any taxes, shipping, handling, and delivery charges which my apply to such
orders.
2. Adjustments to Display Fee.
a. Participant shall be entitled to a credit against the Display Fee
payable to Prodigy for any item which is not fulfilled for any reason,
including credit declined, cancellations, and out of stock/partial
shipment, or for any item which is returned by a member for which a full
refund has been issued. To claim such a credit, Participant shall complete
an adjustment form to be provided by Prodigy and return it with payment of
its next Prodigy invoice, and shall deduct the credit amount from such
payment. If the amount of the credit exceeds the amount of the invoice,
Prodigy will carry the remaining credit amount forward to be applied
against succeeding invoices.
b. If any order for which a credit is taken is subsequently
fulfilled, Participant shall include an adjustment form showing the
Display Fee payable for such order with payment of its next Prodigy
invoice, and shall include such Display Fee in such payment.
c. If Participant fulfills any order received by means of the
electronic mail function of the Service, Participant shall include an
adjustment form showing the Display Fee payable for such order with
payment of its next prodigy invoice, and shall include Display Fee in such
payment.
d. Participant shall keep, for a period of two (2) years, records of
all orders received, Display Fees paid, and credits taken under this
Agreement. Prodigy shall have the right, upon reasonable advance notice to
Participant and at Prodigy's expense, to review and copy such records.
Prodigy may change the procedure for obtaining a credit upon thirty (30)
days prior written notice to Participant.
3. New and Changed Fees. Prodigy may change the amount and/or basis of the
Display Fee, or impose any new fee or fees, at any time after one (1) year
from the date that any or all of the Service Package is first Displayed on
the Service, upon (2) months' prior written notice to Participant.
4. Payment Terms.
a. All fees payable under this Agreement shall be due and payable
within thirty (30) days of invoice date. All amounts not paid within sixty
(60) days of invoice date shall bear interest immediately following the
end of such 60-day period at the lesser of: (i) Two (2) percentage points
above the prime interest rate as published in the Wall Street Journal from
time to time during the period of such delinquency, or (ii) the maximum
rate of interest allowed under the laws of the State of New York.
Participant is responsible for all taxes on all amounts payable to Prodigy
other than taxes based on Prodigy's net income.
b. If any amount is not paid when due hereunder, Prodigy shall have
the right, on fifteen (15) days prior written notice to Participant, to
discontinue any or all services rendered to Participant hereunder if such
amount is not paid within ten (10) days of such notice. Following payment
of all outstanding amounts, Prodigy may charge its then-current fee for
reinstatement of services.
5. Termination. All fees which come due through the effective date of
termination shall be due and payable in full by Participant, less any
outstanding credits, provided, that if Prodigy terminates this Agreement
in accordance w9ith the Standard Terms and conditions and if the Service
Package would have been displayed on the Service for less than 12 months
through the effect date of termination, Prodigy shall refund a prorated
portion of any Commitment Fee or Conversion Feed paid by Participant,
representing the remaining portion of such 12-mnth period. Prodigy may
apply any amounts due to Participant under the preceding sentence to any
outstanding amounts due to Prodigy from Participant. If Participant has
outstanding credits which exceed the fees due to Prodigy through the
effective date of termination, Prodigy shall refund the difference to
Participant.
<PAGE> 3
PRODIGY(R) Interactive Personal Service
Description of Service Package CRMB
The Service Package CRMDB provides Participant with a presence on the PRODIGY
interactive personal service in accordance with the Agreement between
Participant and Prodigy Services Company. This Description of Service Package is
a part of such Agreement, and describes the elements and services provided with
Service Package CRMDB, and sets forth the respective obligations of the parties
in connection with the Service Package.
1. DEFINITIONS
a. "Product Category List" - a list of categories of Products to be
promoted and offered for sale through the Service Package, to be agreed to by
the parties as described below.
b. "Database Application" - each application forming part of the Service
Package which will allow Members to select and order Products covered by the
Product Category List from an on-line database.
c. "Specifications" - specifications regarding the size, structure,
format, capacity, operation, and other criteria for each Database Application,
including quality control standards, as Prodigy shall determine in its sole
discretion.
d. "Database Information" - Participant Information regarding Products to
be available for display through each Database Application.
2. PRODUCT CATEGORY LIST
a. If the parties have not already done so, promptly following the
execution of this Agreement Participant and Prodigy shall negotiate in good
faith to arrive at a Product Category List. The parties may amend the Product
Category List from time to time as mutually agreed.
3. DATABASE APPLICATIONS
a. Prodigy will create one or more Database Applications as part of the
Service Package for display of all Products covered by the Product Category
List. Each Database Application shall be of such size and structure as Prodigy
deems appropriate.
b. Promptly after the later of the parties having agreed upon a Product
Category List and the effective date of this Agreement, Prodigy shall establish
Specifications from time to time as it sees fit. Participant shall determine the
substance and structure of Database Information, subject to the Specifications.
4. ELEMENTS AND SERVICES PROVIDED WITH SERVICE PACKAGE
a. Design, creation, update, promotion, and display of such Service
screens, including text, illustrations, and graphic design, as Prodigy deems
appropriate to promote the sale of Products covered by the Product Category
List.
b. The ability for Members to order any item contained in any Database
Application and, if the parties agree, the ability for Members to order any
Product appearing in a printed catalog or otherwise offered by Participants even
if the item does not appear in the Service Package.
c. The ability to direct Members to the Service Package in ways determined
by Prodigy, which may include:
(i) Leader ads viewable by targeted Members.
(ii) Listing on relevant menu screen(s).
(iii) Unique JUMPword(s)SM enabling Members to access the Service
Package from other locations in the Service.
(iv) Inclusion of Participant's JUMPword(s) in relevant directories
and/or other locators.
d. A section enabling Members to send messages electronically to
Participant from within the Service Package, and a messaging Service ID to
receive and respond to such Member messages.
e. A Service ID enabling Participant to access the Service.
f. Monthly reports on usage of the Service Package by Members.
g. Transmission of Member Orders to Participant by electronic batch method
via modem, and provision of
<PAGE> 4
software enabling Participant to receive such Member Orders in accordance with
the Standard Terms and Conditions of this Agreement. If requested by
Participant, Member Orders shall be transmitted by other means at the
then-standard additional fee.
h. (i) Subject to the provisions of the Standard Terms and Conditions, all
changes to the Screen Elements of the Service Package require the mutual consent
of the parties. There shall be no charge for changes proposed by Prodigy, or for
changes proposed by Participant (other than Emergency Changes, as described
below) to which Prodigy does not object. Prodigy may charge its then-standard
fees for any change to the Service Package proposed by Participant which Prodigy
objects to but nevertheless agrees to undertake.
<PAGE> 5
Standard Terms and Conditions
1. The following definitions shall apply to this Agreement:
a. "Member" - any person or entity authorized by Prodigy to have access to
the PRODIGY service.
b. "Member Order" - any order for a Product, and any response or request
made by a Member to Participant, by means of the PRODIGY service. Any such
order, response or request sent via the electronic mail feature of the PRODIGY
service will be deemed a Member Order only if Participant accepts orders sent in
such fashion.
c. "Product" - any product, service, or information which Participant
makes available to consumers, whether by sale or otherwise.
2. Prodigy accepts any material intended for use in connection with the PRODIGY
service only upon the representation that Participant has the right (including
all necessary consents) to publish the entire contents and subject matter
thereof. Submission (including electronic transmission) of material for display
on the PRODIGY service constitutes consent to display it in the form submitted.
3. Prodigy will not display on the PRODIGY service any material relating to
Participant or the Products it intends to offer under this Agreement without
Participant's written or electronic consent to the content and appearance.
Consent to display of any material on the PRODIGY service also entitles Prodigy
to use such material (or images thereof), during the term of this Agreement, for
research, demonstration, testing, promotion, and PRODIGY service operation.
Following termination of this Agreement Prodigy may use such material for any
internal use and for research, demonstration, or promotion, but may use
promotional or demonstrational materials only until replaced or the supply is
exhausted. Participant's consent shall not be necessary for any Prodigy
promotion (whether or not on the PRODIGY service) or any PRODIGY service
function enabling Members to access PRODIGY service screens. Prodigy will not
use Participant's name or screens in paid Prodigy advertising without
Participant's written consent.
4. Participant assumes all responsibility for the content and subject matter of
its PRODIGY service screens and related material (including text and
illustrations), and shall indemnify and hold Prodigy harmless against any claim,
action, liability, losses, and expenses (including attorney's fees) resulting
from or arising out of Prodigy's use of such material under this Agreement.
5. Prodigy will have no liability if it fails for any reason to display any
material on the PRODIGY service or if, for any reason beyond Prodigy's control,
the PRODIGY service is not available at any time that it is scheduled to be
available. Prodigy shall indemnify and hold Participant harmless against any
claim, action, liability, losses, and expenses (including attorney's fees)
resulting from or arising out of Prodigy's display of any material other than as
consented to by Participant under this Agreement. In no event will prodigy be
liable to Participant for incidental, special or ____ damages of any kind
(including damages for lost ___.
6. Prodigy shall have all rights relating to all information and descriptive
materials regarding Participant and Participant's products or services
(including images and trademarks, trade names, and logos) intended for use in
connection with the PRODIGY service, to the extent necessary to meet Prodigy's
obligations and exercise its rights under this Agreement, but this shall not
affect any rights of Participant unless agreed in writing. Prodigy shall not be
required to retain or recreate any PRODIGY service screen or related material.
7. Prodigy shall promptly make each Member Order available to Participant.
Participant shall be solely responsible for fulfilling Member Orders.
8. Participant shall either provide information on the PRODIGY service
permitting calculation of the final price of Members Orders, or shall afford
Members the right to cancel their Member Orders or return the Product ordered
for a full refund free of any penalty or fee. To the extent reasonably
practicable, participant shall indicate on or with each member Order fulfilled
that such Member Order was placed on the PRODIGY service.
9. Participant shall provide warranties and customer services for Products
offered or ordered on the PRODIGY service equivalent to those it otherwise
<PAGE> 6
provides for the same or similar Products. Prodigy shall have absolutely no
responsibilities or obligations whatsoever regarding any Product offered or
ordered on the PRODIGY service.
10. Prodigy shall supply any applicable payment information provided by the
Member with each Member Order which Prodigy makes available to Participant, but
Prodigy shall have no other responsibility whatsoever, and Participant shall
bear all risk, with respect to payment for such Member Order. Participant shall
be solely responsible for the collection and payment of any Federal, state, or
local tax of any nature whatsoever (except taxes based upon Prodigy's net
income) relating to any Member Order.
11. Participant shall indemnify and hold Prodigy harmless against any claim,
action, liability, losses, and expenses (including attorney's fees) relating to
or arising out of any Product offered by, or ordered or requested from,
Participant by means of the PRODIGY service.
12. Participant shall abide by all applicable portions of the Direct Marketing
Association's then-current Guidelines for Ethical Business Practices, and all
Federal, state and local laws and regulations, applicable to any advertisements,
promotions, or offers made by Participant over or relating to the PRODIGY
service, or any Products offered, ordered, or requested through the PRODIGY
service.
13. Prodigy reserves the right to reject or remove any material from the PRODIGY
service for any reason at any time, regardless of any prior acceptance or
display of any such material.
<PAGE> 7
PRODIGY (R) INTERACTIVE PERSONAL SERVICE INSERTION ORDER
This Insertion Order is issued to: Prodigy Service Company, 445 Hamilton Ave.,
White Plains, NY 10601. ATTN: PRODUCT OPERATIONS, Mail Drop H10G FAX: (914)
993-8960.
- --------------------------------------------------------------------------------
Advertiser: Concept Industries of Virginia Agency:
PC Flowers Address:
Address: 2944 Hunter Hill Road
Oakton, VA 22124 Acct. Contact:
Contact: Bill Tobin Bill Contact:
Campaign Name: PC Flowers
- --------------------------------------------------------------------------------
Rate and Terms in accordance with Rate Card No. U1 dated effective April 1,
1993.
ORDER DESCRIPTION: New Order
ADDITIONAL TERMS:
1. Advertiser shall write one (1) to four (4) screens of copy in accordance
with Prodigy standards for each of the PRODIGY(R) Direct Mails ("PDM's")
listed below. Advertiser shall transmit copy for each such Mailing using
PRODIGY Producer Software according to the following schedules:
<TABLE>
<CAPTION>
Received by Prodigy
Mailing No. No later than
- ----------- -------------
<S> <C>
Mailing #1 April 8, 1994
Mailing #2 April 8, 1994
Mailing #3 April 14, 1999
Mailing #4 April 19, 1884
Mailing #5 April 19, 1994
</TABLE>
In the event that such copy is not received according to the above schedule, the
mailings may not be sent as scheduled.
2. Member responses to Advertiser's offer shall be provided to Advertiser in the
same format as Member response to Advertiser's Service Package. In the event
that Advertiser requests the responses to be provided in a non-standard format,
Advertiser agrees to pay any and all applicable charges. Prodigy shall issue a
separate quote.
PRODIGY (R) Direct Mail ("PDM")
<TABLE>
<S> <C> <C>
Screens/Bit Map Images Create/Production Fee: 1 @ $2,800.00 2,800.00
--------
</TABLE>
Prodigy shall create/produce one (1) PRODIGY (R) Direct Mail ("PDM") Stencil
with one (1) to four (4) screens and such stencil shall contain two (2) areas
for bit map images, with a LOOKum feature enabling Members to access
Advertiser's existing Service Package.
In the event that Advertiser requests any changes and/or additions to the
stencil once initial create/production has been completed, Advertiser agrees to
pay any and all applicable charges. Prodigy shall issue a separate quote.
<TABLE>
<S> <C> <C>
Stencils & Linkage Create/Production Fee: 1 @ $0.00 0.00
--------
</TABLE>
Prodigy shall reuse Advertiser's existing stencils for the PDM's listed below.
In the event that Advertiser requests any changes and/or additions to the
stencil(s) and/or linkage, Advertiser agrees to pay any and all applicable
charges. Prodigy shall issue a separate quote.
<PAGE> 8
<TABLE>
<S> <C> <C>
Mailing #1 Mailing Fee: 20,000 @ $0.35/Send 7,000.00
04/15/94-04/22/94 Linkage: To Service Package
Fulfillment: Same as Service Package
</TABLE>
The above fee is based on minimum of 20,000 sends at $.35 per send. Targeting:
To minimum of 20,000 adult Members who enrolled during the past 90 days
EXCLUDING Members who have executed an order with Advertiser. Offer: Promote
Secretary's and Mother's Day.
<TABLE>
<S> <C> <C>
Mailing #2 Mailing Fee: 20,000 @ $0.35/Send 7,000.00
04/16/94-04/22/94 Linkage: To Service Package
Fulfillment: Same as Service Package
</TABLE>
The above fee is based on minimum of 20,000 sends at $.35 per send. Targeting:
To minimum of 20,000 adult Members who expressed interest in Sports, News or in
Business EXCLUDING Members who receive Advertiser's Mailing/Call #1 of
4/15-4/22/94 AND Members who have executed an order with Advertiser. Offer:
Promote Secretary's and Mother's Day.
<TABLE>
<S> <C> <C>
Mailing #3 Mailing Fee: 20,000 @ $0.35/Send 7,000.00
04/22/94-05/06/94 Linkage: To Service Package
Fulfillment: Same as Service Package
</TABLE>
The above fee is based on minimum of 20,000 sends at $.35 per send. Targeting:
To minimum of 20,000 adult Members who are Windows users EXCLUDING Members who
received Advertiser's mailing of 4/16-4/22/94. AND who have executed an order
with Advertiser. Offer: Promote Mother's Day.
<TABLE>
<S> <C> <C>
Mailing #4 Mailing Fee: 20,000 @ $0.35/Send 7,000.00
04/27/94-05/06/94 Linkage: To Service Package
Fulfillment: Same as Service Package
</TABLE>
The above fee is based on minimum of 20,000 sends at $.35 per send. Targeting:
To minimum of 20,000 adult Members, randomly selected EXCLUDING Members who
received Advertiser's mailings of 4/15/94 or 4/22/94 AND who have executed an
order with Advertiser. Offer: Promote Mother's Day.
<TABLE>
<S> <C> <C>
Mailing #5 Mailing Fee: 30,000 @ $0.25/Send 7,500.00
04/27/94-05/06/94
The above fee is based on an estimate 30,000 sends at $.25.
----------
Sub-Total Mailing and/or Display Fees 35,500.00
Less 100% Director's Discount (35,500.00)
----------
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Sub-Total Fees Less Discounts for PRODIGY(R)Direct Mail ("PDM") $2,800.00
----------
Total Fees Less Discounts $2,800.00
</TABLE>
Discounts & Commissionable Fees: Display Fees Only (see Rate Card)
This Insertion Order must be submitted by: April 8, 1994. Rate and terms subject
to change if submitted after this date. If an agency is designated, bills will
be sent to the agency. This Insertion Order will be effective upon acceptance by
Prodigy.
- --------------------------------------------------------------------------------
Submitted for Advertiser By: /s/ Peter H. MacMurray
----------------------
Name: Peter H. MacMurray
---------------------------------------------
Company: PC Flowers
------------------------------------------
Date: 4/12/94
---------------------------------------------
Accepted for Prodigy By: /s/ Leo J. Border
--------------------------
Name: Leo J. Border
---------------------------------------------
Title: Director
--------------------------------------------
Date: 4/12/94 ASEIP. Turner ID #: 892
-------
073600004-TM03
- --------------------------------------------------------------------------------
Copyright(c) 1991 Prodigy Services Company, PRODIGY is a registered service mark
and trademark of Prodigy Services Company.
<PAGE> 1
EXHIBIT 10.9
Frontier SERVICE ORDER #1.0 SERVICE ORDER TERM: 12 MONTHS
GlobalCenter MSA #1.0 Service Order Date: 03/29/99
Site Express Estimated Install Date:
================================================================================
Primary Contact: Bill Tobin Contact Feargall Kenny
Secondary Contact: Pattiann Macadams Sr. Account Executive
Company: PC Flowers and Gifts Address: Frontier GlobalCenter, Inc.
88 Pine St., Suite 700
Address: New York, NY 10005
City/St/Zip: Stamford, CT Phone: 212-618-9607
Phone: 203-977-8582 x 202 FAX: 212-571-2036
FAX: 203-977-8593 Pager: 888-795-3125
Email: [email protected] Email: [email protected]
================================================================================
Site Express One Time Installation Fees:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Item # Description Qty. Unit Total
Price
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1 One Time Customer Administration Fee: 1 Waived Waived
2 Port Installation: 1 $1500 $1500
Dedicated Switched 100 Mbps Fast Ethernet port on Frontier
GlobalCenter Cisco Catalyst
3 Co-location Installation: 2 $500 $1000
7' x 19" Rack Unit w/ 20 amps power
4 Technical Account Manager (TAM) Installation Per Server, 3 hrs $150/Hour $450
Application and/or device: (Estimated - Demarc point to be
determined with Exceed)
Installation includes IP address allocation, customized
monitoring procedure setup, Express Control and KickStart
Remote Reboot setup, hardware and software installation and
setup, $300 Per Hour for all installations occurring during
non-standard business hours (8AM-6PM Monday through Friday)
and/or less than 72 Hours notification.
5 Back-end Connection Installation: Not required
at this time.
Dedicated T1 circuit from Client Address to Frontier
GlobalCenter Media Distribution Center, includes carrier and
GlobalCenter installation charges.
One Time Total $2950
</TABLE>
1
<PAGE> 2
Frontier SERVICE ORDER #1.0 SERVICE ORDER TERM: 12 MONTHS
GlobalCenter MSA #1.0 Service Order Date: 03/29/99
Site Express Estimated Install Date:
================================================================================
Site Express One Time Installation Fees:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Item # Description Qty. Unit Total
Price
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1 Committed Bandwidth: 2 $900 $1800
Guaranteed dedicated switched bandwidth to the Frontier
GlobalCenter backbone via Cisco Catalyst 5500 switch, priced
per committed Mbps, 2 Mbps minimum
1A Burstable Bandwidth: Variable $1,000 Variable
Bandwidth above the committed 2 Mbps level, determined and
billed via the 95th Percentile Rule (See Below).
*Special pricing arrangement for PC Flowers and Gifts: Normally
charged at a level 25% over the committed level
2 Co-location: 2 $1400 $2800
7' x 19" Rack Unit w/ 20 amps power.
3 Technical Account Manager (TAM) Consulting Time: (Estimated - Demarc Not required
to be determined with Exceed) at this time.
Pre-contracted time billed at $150 per hour during standard
business hours (8AM - 6 PM Monday through Friday excluding
major holidays). All non-standard business and non-contracted
hours billed at $300 per hour.
4 Administrative Circuit: Not required
at this time.
Dedicated T1 back end connection form Client premise directly
into co-location within the Frontier GlobalCenter Media
Distribution Center. Includes carrier and GlobalCenter
monthly recurring charges. Routing hardware not provided.
5 Backup Tape Rotation: 1 $150 $150
Daily, weekly, monthly tape rotation on customer backup
equipment. On-site and/or off-site storage is available. Tape
backup rotation includes integration with on-site and
off-site storage procedures.
Monthly Recurring Total $4750
</TABLE>
2
<PAGE> 3
FRONTIER GLOBAL CENTER
Master Service Agreement No. ______
- --------------------------------------------------------------------------------
Frontier SERVICE ORDER #1.0 SERVICE ORDER TERM: 12 MONTHS
GlobalCenter MSA #1.0 Service Order Date: 03/29/99
Site Express Estimated Install Date:
================================================================================
- --------------------------------------------------------------------------------
95th Percentile Rule
Every GlobalCenter client purchases a certain amount of guaranteed bandwidth on
GlobalCenter's Internet Backbone per month for an entire year. We realize that
there are certain instances that your Web Site will burst over your purchased
amount of bandwidth. Therefore, we have devised a billing method to accommodate
for bandwidth burst over your subscribed amount using the "95th Percentile
Rule."
You will be billed monthly for the bandwidth you have committed to each month.
GlobalCenter's SNMP bandwidth monitoring will sample (take a data point
reflecting how much bandwidth you are utilizing at that particular instance)
your Internet connection every 5 minutes and store those samples for a period of
one month.
At the end of the month, all the data samples ABOVE the amount of bandwidth you
have committed to will be collected and then be sorted from highest to lowest
and the top 5% will be discarded. The remaining data sample will then be
referred to as the "95th Percentile" number. This number will then be used as
the basis in computing the additional bandwidth rate for that particular month
over what bandwidth you have already purchased.
- --------------------------------------------------------------------------------
Service Order subject to a GlobalCenter Master Service Agreement. Service Order
serves as a Purchase Order when signed by an authorized representative. Please
send or FAX signed Service Order to the above Frontier GlobalCenter address.
Site Express service order pricing is valid and may be accepted for 30 days.
Accepted by: /s/ David Crampton
------------------------------
Printed Name: DAVID CRAMPTON Title: PRESIDENT
------------------------------ -------------------------
PO #: Date: 3/29/99
------------------------------ -------------------------
3
<PAGE> 4
FRONTIER GLOBALCENTER
Master Service Agreement No.___
- --------------------------------------------------------------------------------
This Master Services Agreement (this "Agreement") is entered into as the
______ day of ______________, 1999 ("Effective Date") by and between the entity
indicated on the Services Order Form attached hereto, with an office at the
address listed on the Services Order Form, ("Client"), and Frontier
GlobalCenter, Inc., a corporation with offices at
_________________________________________________________ ("Frontier
GlobalCenter"), and describes the terms and conditions pursuant to which
Frontier GlobalCenter shall license to Client certain software and provide
certain Services (as defined below). In consideration of the mutual promises and
upon the terms and conditions set forth below, the parties agree as follows:
1. NATURE OF AGREEMENT
This is an Agreement for the provision by Frontier GlobalCenter of Internet
connectivity services (the "Bandwidth"), the lease of equipment to provide such
services (the "Hardware"), the availability of space to store and operate such
Hardware ("Space") and the licensing of software to provide such Services (the
"Software"), together comprising an Internet connectivity and collocation
package to be provided by Frontier GlobalCenter under this Agreement (together,
the "Services").
2. SERVICE ORDERS
2.1. Orders. Client may issue one or more service orders describing the
Bandwidth, Space, Hardware, and Software that Client desires ("Service Order").
Each Service Order will set forth the prices, initial term of Services and other
information in the form set forth in the Service Order Form. No Service Order
shall be effective until accepted by Frontier GlobalCenter. All Service Orders
will be subject to the terms and conditions of this Agreement, and the terms of
this Agreement shall supersede any terms and conditions which may appear on
Client's order form, or purchase order.
2.2. Cancellation. In the event that Client cancels or terminates a Service
Order at any time for any reason whatsoever other than expiration of a Service
Order or a Service Interruption (as defined below), Client agrees to pay
Frontier GlobalCenter as a cancellation fee all Monthly Recurring Charges
specified in the Service Order for the balance of the term therefor, which shall
become due and owing as of the effective date of cancellation or termination.
2.3. IP Addresses. Frontier GlobalCenter may assign on a temporary basis a
reasonable number of Internet Protocol Addresses ("IP Addresses") from the
address space assigned to the Frontier GlobalCenter by InterNIC. Client
acknowledges that the IP Addresses are the sole property of Frontier
GlobalCenter, are assigned to Client as part of the Service, and are not
"portable," as such term is used by InterNIC. Frontier GlobalCenter reserves the
right to change the IP Address assignments at any time; however, Frontier
GlobalCenter shall use reasonable efforts to avoid any disruption to Client
resulting from such renumbering requirement. Frontier GlobalCenter will give
Client reasonable notice of any such renumbering. Client agrees that it will
have no right to IP Addresses upon termination of this Agreement, and that any
renumbering required of Client after termination shall be the sole
responsibility of Client.
3. SOFTWARE LICENSE AND RIGHTS
3.1. License. During the term of the applicable Service Order, Frontier
GlobalCenter grants Client a non-transferable, nonexclusive license to use the
Software in object code form only, solely on the Hardware in conjunction with
the Services.
1
<PAGE> 5
FRONTIER GLOBALCENTER
Master Service Agreement No.___
- --------------------------------------------------------------------------------
3.2. Proprietary Rights. This Agreement transfers to Client neither title nor
any proprietary or intellectual property rights to the Software, Hardware,
documentation, or any copyrights, patents, or trademarks, embodied or used in
connection therewith, except for the rights expressly granted herein.
3.3. License Restrictions. Client agrees that it will not itself, or through any
parent, subsidiary, affiliate, agent or other third party:
3.4.1. copy the Software except as expressly allowed under this Agreement. In
the event Client makes any copies of the Software, Client shall reproduce all
proprietary notices of Frontier GlobalCenter on any such copies;
3.4.2. reverse engineer, decompile, disassemble, or otherwise attempt to derive
source code from the Software;
3.4.3. sell, lease, license or sublicense the Software or the documentation;
3.4.4. write or develop any derivative software or any other software program
based upon the Software or any Confidential Information (as defined below); or
3.4.5. use the Software to provide processing services to third parties, or
otherwise use the Software on a 'service bureau' basis.
4. HARDWARE TERMS AND CONDITIONS
4.1. Installation. Frontier GlobalCenter will use commercially reasonable
efforts to install the Hardware as the Hardware is shipped to Frontier
GlobalCenter. At Client's request, Frontier GlobalCenter will work with the
Client on an installation plan to define installation time frame and
requirements.
4.2. Purchase and Title of Hardware. If so indicated on the Service Order,
Client shall purchase the Hardware and deliver, at Client's expense, the
Hardware to the Space. Client agrees that the Hardware shall reside at the Space
during the term of this Agreement.
4.3. Lease of Hardware. If so indicated on the Service Order, Client shall lease
the Hardware, and Frontier GlobalCenter shall obtain and deliver to the Space
the Hardware. In the event Client leases the Hardware, the following terms and
conditions shall apply: The Hardware is and shall remain the property of
Frontier GlobalCenter. Client shall not have taken, or attempt to take, any
right, title or interest therein or permit any third party to take any interest
therein. Client will not transfer, sell, assign, sublicense, pledge, or
otherwise dispose of, encumber or suffer a lien or encumbrance upon or against
the Hardware or any interest in the Hardware. Client will use the Hardware only
at the Space. Client will not move the Hardware from that facility without
Frontier GlobalCenter's prior written permission. Client shall be responsible
for any damage to the Hardware. Client will use the Hardware only for the
purpose of exercising its rights under this Agreement.
4.4. Rent to Own. If so indicated on the Service Order, Client shall lease the
Hardware on a "rent to own" plan. In such event, all of the terms and conditions
in Section 4.3 shall apply, and the following terms and conditions shall also
apply. At the end of the term of the Service Order, providing Client is not in
breach of this Agreement, Client shall have the option to purchase the Hardware.
The purchase price shall be as indicated on the Service Order. Upon payment by
Client of the purchase price, title in the Hardware shall pass to Client at the
Space. Unless the Service Order is extended by mutual agreement, Client shall
immediately delete, or shall allow Frontier GlobalCenter to delete, all copies
of the Software, associated documentation, or any other materials of Frontier
GlobalCenter resident on the Hardware.
2
<PAGE> 6
FRONTIER GLOBALCENTER
Master Service Agreement No.___
- --------------------------------------------------------------------------------
5. SPACE
5.1. License to Occupy. Frontier GlobalCenter grants to Client a non-exclusive
license to occupy the Space. Client acknowledges that it has been granted only a
license to occupy the Space and that it has not been granted any real property
interests in the Space. In the event, however, that this arrangement shall be
construed by the owner of the building in which the Space is situated to be such
a grant and if the landlord of the building asserts such a grant to be a
violation of the lease under which Frontier GlobalCenter occupies its premises,
Frontier GlobalCenter agrees to cooperate with Client in obtaining the approvals
Client may need to obtain from the landlord.
5.2. Material and Changes. Client shall not make any construction changes or
material alterations to the interior or exterior portions of the Space,
including any cabling or power supplies for the Hardware, without obtaining
Frontier GlobalCenter's prior written approval for Client to have the work
performed. Alternatively, Client may request Frontier GlobalCenter to perform
the work. Frontier GlobalCenter reserves the right to perform and manage any
construction or alterations within the Space areas at rates to be negotiated
between the Parties hereto. Client agrees not to erect any signs or devices to
the exterior portion of the Space without submitting the request to Frontier
GlobalCenter and obtaining Frontier GlobalCenter's advance written approval.
5.3. Damage. Client agrees to reimburse Frontier GlobalCenter for all reasonable
repair or restoration costs associated with damage or destruction caused by
Client's personnel, Client's agents, Client's suppliers/contractors, or Client's
visitors during the term or as a consequence of Client's removal of the Hardware
or property installed in the Space.
5.4. Insurance. Unless otherwise agreed, Client agrees to maintain, at Client's
expense, (i) Comprehensive General Liability Insurance in an amount not less
than One Million Dollars ($1,000,000) per occurrence for bodily injury or
property damage, (ii) Employer's liability in an amount not less than Five
Hundred Thousand Dollars ($500,000) per occurrence, and (iii) Worker's
Compensation in an amount not less than that prescribed by statutory limits.
Prior to taking occupancy of the Collocation Space, Client shall furnish
Frontier GlobalCenter with certificates of insurance which evidence the minimum
levels of insurance set forth herein. Client shall also maintain insurance
covering Hardware or property owned or leased by Client against loss or physical
damage.
5.5. Regulations. Client shall comply with and not violate all of Frontier
GlobalCenter's safety, health and operational rules and regulations, which may
be amended by Frontier GlobalCenter from time to time. Client's failure to
comply with Frontier GlobalCenter's rules and regulations shall constitute a
material default under this Agreement. Frontier GlobalCenter may, in its sole
discretion, limit Client's access to a reasonable number of authorized Client
employees or designees. Client shall not interfere with any other clients of
Frontier GlobalCenter, or such other clients' use of the Space.
5.6. Disclaimer. Frontier GlobalCenter does not make any representation or
warranty whatsoever as to the fitness of the Space for Client's use. Client
hereby assumes any and all risks associated with Client, its agents or
employees' use of the Space and shall indemnify, defend and hold harmless
Frontier GlobalCenter from any and all claims, liabilities, judgments, causes of
action, damages, costs, and expenses (including reasonable attorneys' and
experts' fees), caused by or arising in connection with such use.
6. SERVICE INTERRUPTIONS
6.1. 99% Uptime Guarantee. In the event of Downtime (as defined below), the
monthly fee payable for the Services shall be reduced as follows:
6.1.1. if the total Downtime in the calendar month is more than seven and
two-tenths (7.2) hours, but does not exceed fourteen and four-tenths
(14.4) hours, the monthly fee for that month shall be reduced by one-third
(33.3%);
3
<PAGE> 7
6.1.2. if the total Downtime in the calendar month is more than fourteen
and four-tenths (14.4) hours, but does not exceed twenty-one and six
tenths (21.6) hours, the monthly fee for that month shall be reduced by
two-thirds (66.6%); and
6.1.3. if the total Downtime in the calendar month is more than twenty-one
and six tenths (21.6) hours, the monthly fee for that month shall be
waived.
For the purposes of this Section, Downtime shall mean any interruption of one
(1) minute or more in the availability to users of any Web site residing on the
Hardware and made available through the Services, only if such interruption is
due to either (i) failure by Frontier GlobalCenter to manage a server anomaly so
as to avoid interruption in Web availability, or (ii) a disruption in the
connection between any such server and the Internet. For purposes of this
Section, the Internet is deemed to consist of services that commence where
Frontier GlobalCenter transmits a Client's content to Frontier GlobalCenter's
carrier(s) at the Frontier GlobalCenter border router port(s). Such carriers
provide Frontier GlobalCenter with private and dedicated bandwidth. Frontier
GlobalCenter undertakes no obligation for the circuit or link between Frontier
GlobalCenter's facilities and such carrier's services. If router packet loss is
excess of seventy percent (70%) and is sustained for sixty (60) seconds or more,
Frontier GlobalCenter will classify this an "outage." If an "outage" continues
for a period of more than two (2) minutes, then such outage will be deemed
Downtime.
6.2. Investigation of Service Interruptions. At Client's request, Frontier
GlobalCenter will investigate any report of Downtime, and attempt to remedy any
Downtime expeditiously. Frontier GlobalCenter reasonably determines that all
facilities, systems and equipment furnished by Frontier GlobalCenter are
functioning properly, and that Downtime arose from some other cause, Frontier
GlobalCenter reserves the right to recover labor and materials cost for services
actually performed at the usual and customary rates for similar services
provided by Frontier GlobalCenter to clients in the same locality.
6.3. Termination. Client may terminate a Service Order in the event of Downtime
of either twenty-four (24) hours of cumulative time during any continuous twelve
(12) month period, or any continuous Downtime of eight (8) hours or more.
6.4. Sole Remedy. The terms and conditions of this Section 6 shall Client's sole
remedy and Frontier GlobalCenter's sole obligation for any Downtime.
7. USER CONTENT. Client is solely responsible for the content of any postings,
data, or transmissions using the Services ("Content"), or any other use of the
Services by Client or by any person or entity Client permits to access the
Service (a "User"). Client represents and warrants that it and any User will not
use the services for unlawful purposes (including without limitation
infringement of copyright or trademark, misappropriation of trade secrets, wire
fraud, invasion of privacy, pornography, obscenity and libel), or to interfere
with or disrupt other network users, network services or network equipment.
Disruptions include without limitation distribution of unsolicited advertising
or chain letters, repeated harassment of other network users, wrongly
impersonating another such user, falsifying one's network identity for improper
or illegal purposes, sending unsolicited mass e-mailings, propagation of
computer worms and viruses, and using the network to make unauthorized entry to
any other machine accessible via the network. If Frontier GlobalCenter has
reasonable grounds to believe that Client or a User is utilizing the Services
for any such illegal or disruptive purpose, Frontier GlobalCenter may suspend or
terminate Services immediately upon notice to Client. Client shall defend,
indemnify, hold harmless Frontier GlobalCenter from and against all liabilities
and costs (including reasonable attorney's fees) arising from any and all claims
by any person arising out of Client's use of the Services, including without
limitation any content.
4
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FRONTIER GLOBALCENTER
Master Service Agreement No.___
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8. PRICING AND PAYMENT TERMS
8.1. Payment Terms. Client shall pay the fees set forth in the Services Order
Form according to the terms set forth therein. Client agrees to pay a late
charge of two percent (2%) above the prime rate as reported by the Wall Street
Journal at the time of assessment or the maximum lawful rate, whichever is less,
for all undisputed amounts not paid within thirty (30) days of receipt of
invoice.
8.2. Late Payments. In the event of non-payment by Client of sums over-due
hereunder for more than sixty (60) days, Frontier GlobalCenter may upon written
notice to Client either retain any equipment or other assets of Client then in
Frontier GlobalCenter's possession and sell them in partial satisfaction of such
unpaid sums, or request Client to remove equipment from Frontier GlobalCenter's
premises within then (10) days. If Client fails to so remove, Frontier
GlobalCenter may deliver the equipment to Client at the latter's address for
notices at Client's expense for shipment and insurance, and Client shall be
obligated to accept such delivery.
8.3. Price Increases. Frontier GlobalCenter shall not increase the prices for
services during the initial term of any Service Order, but may thereafter change
prices upon sixty (60) days written notice.
9. MAINTENANCE AND SUPPORT. Frontier GlobalCenter shall provide Client with
maintenance and support of the Software and Hardware, if any ("Maintenance and
Support") as specified in the Service Specification.
9.1. Exclusions. Maintenance and Support shall not include services for problems
arising out of (a) modification, alteration or addition or attempted
modification, alteration or addition of the Hardware or Software undertaken by
persons other than Frontier GlobalCenter or Frontier GlobalCenter's authorized
representatives; or (b) programs or hardware supplied by Client.
9.2. Client Duties. Client shall document and promptly report all errors or
malfunctions of the Hardware or Software to Frontier GlobalCenter. Client shall
take all steps necessary to carry out procedures for the rectification of errors
or malfunctions within a reasonable time after such procedures have been
received from Frontier GlobalCenter. Client shall maintain a current backup copy
of all programs and data. Client shall properly train its personnel in the use
and application of the Hardware and Software.
10. TERM AND TERMINATION
10.1. Term. The term of this Agreement shall commence on the Effective Date and
continue indefinitely until terminated in accordance with this Section 10. The
term of each Service Order shall be as indicated therein. The term of any
Service Order may be extended upon mutual agreement.
10.2. Termination Upon Default. Either party may terminate this Agreement in the
event that the other party materially defaults in performing any obligation
under this Agreement and such default continues unremedied for a period of
thirty (30) days following written notice of default. In the event this
Agreement is terminated due to Frontier GlobalCenter's breach, Frontier
GlobalCenter shall refund to Client any Services fees on a straight line
prorated basis.
10.3. Termination Upon Insolvency. This Agreement shall terminate, effective
upon delivery of written notice by a party, (i) upon the institution of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of debts of the other party; (ii) upon the making of an
assignment for the benefit of creditors by the other party; or (iii) upon the
dissolution of the other party.
10.4. Effect of Termination. The provisions of Sections 1, 2.3, 3.2, 3.3,
7.10.4, 11, 12, 13 and 14 shall survive termination of this Agreement. All other
rights and obligations of the parties shall cease upon termination of this
5
<PAGE> 9
FRONTIER GLOBALCENTER
Master Service Agreement No.___
- --------------------------------------------------------------------------------
Agreement. The term of any license granted hereunder shall expire upon
expiration or termination of this Agreement.
11. CONFIDENTIAL INFORMATION. All information identified disclosed by either
party ("Disclosing Party") to the other party ("Receiving Party"), if disclosed
in writing, labeled as proprietary or confidential, or if disclosed orally,
reduced to writing within thirty (30) days and labeled as proprietary or
confidential ("Confidential Information") shall remain the sole property of
Disclosing Party. Except for the specific rights granted by this Agreement,
Receiving Party shall not use any Confidential Information of Disclosing Party
for its own account. Receiving Party shall use the highest commercially
reasonable degree of care to protect Disclosing Party's Confidential
Information. Receiving Party shall not disclose Confidential Information to any
third party without the express written consent of Disclosing Party (except
solely for Receiving Party's internal business needs, to employees or
consultants who are bound by a written agreement with Receiving Party to
maintain the confidentiality of such Confidential Information in a manner
consistent with this Agreement). Confidential Information shall exclude
information (i) available to the public other than by a breach of this
Agreement; (ii) rightfully received from a third party not in breach of an
obligation of confidentiality; (iii) independently developed by Receiving Party
without access to Confidential Information; (iv) known to Receiving Party at the
time of disclosure; or (vi) produced in compliance with applicable law or a
court order, provided Disclosing Party is given reasonable notice of such law or
order and an opportunity to attempt to preclude or limit such production.
Subject to the above, Receiving Party agrees to cease using any and all
materials embodying Confidential Information, and to promptly return such
materials to Disclosing Party upon request.
12. LIMITATION OF LIABILITY. FRONTIER GLOBALCENTER'S LIABILITY FOR ALL CLAIMS
ARISING OUT OF THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNT OF FEES PAID BY
CLIENT TO FRONTIER GLOBALCENTER UNDER THIS AGREEMENT. IN NO EVENT SHALL FRONTIER
GLOBALCENTER BE LIABLE FOR ANY LOSS OF DATA, LOSS OF PROFITS, COST OF COVER OR
OTHER SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING FROM OR IN
RELATION TO THIS AGREEMENT OR THE USE OF THE SERVICES, HOWEVER CAUSED AND
REGARDLESS OF THEORY OF LIABILITY. THIS LIMITATION WILL APPLY EVEN IF FRONTIER
GLOBALCENTER HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES.
13. DISCLAIMER OF WARRANTIES. FRONTIER GLOBALCENTER SPECIFICALLY DISCLAIMS ALL
WARRANTIES EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NON-INFRINGEMENT OF THE SYSTEM OR SERVICES PROVIDED BY FRONTIER GLOBALCENTER
HEREUNDER.
14. MISCELLANEOUS
14.1. Independent Contractor. The relationship of Frontier GlobalCenter and
Client established by this Agreement is that of independent contractors, and
nothing contained in this Agreement shall be construed to (i) give either party
the power to direct and control the day-to-day activities of the other; (ii)
constitute the parties as partners, joint ventures, co-owners or otherwise as
participants in a joint undertaking; or (iii) allow either party to create or
assume any obligation on behalf of the other party for any purpose whatsoever.
14.2. Notices. Any notice required or permitted hereunder shall be in writing
and shall be given by registered or certified mail addressed to the addresses
first written above. Such notice shall be deemed to be given upon the earlier of
actual receipt or three (3) days after it has been sent, properly addressed and
with postage prepaid. Either party may change its address for notice by means of
notice to the other party given in accordance with this Section.
14.3. Assignment. Client may not assign this Agreement, in whole or in part,
either voluntarily or by operation of law, and any attempt to do so shall be a
material default of this Agreement and shall be void.
6
<PAGE> 10
FRONTIER GLOBALCENTER
Master Service Agreement No.___
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14.4. Governing Law. This Agreement shall be interpreted according to the laws
of the State of California without regard to or application of choice-of-law
rules or principles. The parties hereby agree to the exclusive jurisdiction of
the state and federal courts located in Santa Clara County, California.
14.5. Entire Agreement and Waiver. This Agreement shall constitute the entire
agreement between Frontier GlobalCenter and Client with respect to the subject
matter hereof and all prior agreements, representations, and statement with
respect to such subject matter are superseded hereby, including without
limitation any non-disclosure agreement previously executed between the parties.
This Agreement may be changed only by written agreement signed by both Frontier
GlobalCenter and Client. No failure of either party to exercise or enforce any
of its rights under this Agreement shall act as a waiver of subsequent breaches;
and the waiver of any breach shall not act as a waiver of subsequent breaches.
14.6. Severability. In the event any provision of this Agreement is held by a
court of other tribunal of competent jurisdiction to be unenforceable, that
provision will be enforced to the maximum extent permissible under applicable
law, and the other provisions of this Agreement will remain in full force and
effect.
14.7. Non-Solicitation. During the term of this agreement and for a period of
one (1) year thereafter, Client shall not solicit, nor attempt to solicit the
services, of any employee or subcontractor of Frontier GlobalCenter without the
prior written consent of Frontier GlobalCenter.
14.8. Substitution. Frontier GlobalCenter may substitute, change or modify the
Software or Hardware at any time, but shall not thereby alter the technical
parameter of the Services.
Frontier GlobalCenter Client:
/s/ Tom Alvary /s/ David Crampton
By: TOM ALVARY By: DAVID CRAMPTON
------------------------------ ---------------------------------
Title: VP Sales Title: PRESIDENT
------------------------------ ---------------------------------
7
<PAGE> 11
FRONTIER GLOBALCENTER
Master Service Agreement No.___
- --------------------------------------------------------------------------------
SERVICE SPECIFICATION
Frontier GlobalCenter will provide a level of service that includes the
following features and options:
General Features:
Maintenance of the Space (Including Janitorial Services): In connection with the
Space made available hereunder, Frontier GlobalCenter or its landlord shall
perform services that support the overall operation of each space at no
additional charge to Client. Those services include the following:
o Janitorial Services
o 24 x 7 Access to the Space
o Authorized Security System Access to Raised Floor Collocation Space
o Primary A/C 110 volt Power to the Space Backup Power - UPS Systems &
o Battery Plan (30 - 60 minutes survivability objective)
o Generator Back-up (sustained backup power)
o HVAC Systems for facility air conditioning
o Fire Control Systems
o Network Monitoring Systems o Redundant Network Connectivity and Hardware
o 19" Rack Spaces for installation of Hardware
o 10-base-T or 100-base-T's switched port with direct high speed Internet
backbone connection.
24x7 NOC Support: Will provide proactive site monitoring with ExpressLane(TM)
statistics on Client information base; including bandwidth usage, statistics and
network availability reporting, host monitoring and management interface, access
to Frontier GlobalCenter incident tracking system to expedite fault resolution
and remote server reboot.
24x7 Console Access: Frontier GlobalCenter facilities in Sunnyvale and Herndon
will provide systems that allow Clients access to a terminal with a connection
to servers inside the Data Centers.
Frontier GlobalCenter Escalation Plan and Procedures: To be provided in the
Frontier GlobalCenter Customer Information Packet 5-10 days after contract
signing.
Right of Way and Access:
Frontier GlobalCenter will allow 24 x 7 access and right-of-way to Client
Hardware located in Frontier GlobalCenter facility at no charge. Clients will be
escorted at all times while in the facility. Access to the facilities will not
be unreasonably be withheld by Frontier GlobalCenter to Clients for performing
appropriate procedures and maintenance of Hardware, facilities, and systems.
8
<PAGE> 12
FRONTIER GLOBALCENTER
Master Service Agreement Addendum:
PC Flowers and Gifts
This Addendum to the Master Services Agreement shall be incorporated by
reference into said MSA, and shall control all conflicting terms in the Master
Services Agreement and in any Service Order(s) executed thereunder.
Delete paragraph 4.1 in its entirety and replace with the following:
"Installation. Client's Internet Commerce Provider, Exceed Communications
International Inc. ("Exceed") is hereby authorized to use commercially
reasonable efforts to install the Hardware as the Hardware is shipped to
Frontier GlobalCenter. At Exceed's request, Frontier Global Center will work
with Exceed on an installation plan to define installation time frame and
requirements."
In Paragraph 5.5 of the MSA, the following is added to the end of the paragraph:
"Notwithstanding anything to the contrary contained herein, Client acknowledges
that it may access the Space only pursuant to the written consent, and on terms
and conditions acceptable to Exceed."
In Paragraph 8.2 of the MSA, the following is added to the end of the paragraph:
"Notwithstanding anything to the contrary contained herein, Frontier
GlobalCenter shall not retain, sell, request Client to remove or deliver to
Client such equipment or other assets until such time as Exceed has removed
Exceed's proprietary materials from such equipment or other assets."
In Paragraph 10.4 of the MSA, replace the following words appearing on the first
line of the paragraph: "13 and 14" with the following words:
"13, 14 and 15".
In Paragraph 14.5 of the MSA, replace the sentence beginning:
"This Agreement may be changed..." with the following sentence: "This Agreement
may be changed only by written agreement signed by both Frontier Global Center
and Client and approved in writing by Exceed".
Delete Paragraph 14.8 of the MSA and replace with the following:
"Substitution. Frontier GlobalCenter may substitute, change or modify Frontier
GlobalCenter's software or hardware at any time, but shall not thereby alter the
technical parameters of the Services. In the event that any such substitution,
change or modification requires access to the Hardware or Space, Frontier
GlobalCenter shall obtain Exceed's written consent prior to such action."
After Paragraph 14 of the MSA, add the following Paragraph (#15):
"15. Client Relationship with Exceed Communications International Inc.
Notwithstanding anything to the contrary contained herein, Exceed and any of its
employees, agents and servants, as it shall designate in writing, shall have
sole and exclusive access to and control of all or any hardware and software and
the Space covered under this MSA.
The following changes apply to the "Service Specification" page of the MSA In
the "Maintenance of the Space" Paragraph delete the words
"10 base-T or"
Delete the "Right of way and Access" paragraph in its entirety and replace with
the following:
"Frontier GlobalCenter will allow 24 x 7 access and right-of-way to Exceed, in
order for Exceed to maintain Hardware located in Frontier GlobalCenter facility
at no charge. Exceed will be escorted at all times while in the
<PAGE> 13
FRONTIER GLOBALCENTER
Master Service Agreement No.___
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facility. Access to the facilities will not be unreasonably be withheld by
Frontier GlobalCenter to Exceed for performing appropriate procedures and
maintenance of Hardware, facilities, and systems."
Frontier GlobalCenter Client
/s/ Tom Alvary /s/ David Crampton
- ------------------------------------- ----------------------------------------
By: TOM ALVARY By: DAVID CRAMPTON
------------------------------ ---------------------------------
Title: VP Sales Title: PRESIDENT
------------------------------ ---------------------------------
<PAGE> 1
EXHIBIT 10.11
[LETTERHEAD OF TELEFLORA]
Gregg Coccari
President
December 4, 1998
Mr. Bill Tobin
PC Flowers and Gifts
2001 West Main Street, Suite 175
Stamford, Connecticut 06902
Dear Bill:
This is to confirm our agreement made on 12/4/98:
Teleflora allows PC Flowers to carry our product line on your internet web site
only. PC Flowers will not use any Teleflora products in any catalogs. PC Flowers
must place the Teleflora logo on each Teleflora product picture which is
utilized on the web site. PC Flowers can only use the Teleflora product under
the PC Flowers name.
Teleflora will pay PC Flowers a $4 rebate for orders sent through your web site.
These orders will be sent over Teleflora's Dove network when the universal
interface is completed. In the interim period, these orders can be sent Mercury.
We will be having a representative contact you to complete the necessary
paperwork to become a Teleflora member.
We look forward to doing business with PC Flowers.
Sincerely,
/s/ Gregg Coccari
Gregg Coccari
President
<PAGE> 1
EXHIBIT 10.12
PROGRAM AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into on this 14 day
of March, 1997 and effective as set forth in Section I below, by and between PC
Flowers & Gifts, Inc., a Virginia Corporation (PC), whose principal place of
business is located at 2944 Hunter Mill Road, Suite 103, Oakton, Virginia,
22124, and Four Farmers, Inc., a Nevada Corporation (FF), whose principal place
of business is located at 1820 NW 82nd Avenue, Miami, Florida, 33126.
WITNESSETH:
WHEREAS, FF desires to offer a selection of its product line to consumers
through the PC interactive service;
WHEREAS, PC and FF desire to implement a gift ordering system for
interactive networks which will allow consumers to purchase FF products
(selected by PC and FF) as gifts after viewing a graphic reproduction of these
products through PC's service on interactive networks.
WHEREAS, the parties hereto desire to set forth the terms and conditions
pursuant to which they will cooperate with each other in connection with the
development of a gift service to be offered to consumers through interactive
networks.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other goods and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. TERM
This Agreement shall remain binding upon FF and PC for a two (2)
year period commencing June 1, 1997. Either party will have the option to
terminate this Agreement with a ninety (90) day written notice to the other
party. It is understood by both parties that PC will use its best efforts to
remove the FF products from the service, however, FF agrees to fulfill all
orders secured through the service for ninety (90) days after this Agreement is
terminated by either party, for any reason.
2. OBLIGATIONS OF THE PARTIES
(a) PC's sole obligations under the Agreement hereby shall be to FF
and PC shall have no obligations to any other entity.
(b) FF's sole obligations under the Agreement hereby shall be to PC
and FF shall have no obligations to any other entity.
3. OBLIGATIONS OF FF
<PAGE> 2
(a) FF will use its reasonable commercial efforts to maintain the
lowest error rate possible for all orders sold through the PC service on
interactive networks. FF will offer a 100% customer satisfaction guarantee to
all PC consumers against delivery of poor quality products or products not
delivered within 24 hours after the confirmed delivery date. In fulfillment of
that guarantee, FF will replace all orders reported by the online consumer as
being of poor quality or un-delivered, which FF confirms was not delivered
within 24 hours of the date delivery was promised. However, FF is not
responsible if the delivery was refused or could not be accomplished because of
an undeliverable or wrong address entered by the online consumer.
(b) FF shall not actively and directly, or through an affiliate,
solicit business from any consumer who purchases an FF product through the PC
service on interactive networks, provided that such consumer is not at the time
of delivery an FF customer. PC hereby acknowledges and understands that FF
provides flowers on a wholesale and retail basis to consumers and other
customers and through program agreements similar to this agreement, by catalog,
brochures, computer on-line networks, through discount buying clubs, direct
advertising, television, telemarketing and other promotional means ('TF's
Business"). PC also understands and agrees that some of the consumer and
recipients of FF's products under this Agreement may also receive FF products
through FF's Business. FF shall not be in default of the provisions of this
agreement if it provides its services to other customers, clients, consumers and
other recipients of FF's Business.
(c) FF should be prepared to spend a reasonable amount of
promotional funds throughout the year in order to participate in promotions to
gain customer awareness for both the PC service and the FF products offered
through the PC service on interactive networks. However, it is understood by
both parties that the amount to be designated for promotional funds is totally
at the discretion of FF.
(d) FF shall determine the pricing of its products and provide PC
the price at which the products will be sold to PC by FF. FF may change the
pricing of its products from time to time upon 30 day notice to PC.
4. OBLIGATIONS OF PC
(a) PC shall develop an interactive service and will offer FF
products as well as other product offerings in various product categories. The
FF products shall be graphically displayed through the PC service on interactive
networks. It is understood by PC that FF may change the photographic
reproductions periodically at its option. All photographic reproductions of FF
products will be supplied by FF to PC on a CD ROM.
(b) PC shall pay all FF invoices net 30 days. All past due amounts
shall bear per them interest at the rate of 1.5% per month after the due date.
(c) PC will use its best efforts to provide the graphic displays of
FF products
<PAGE> 3
to PC's customers and clients.
5. INDEMNIFICATION
(a) FF hereby agrees to indemnify and hold PC harmless from and
against any and all costs, expenses, claims, suits, actions, damages, or losses,
including reasonable attorney's fees, resulting from any breach by FF of this
Agreement. In connection therewith, FF hereby agrees to indemnify and hold PC
harmless from any claims, suits or other actions alleging that the services or
products provided by FF to PC infringe the patent, copyright, trademark or other
proprietary rights of any third parties and FF will pay all costs, damages and
reasonable attorney's fees finally awarded to any such third party in any
resulting infringement action (or such amounts as may be agreed upon by FF in
any settlement), provided that PC provides prompt written notice to FF of such a
claim, allows FF sole control of the defense of such claim or actions, and fully
cooperates with FF (at FF's expense), in the defense and all related
negotiations.
(b) FF represents to PC that there are no existing contractual
agreements legally prohibiting FF from entering into this Agreement. PC is
relying on this assurance as an inducement to enter into this Agreement.
(c) PC hereby agrees to indemnify and hold FF harmless from and
against any and all costs, expenses, claims, suits, actions, damages or losses,
including reasonable attorney's fees arising from any breach by PC of this
Agreement. In connection therewith, PC hereby agrees to indemnify and hold FF
harmless from any claims, suits or other actions alleging that the services
provided by PC to FF hereunder infringe the copyright, trademark or other
proprietary rights of any third parties and PC will pay all cost, damages and
reasonable attorney's fees finally awarded to such third party in any resulting
infringement action (or such amounts as may be agreed by upon by PC in any
settlement), provided that FF provides prompt written notice to PC of such
claim, allows PC sole control of the defense of such claims or actions, and
fully cooperates with PC (at PC expense), in the defense and all related
negotiation.
(d) PC represents to FF that there are no existing contractual
agreements legally prohibiting PC from entering into this Agreement. FF is
relying on this assurance as an inducement to enter into this Agreement.
6. INSURANCE
(a) FF shall keep in full force and effect at its own cost and
expense during the full term of this Agreement, public liability and property
damage insurance in an amount of not less than three million dollars
($3,000,000.00).
(b) PC shall keep in full force and effect at its own cost and
expense during the full term of this Agreement, public liability and property
damage insurance in an amount of not less than three million dollars
($3,000,000.00).
<PAGE> 4
7. MISCELLANEOUS
(a) Nothing herein contained shall obligate PC or its
customers to purchase any specific quantity of goods s from FF during the term
of this Agreement.
(b) This Agreement and the Agreement for the Exchange of
Confidential Information set forth the entire Agreement among the parties and
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein, and no modification shall be
binding unless set forth in writing and duly executed by the parties hereto.
This Agreement shall inure to the benefit of and be binding upon both parties
hereto and their respective successors and permitted assigns.
(c) All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given (i) when
delivered in person, (ii) on the third (3rd) business day after being mailed by
first class, certified mail, postage prepaid, or (iii) on the first (1st)
business day after being transmitted by cable, telex, telegram or facsimile and
addressed to the party for whom it is intended, as follows (provided that with
respect to facsimile transmission, notice shall not be effective until written
notice is effectively delivered to the receiving party in the manner provided
for in this section):
i. if to PC Flowers & Gifts, Inc.:
PC Flowers & Gifts, Inc.
2944 Hunter Mill Road, Suite 103
Oakton, Virginia 22124
Attn: Mr. Peter MacMurray
Fax:(703) 255-3190
with a copy (which shall not constitute notice) to:
PC Flowers & Gifts, Inc.
134 Davenport Drive
Stamford, Connecticut 06902
Attn: Mr. William Tobin
Fax: (203) 348-0359
ii. if to Four Farmers:
Four Farmers
1820 NW 82nd Avenue
Miami, Florida 33126
Attn: /s/ Tom McCormick
-----------------
<PAGE> 5
Fax: (305) 593-0017
The foregoing names and addresses may be changed from time to time
by written notice given in accordance with section 7(c).
(d) This Agreement may not be assigned by either party hereto
without the prior written consent of the other party hereto, which consent shall
not unreasonably be withheld.
(e) This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by the laws of the State
of New York.
(f) In the event that one or more of the provisions of this
Agreement shall be deemed invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected of impaired thereby.
(g) Nothing contained in this Agreement shall be deemed to create or
cause either party to be the employee, agent or representative of the other
party or have any other relationships with the other party except as set forth
herein.
(h) This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall together constitute one (1)
document.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by its appropriate offices on the day and year first above written.
PC Flowers & Gifts, Inc.
By: /s/ William J. Tobin
---------------------------------
Its: President
Here unto duly authorized
Four Farmers
By: /s/ Lorenzo DeLaTorre
---------------------------------
Its: President
Here unto duly authorized
<PAGE> 6
AGREEMENT FOR EXCHANGE OF CONFIDENTIAL INFORMATION
PC Flowers & Gifts, Inc. (hereinafter "PC") and Four Farmers, Inc. (hereinafter
"FF") agree that the following terms and conditions apply when one of the
parties ("Discloser") discloses confidential information ("Information') to the
other ("Recipient") under this Agreement in connection with a possible
transaction between the parties ("Transaction"). The terms PC and FF shall
include the respective party's affiliates and subsidiaries, if any. The rights
and obligations of the parties hereto therefore also shall inure to such
affiliates and subsidiaries and may be enforced directly by or against such
affiliates and subsidiaries. PC and FF agree that our mutual objective under
this Agreement is to provide appropriate protection for the Information.
1. DISCLOSURE
The Discloser's and the Recipient's Points of Contact will coordinate and
control the disclosure of the Information. Information will consist of certain
confidential and proprietary information and material, including without
limitation data, reports, interpretations, forecasts and records, containing or
otherwise reflecting information concerning the Discloser and its affiliates and
subsidiaries, which is not available to the general public, and may be in
written, visual, oral, encoded, graphic, magnetic, electronic or in any other
tangible or intangible form.
Information should be marked with a restrictive legend of the Discloser. If
Information is disclosed orally, the Information will be identified as
confidential at the time of disclosure. A Point of Contact may be changed by any
party at any time upon written notice to the other. However, if the discloser
fails to identify the information as confidential, that will not preclude the
information from being confidential.
Points of Contact: PC William J. Tobin
FF Lorenzo DeLaTorre
2. OBLIGATION OF CONFIDENTIALITY
The Recipient will use commercially accepted standards of care, which shall at a
minimum be at least the same level of care and discretion to avoid disclosure,
publication, or dissemination of Information as it uses with its own similar
information that it does not wish to disclose, publish or disseminate. The
Recipient may use Information only for the purpose of evaluating the
transaction. The Recipient may disclose Information to: a) its officers,
directors and employees and officers, directors and employees of its parent and
subsidiary companies who have a need to know; b) its legal and financial
advisors; and c) with the Discloser's prior written consent, any other party.
Before disclosure to any of the above parties, such party shall be made aware by
Recipient of the obligation of confidentiality with respect to Information in
accordance with this Agreement and such party shall agree to comply with such
obligations. The Recipient may disclose Information where Recipient shall be
compelled by force of law. However, where Recipient shall be compelled by force
of law to
<PAGE> 7
disclose such information, the Recipient, if so requested by Discloser and at
Discloser's expense, must first give the Discloser prompt written notice and
make a reasonable effort to obtain a protective order.
3. CONFIDENTIALITY PERIOD
Disclosed Information continues to be subject to this Agreement for two years
following the date hereof
4. EXCEPTIONS
No obligation of confidentiality applies to any Information that the Recipient:
a) already possesses without obligation of confidentiality; b) develops
independently; or c) rightfully receives without obligation of confidentiality
from a third party.
No obligation of confidentiality applies to any Information that is, or become,
publicly available without breach of this Agreement.
Discloser retains title to the Information and each party hereby acknowledges
that the Information is proprietary to the Discloser. Neither this Agreement nor
any disclosure of Information grants the Recipient any license under any patents
or copyrights.
5. DISCLAIMERS
THE DISCLOSER PROVIDES INFORMATION ON AN "AS IS" BASIS.
Disclosure of Information containing business plans is for planning purposes
only. The Discloser may change or cancel its plans at any time. Therefore, use
of such Information is at the Recipient's own risk. The Discloser will not be
liable for any damages arising out of use of Information.
6. INJUNCTIVE RELIEF
The parties recognizes that disclosure of Information by Recipient contrary to
the provisions hereof will give rise to irreparable injury to the Discloser,
inadequately compensable in damages, and that, accordingly, Discloser may seek
and obtain injunctive relief against the breach of the within undertakings, in
addition to any other legal remedies which may be available.
7. GENERAL
This Agreement does not require either party to disclose or to receive
Information. You may not assign your rights or delegate your duties or
obligations under this Agreement without prior written consent. Any attempt to
do so is void.
<PAGE> 8
The Recipient will comply with all applicable United States and foreign export
laws and regulations.
Either party may terminate this Agreement by providing one month's written
notice to the other. Any provisions of this Agreement which by their nature
extend beyond its termination will remain in effect beyond such termination
until fulfilled and will apply to either party's successors and assigns.
If there is conflict between the terms and conditions of this Agreement and any
subsequent amendment those of the amendment prevail. Except as modified by a
written amendment signed by the duly authorized representative of the parties,
the terms and conditions of this Agreement remain in full force and effect.
The laws of the State of New York, without giving effect to the conflicts of
laws and principles thereof govern this Agreement.
The parties acknowledge that they have read this Agreement, understand it, and
agree to be bound by its terms and conditions. Further, they agree that the
complete and exclusive statement of the agreement between the parties relating
to this subject shall consist of this Agreement and any amendments. This
statement of the agreement supersedes all proposals or other prior agreements,
oral or written, and all other communication between the parties relating to
this subject. This Agreement may be executed in separate counterparts, each of
which shall be an original, but all of which taken together shall constitute one
and the same instrument. Any reproduction of this Agreement by reliable means
and signed by all parties will be considered an original of this document.
PC Flowers & Gifts, Inc. Four Farmers, Inc.
2944 Hunter Mill Road, Suite 103 1820 NW 82"' Avenue
Oakton, Virginia 22124 Miami, Florida 33126
By: /s/ William J. Tobin /s/ Lorenzo DeLaTorre
-------------------------- --------------------------
Name: William J. Tobin Lorenzo DeLaTorre
Title: President President
Hereunto duly authorized Hereunto duly authorized
Date: 4/14/97 4/14/97
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 9th day of July, 1998, by
and between PC Flowers & Gifts, Inc., a Delaware corporation, the principal
executive office of which is located at 134 Davenport Drive, Stamford,
Connecticut 06902 (the "Corporation"), and William J. Tobin, an individual
residing at 134 Davenport Drive, Stamford, Connecticut 06902 (the "Executive").
WITNESSETH THAT:
WHEREAS, the execution and delivery of this Agreement is a condition to
the employment of the Executive by the Corporation and the purchase by Fingerhut
Companies, Inc. ("Fingerhut") of securities of the Corporation and is entered
into as an inducement to Fingerhut to make such purchase; and
WHEREAS, the Corporation desires to employ the Executive in the capacity
hereinafter stated, and the Executive desires to enter into the employ of the
Corporation in such capacity for the period and on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below, it is hereby covenanted and agreed by the Corporation and the
Executive as follows:
1. Employment Period. The Corporation hereby agrees to employ the
Executive as its chief executive officer and president and the Executive, in
such capacities, agrees to provide services to the Corporation for the period
beginning on the date first above written (the "Commencement Date") and ending
on the third anniversary of the Commencement Date (the "Employment Period").
2. Performance of Duties. The Executive agrees that during the Employment
Period, while he is employed by the Corporation, he shall devote during normal
business hours his undivided attention, business energies and talents to
fulfilling the duties of chief executive officer and president of the
Corporation and shall be in charge of and responsible for the general and
supervisory duties normally and customarily attendant to such office, and shall
render such other lawful services, and exercise such powers, that are from time
to time requested of him, assigned to him or vested in him by the Board of
Directors of the Corporation (the "Board") and that are commensurate with his
position as chief executive officer and president. The Executive shall not have
more than a five percent (5%) ownership interest in any enterprise other than
the Corporation if such ownership interest would have an adverse effect upon the
ability of the Executive to perform his duties hereunder.
3. Compensation. Subject to the terms and conditions of this Agreement,
during the Employment Period, the Executive shall be compensated by the
Corporation for his services as follows:
(a) The Executive shall receive, for each 12-consecutive month
period beginning on the Commencement Date and each anniversary thereof, a
rate of salary that is $175,000 for the first 12-month period and $200,000
for the second and third 12-month
<PAGE> 2
periods (such rate, as is in effect from time to time, "Base Salary").
This Agreement shall be extended automatically for a period of 12 months
at the end of the third 12-month period and each 12-month period
thereafter at a rate of $200,000 unless the Corporation or the Executive
gives notice of termination not less than 60 days prior to the end of each
such period, in which event employment will terminate at the end of such
period.
(b) The Corporation shall reimburse the Executive for all reasonable
business, promotional, travel and entertainment expenses ("Reimbursable
Expenses") incurred or paid by him during the Employment Period in the
performance of his services under this Agreement, provided that the
Executive furnishes to the Corporation appropriate documentation required
by the Internal Revenue Code in a timely fashion in connection with such
expenses and shall furnish such other documentation and accounting as the
Corporation may from time to time reasonably request.
(c) The Corporation shall pay to the Executive, not later than the
date on which the Corporation shall have filed its tax returns for the
periods ended December 31, 1997 and the date hereof (the "Taxable
Periods"), an amount sufficient to make the Executive whole, on an
after-tax basis (after giving effect to the Federal income deduction
resulting from the payment of Connecticut income tax), for any net
increase in the Executive's Federal and Connecticut income tax (as
determined by applying the maximum applicable marginal tax rates, and
after giving effect to the net tax benefit derived by the Executive from
any net loss derived by the Corporation in either of the Taxable Periods)
resulting form the pass-through to the Executive of his share of the
Corporation's items of income and loss for the Taxable Periods.
4. Benefits. The Executive shall be entitled to such benefits as are
provided to all employees of the Corporation and such other benefits as are
approved by the Board of Directors of the Corporation, including the benefits
set forth in Exhibit A ("Benefits"). As such time as the Corporation becomes a
subsidiary of Fingerhut the Executive shall be entitled to participate in the
benefit plans available generally to senior executives of subsidiaries of
Fingerhut which shall be at least as favorable, in the aggregate, to the
Executive as the Benefits.
5. Compensation Due Upon Termination. The Executive's right to
compensation for periods after the date his employment with the Corporation
terminates shall be determined in accordance with the following:
(a) Voluntary Resignation. The Corporation shall have no obligation
to make payments to the Executive in accordance with the provisions of
paragraph 3 for periods after the date on which the Executive's employment
with the Corporation terminates due to the Executive's voluntary
resignation, except for the payment of Base Salary in effect at the time
and accrued through the date of such resignation and Reimbursable Expenses
incurred through such date. For purposes of this paragraph 5, the
Executive's termination of employment with the Corporation shall not be on
account of his voluntary resignation, and shall be deemed to be discharged
by the Corporation without cause, if he resigns following the occurrence
of one of the following events: the assignment to Executive of duties
inconsistent with the Executive's positions, duties, responsibilities,
titles or offices
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<PAGE> 3
as described in paragraph 2 above; the relocation of the Executive's
principal place of business to a state other than Connecticut; a material
breach of any of the provisions of paragraph 3; or any material reduction
by the Corporation of the Executive's duties or responsibilities
(including the appointment, without the Executive's consent, of an
executive officer senior to him); provided that, in each case, the
Corporation has not cured such breach within 10 days after having received
written notice thereof from the Executive.
(b) Discharge for Cause. The Corporation shall have no obligation to
make payments to the Executive in accordance with the provisions of
paragraph 3 for periods after the Executive's employment with the
Corporation is terminated on account of the Executive's discharge for
cause except for benefits in effect at such time, Base Salary in effect at
such time and accrued through the date of such termination and
Reimbursable Expenses incurred through such date. The Executive shall be
considered discharged for "cause" if he is discharged by the Corporation
on account of the occurrence of one or more of the following events:
(i) the Executive becomes habitually addicted to drugs or
alcohol;
(ii) the Executive discloses confidential information in
violation of paragraph 6 except for any such disclosure which
individually or in the aggregate with other such events could not
have a material adverse effect on the Corporation;
(iii) the Executive is convicted of a felony (other than a
felony resulting from a traffic violation);
(iv) the Executive willfully fails to follow a material,
direct lawful order from the Board that is within the reasonable
scope of the Executive's duties under this Agreement and (A) the
Executive has been given a period of thirty (30) days after the
Executive's receipt of written notice form the Board providing a
detailed description of the order that has been breached to cure
such breach, and (B) if the Breach is capable of cure, the Executive
has not cured such breach within such 30-day period; or
(v) the Executive commits an act of material fraud against the
Corporation or violates a duty of loyalty to the Corporation as
interpreted under Section 141 of the Delaware General Corporation
Law.
(c) Disability. The Corporation shall have no obligation to make
payments to the Executive in accordance with the provisions of paragraph 3
for periods after the date the Executive's employment with the Corporation
terminates on account of disability except for Base Salary in effect at
such time earned and accrued through the date of such disability and
Reimbursable Expenses incurred through such date. For purposes of this
subparagraph 5(c), the determination of whether the Executive is disabled
shall be determined in accordance with the Corporation's long term
disability plan if in existence, or by the Board, in its reasonable
discretion.
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<PAGE> 4
(d) Death. The Corporation shall have no obligation to make payments
to the Executive in accordance with the provisions of paragraph 3 for
periods after the date of the Executive's death except for Base Salary in
effect at such time earned and accrued through the date of death, payable
to the Executive's beneficiary, as the Executive shall have indicated in
writing to the Corporation (or if no such beneficiary has been designated,
to the Executive's estate) and Reimbursable Expenses incurred through such
date.
(e) Termination Notice. Any termination by the Corporation shall be
communicated by written notice to the Executive setting forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment.
(f) The final date for which payments are due under this paragraph 5
is the "Employment Termination Date."
6. Confidential Information. Except as may be required by the lawful order
of a court or agency of competent jurisdiction, the Executive agrees to keep
secret and confidential until the second anniversary of the Employment
Termination Date (the "Confidentiality Period") all material nonpublic
information concerning the Corporation and its affiliates which was acquired by
or disclosed to the Executive during the course of his employment by the
Corporation, any of its affiliates and predecessors, including proprietary
information relating to customers (including, without limitation, credit
history, repayment history, financial information and financial statements),
costs, and operations, financial data and plans, whether past, current or
planned and not to disclose the same, either directly or indirectly, to any
other person, firm or business entity, or to sue it in any way except for such
information that is customarily disclosed in the normal course of business or
with the intention of benefiting the Corporation; provided, however, that the
provisions of this paragraph 6 shall not apply to information which is in the
public domain or that was disclosed to the Executive by independent third
parties who were not bound by an obligation of confidentiality; and provided
further, that the Corporation recognizes that the Executive shall, during the
course of his employment with the Corporation, acquire certain general
information regarding the financial condition, and purchasing trends of the
Corporation's customers and agrees that the provisions of this paragraph 6 shall
not apply to the use of such general information provided the use thereof does
not violate applicable Federal or state laws or the provisions of paragraph 7
hereof.
7. Non-Competition. Provided the Corporation has met all of its material
payment obligations to the Executive hereunder, the Executive agrees that for
the period commencing on the Commencement Date and ending on the Non-Competition
Termination Date, as hereafter defined (the "Non-Competition Period"), the
Executive will not directly or indirectly, alone or as a partner, officer,
director, employee, consultant, agent, independent contractor, member or
stockholder of any person, engage in any business activity relating to selling
and/or marketing flowers and items commonly associated with gift-giving
occasions throughout the world; provided, however, that the record or beneficial
ownership by the Executive of Common Stock of the Corporation or of five percent
(5%) or less of the outstanding publicly traded capital stock of any such Person
does not constitute engaging in such business activity. The Executive further
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<PAGE> 5
agrees that, during the Non-Competition Period, the Executive shall not in any
capacity, either separately, jointly or in association with others, directly or
indirectly do any of the following: (a) recruit, solicit, induce or otherwise
influence any of the Corporation's or any subsidiary's employees, consultants,
agents, suppliers, customers or prospects to discontinue, reduce or modify such
relationship with the corporation or any subsidiary; (b) employ or seek to
employ any Person or agent who is then employed or retained by the Corporation
or any subsidiary (or who was so employed or retained at any time within the six
months prior to the date the Executive employs or seeks to employ such person);
and (c) solicit, induce, or influence any proprietor, partner, stockholder,
lender, director, officer, employee, joint venturer, investor, lessor, supplier,
customer or any other Person which has a business relationship with the
Corporation or any subsidiary, at any time during the Non-Competition Period, to
discontinue or reduce or modify the extent of such relationship with the
Corporation or any subsidiary. As used herein, "Non-Competition Termination
Date" means the later to occur of (i) June 30, 2000 or (ii) one year following
the Employment Termination Date; provided, however, if a Qualified Public
Offering (as defined in the Stockholders Agreement) occurs prior to the
occurrence of the events identified in clause (i) or clause (ii), then the
Non-Competition Termination Date shall be the later to occur of (i) June 30,
2001, or (ii) one year following the occurrence of the Qualified Public
Offering.
8. Technology Ownership. Executive hereby assigns to the Corporation all
inventions, discoveries, designs, trade secrets, formulae, processes, methods,
techniques, mask works, improvements, developments, concepts, computer programs,
databases and works which Executive may make or acquire during the term of his
employment hereunder, whether or not during working hours and whether made
solely or jointly with others, that (1) are related to the past, present or
probable future business of the Corporation at the time they are made or
acquired, or (2) are made using the equipment, supplies, facilities, or
proprietary information of the Corporation, as well as all patents, patent
applications, copyrights, copyright registrations and all other intellectual
property rights which cover, protect or are embodied in any of the foregoing,
except for U.S. patent application Serial No. 08/785, 321 and Patent Cooperation
Treaty Application No. PC71US98/00975, the rights to which shall be retained by
the Executive pursuant to the terms of the Technology License Agreement entered
into by the parties as of the date hereof.
9. Executive Offices. The Corporation shall maintain executive offices for
the Executive as the Executive's principal place of business in Fairfield
County, Connecticut.
10. Successors. This Agreement shall be binding on, and inure to the
benefit of, the Corporation and its successors and assigns and any person
acquiring, whether by merger, consolidation, purchase of assets or otherwise,
all or substantially all of the Corporation's assets and business.
11. Nonalienation. The interests of the Executive under this Agreement are
not subject to the claims of his creditors, other than the Corporation, and may
not otherwise be voluntarily or involuntarily assigned, alienated or encumbered
except to the Executive's beneficiary or estate upon his death.
-5-
<PAGE> 6
12. Remedies. The Executive acknowledges that the Corporation and
Fingerhut would be irreparably injured by a violation of paragraphs 6, 7 or 8
and agrees that the Corporation and Fingerhut shall be entitled to an injunction
restraining the Executive from any actual or threatened breach of paragraph 6, 7
or 8 or to any other appropriate equitable remedy without bond or other security
being required. Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement, to recover damages and costs (including
reasonable attorney's fees and expenses) caused by any breach of any provision
of this Agreement and to exercise all other rights existing in its favor.
13. Arbitration. Should the parties fail to settle any dispute or
controversy arising out of or in relation to this Agreement, then such dispute
or controversy shall be determined by arbitration in accordance with the rules
of the American Arbitration Association (the "AAA"). Such dispute or controversy
shall be settled by a panel of three arbitrators pursuant to an arbitration
proceeding conducted in New York, New York. Either party may initiate an
arbitration proceeding provided hereunder by giving written notice thereof to
the other party in which the nature of the dispute or controversy is described
in reasonable detail and one arbitrator is appointed. Within thirty (30) days
following receipt of such notice, the other party shall appoint an arbitrator,
the two arbitrators so appointed shall appoint a third arbitrator and such third
arbitrator shall be the presiding arbitrator during the course of such
arbitration proceedings. Any arbitrator appointed by the Corporation shall be
appointed only with the written approval of Fingerhut. If a party fails to
appoint an arbitrator, or the first two arbitrators appointed shall fail to
appoint a third arbitrator, as provided above, then such arbitrator shall be
appointed by the AAA in New York, New York. The three arbitrators so appointed
shall constitute the panel of arbitrators for such arbitration and shall conduct
such arbitration in accordance with the Arbitration Articles of the Rules of
Conciliation and Arbitration of the AAA. Any determination of such panel shall
be in writing and by majority vote. All fees and expenses of the AAA, the
arbitrators and all other fees and expenses of any arbitration hereunder
(including travel and lodging expenses, and the fees and expenses of experts and
counsel) shall be borne entirely by whichever of the parties is set forth in the
written determination of the arbitrators as the non-prevailing party. The award
rendered by the arbitrators shall be final and binding upon the parties to the
arbitration. Judgment upon any award rendered by arbitration may be entered in
any court having jurisdiction thereof.
14. Waiver of Breach. The waiver by either the Corporation or the
Executive of a breach of any provision of this Agreement shall not operate as or
be deemed a waiver of any subsequent breach by either the Corporation or the
Executive. No waiver shall be effective unless approved in writing by Fingerhut.
15. Notices. All notices, requests, other communications and distributions
to any party hereunder shall be in writing (including prepaid overnight courier,
telex, facsimile transmission or similar writing) and shall be given to such
party at its address or telecopy number set forth below or at such other address
or telecopy number as such party may hereafter specify for the purpose by notice
to the other parties.:
(a) If to the Executive addressed as follows:
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<PAGE> 7
William J. Tobin
134 Davenport Drive
Stamford, CT 06902
(b) If to the Corporation:
PC Flowers & Gifts, Inc.
134 Davenport Drive
Stamford, CT 06902
With a copy to:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55453
Attn: Michael P. Sherman, Esq.
or to such other address as from time to time is provided to the other
parties.
16. Amendment. This Agreement may be amended or canceled by mutual
agreement of the parties in writing with the written approval of Fingerhut, but
without the consent of any other person and no person, other than the parties
hereto, Fingerhut and the Executive's estate upon his death, shall have any
rights under or interest in this Agreement or the subject matter hereof.
17. Applicable Law. The provisions of this Agreement shall be construed in
accordance with the internal laws of Connecticut.
18. Termination. All of the provisions of this Agreement shall terminate
after the expiration of the Employment Period, except that paragraph 5 shall
only terminate after the obligations thereunder have been satisfied in full,
paragraph 6 shall only terminate upon the expiration of the Confidentiality
Period, paragraphs 7 shall terminate upon the expiration of the Non-Competition
Period and paragraph 8 shall not terminate.
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<PAGE> 8
IN WITNESS WHEREOF, the Executive and the Corporation have executed this
Employment Agreement as of the day and year first above written.
------------------------------
William J. Tobin
PC FLOWERS & GIFTS, INC.
By:
---------------------------
Approved:
FINGERHUT COMPANIES, INC.
By:
------------------------
-8-
<PAGE> 9
Exhibit A
to Employment Agreement
between William J. Tobin
and PC Flowers & Gifts, Inc.
1. During the Employment Period, the Executive shall have full use and
enjoyment of an automobile allowance under the terms and conditions of the
Corporation's standard auto allowance policy for senior executives as
established by its Board of Directors.
2. The Executive shall be entitled to three weeks' paid vacation during
each full year during the Employment Period, subject to the Corporation's
vacation policy for senior executives as established by its Board of Directors.
3. The Executive shall be eligible to receive during the Employment Period
all benefits, perquisites and emoluments for which senior executives (at the
Executive's rank) are eligible under every such plan or program to the extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions hereof, as such plans are established by the
Corporation's Board of Directors.
4. During the Employment Period, the Corporation shall provide the
Executive with term life insurance pursuant to a plan with the terms and
conditions established by the Corporation's Board of Directors.
5. During the Employment Period, the Executive shall participate in the
Corporation's group health, dental and disability programs under the general
terms and provisions of such programs established by the Corporation's Board of
Directors.
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<PAGE> 1
EXHIBIT 10.15
PC FLOWERS & GIFTS.COM INC. 1999 STOCK OPTION PLAN
I. ESTABLISHMENT OF PLAN; DEFINITIONS
1. Purpose. The purpose of the PC Flowers & Gifts.com Inc. 1999 Stock Option
Plan is to provide an incentive to key Employees and Directors of PC Flowers &
Gifts.com Inc. (the "Company") who are in a position to contribute materially to
the long-term success of the Company, to increase their interest in the
Company's welfare, and to aid in attracting and retaining Employees and
Directors of outstanding ability.
2. Definitions. Unless the context clearly indicates otherwise, the following
terms shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(c) "Company" shall mean PC Flowers & Gifts.com Inc., a Delaware
corporation.
(d) "Directors" shall mean the members of the Board of Directors of the
Company.
(e) "Disability" shall mean a medically determinable physical or mental
condition which causes an Employee or Director to be unable to
engage in any substantial gainful activity and which can be expected
to result in death or to be of long-continued and indefinite
duration.
(f) "Employee" shall mean any common law employee, including officers,
of the Company as determined in the Code and the Treasury
Regulations thereunder; provided, however, that the term "Employee"
shall not include any individual who, at the time stock options are
granted, owns stock possessing more than 5% of the total combined
voting power of all stock of the Company or of its parent or
subsidiary corporation.
(g) "Fair Market Value" shall mean the fair market value of the Stock as
determined by the Board on the basis of a review of the facts and
circumstances at the time.
(h) "Grantee" shall mean an Employee, Director or consultant granted a
Stock Option under this Plan.
(i) "Incentive Stock Option" shall mean an option granted pursuant to
the Incentive Stock Option provisions as set forth in Part II of
this Plan.
(j) "Non-Qualified Stock Option" shall mean an option granted pursuant
to the Non-Qualified Stock Option provisions as set forth in Part
III of this Plan.
<PAGE> 2
(k) "Plan" shall mean the PC Flowers & Gifts.com Inc. 1999 Stock Option
Plan as set forth herein and as amended from time to time.
(l) "Stock" shall mean authorized but unissued shares of the Common
Stock of the Company or required shares of the Company's Common
Stock.
(m) "Stock Option" shall mean an option granted pursuant to the Plan to
purchase shares of Stock.
3. Shares of Stock Subject to the Plan. Subject to the provisions of Paragraph 2
of Part IV, the Stock which may be issued or transferred pursuant to Stock
Options granted under the Plan and the Stock which is subject to outstanding but
unexercised Stock Options under the Plan shall not exceed 805,000 shares in the
aggregate. If a Stock Option shall expire and/or terminate for any reason, in
whole or in part, without being exercised, the number of shares of Stock as to
which such expired or terminated Stock Option shall not have been exercised may
again become available for the grant of Stock Options. There shall be no terms
and conditions in a Stock Option which provide that the exercise of an Incentive
Stock Option reduces the number of shares of Stock for which an outstanding
Non-Qualified Stock Option may be exercised; and there shall be no terms and
conditions in a Stock Option which provide that the exercise of a Non-Qualified
Stock Option reduces the number of shares of Stock for which an outstanding
Incentive Stock Option may be exercised.
4. Administration of the Plan. The Plan shall be administered by the Board.
Subject to the express provisions of the Plan, the Board shall have authority to
interpret the Plan, to prescribe, amend, and rescind rules and regulations
relating to it, to determine the terms and provisions of Stock Option
agreements, and to make all other determinations necessary or advisable for the
administration of the Plan. Any controversy or claim arising out of or related
to this Plan shall be determined unilaterally by and at the sole discretion of
the Board.
5. Amendment or Termination. The Board may, at any time, alter, amend, suspend,
discontinue, or terminate this Plan; provided, however, that such action shall
not adversely affect the right of Grantees to Stock Options previously granted
and no amendment, without the approval of the stockholders of the Company, shall
increase the maximum number of shares which may be awarded under the Plan in the
aggregate, modify the purchase price of shares under the Plan, materially
increase the benefits accruing to Grantees under the Plan, or materially modify
the eligibility requirements for participation in the Plan.
6. Effective Date and Duration of the Plan. The Plan shall become effective on
February 1, 1999, upon its approval by the Board and subject to its subsequent
approval by the shareholders of the Company within 12 months of such date. This
Plan shall terminate at the close of business on February 1, 2009, and no Stock
Option may be granted under the Plan thereafter, but such termination shall not
affect any Stock Option theretofore granted.
II. INCENTIVE STOCK OPTION PROVISIONS
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<PAGE> 3
1. Granting of Incentive Stock Options.
(a) Only Employees of the Company shall be eligible to receive Incentive
Stock Options under the Plan. Except as shall otherwise be permitted
by the Board, Directors of the Company and its affiliates shall not
be eligible to receive Incentive Stock Options.
(b) The purchase price of each share of Stock subject to an Incentive
Stock Option shall not be less than 100% of the Fair Market Value of
a share of the Stock on the date the Incentive Stock Option is
granted.
(c) No Incentive Stock Option shall be exercisable more than ten years
from the date the Incentive Stock Option was granted.
(d) The Board shall determine and designate from time to time those
Employees who are to be granted Incentive Stock Options and specify
the number of shares subject to each Incentive Stock Option.
(e) Notwithstanding any other provisions hereof, the aggregate fair
market value (determined at the time the option is granted) of the
stock with respect to which Incentive Stock Options are exercisable
for the first time by the Grantee during any calendar year (under
all such plans of the Grantee's employer Company and its parent and
subsidiary, if any) shall not exceed $100,000.
(f) The Board, in its sole discretion, shall determine whether any
particular Incentive Stock Option shall become exercisable in one
or more installments, specify the installment dates, and, within
the limitations herein provided, determine the total period
during which the Incentive Stock Option is exercisable. Further,
the Board may make such other provisions as may appear generally
acceptable or desirable to the Board or necessary to qualify its
grants under the provisions of Section 422 of the Code.
(g) The Board may grant at any time new Incentive Stock Options to an
Employee who has previously received Incentive Stock Options or
other options whether such prior Incentive Stock Options or other
options are still outstanding, have previously been exercised in
whole or in part, or are canceled in connection with the issuance
of new Incentive Stock Options. The purchase price of the new
Incentive Stock Options may be established by the Board without
regard to the existing Incentive Stock Options or other options.
2. Exercise of Incentive Stock Options.
(a) The option price of an Incentive Stock Option shall be payable on
exercise of the option (i) in cash or by check, Company draft or
postal or express money order, (ii) by the surrender of Stock
then owned by the Grantee, or (iii) partially in
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<PAGE> 4
accordance with clause (i) and partially in accordance with clause
(ii) of this Paragraph. Shares of Stock so surrendered in accordance
with clause (ii) or (iii) shall be valued at the Fair Market Value
thereof on the date of exercise, surrender of such Stock to be
evidenced by delivery of the certificate(s) representing such shares
in such manner, and endorsed in such form, or accompanied by stock
powers endorsed in such form, as the Board may determine.
3. Termination of Employment.
(a) If a Grantee's employment is terminated (other than by Disability or
death), the terms of any then outstanding Incentive Stock Option
held by the Grantee shall extend for a period ending on the earlier
of (i) the date established by the Board at the time of grant or
(ii) three months after such termination of employment, and such
option shall be exercisable to the extent it was exercisable as of
the date of termination of employment.
(b) If a Grantee's employment is terminated by reason of Disability, the
term of any then outstanding Incentive Stock Option held by the
Grantee shall extend for a period ending on the earlier of (i) the
date established by the Board at the time of grant or (ii) one year
after the Grantee's last date of employment, and such option shall
be exercisable to the extent it was exercisable as of such last date
of employment.
(c) If a Grantee's employment is terminated by reason of death, the
representative of his or her estate or beneficiaries thereof to whom
the Stock Option has been transferred shall have the right during
the period ending on the earlier of (i) the date established by the
Board at the time of grant or (ii) one year following his or her
death to exercise any then outstanding Incentive Stock Options in
whole or in part.
III. NON-QUALIFIED STOCK OPTION PROVISIONS
1. Granting of Stock Options.
(a) Employees of the Company shall be eligible to receive Non-Qualified
Stock Options under the Plan. Directors of the Company and
consultants engaged by the Company shall also be eligible to receive
Non-Qualified Stock Options.
(b) The Board shall determine and designate from time to time those
Employees and Directors who are to be granted Non-Qualified Stock
Options and the amount subject to each Non-Qualified Stock Option.
(c) The Board may grant at any time new Non-Qualified Stock Options to
an Employee or Director who has previously received Non-Qualified
Stock Options or other options, whether such prior Non-Qualified
Stock Options or other options are still outstanding, have
previously been exercised in whole or in part, or are canceled in
connection with the issuance of new Non-Qualified Stock Options.
-4-
<PAGE> 5
(d) When granting a Non-Qualified Stock Option, the Board shall
determine the purchase price of the Stock subject thereto. Such
price shall not be less than 100% of the Fair Market Value of such
Stock on the date the Non-Qualified Stock Option is granted.
(e) The Board, in its sole discretion, shall determine whether any
particular Non-Qualified Stock Option shall become exercisable in
one or more installments, specify the installment dates, and, within
the limitations herein provided, determine the total period during
which the Non-Qualified Stock Option is exercisable. Further, the
Board may make such other provisions as may appear generally
acceptable or desirable to the Board.
(f) No Non-Qualified Stock Option shall be exercisable more than ten
years from the date such option is granted.
2. Exercise of Stock Options. The option price of a Non-Qualified Stock Option
shall be payable on exercise of the option (i) in cash or by check, Company
draft or postal or express money order, (ii) by the surrender of Stock then
owned by the Grantee, or (iii) partially in accordance with clause (i) and
partially in accordance with (ii) of this Paragraph. Shares of Stock so
surrendered in accordance with clause (ii) or (iii) shall be valued at the Fair
Market Value thereof on the date of exercise, surrender of such to be evidenced
by delivery of the certificate(s) representing such shares in such manner, and
endorsed in such form, or accompanied by stock powers endorsed in such form, as
the Board may determine.
3. Termination of Employment/Cessation of Directorship.
(a) If a Grantee's employment is terminated or a Director Grantee
ceases to be a Director (other than by Disability or death), the
terms of any then outstanding Non-Qualified Stock Option held by
the Grantee shall extend for a period ending on the earlier of
(i) the date established by the Board at the time of grant or
(ii) three months after such termination of employment or
cessation of being a Director, and such option shall be
exercisable to the extent it was exercisable as of the date of
termination of employment or cessation of being a Director.
(b) If a Grantee's employment is terminated by reason of Disability
or a Director Grantee ceases to be a Director by reason of
Disability, the term of any then outstanding Non-Qualified Stock
Option held by the Grantee shall extend for a period ending on
the earlier of (i) the date established by the Board at the time
of grant or (ii) one year after the Grantee's last date of
employment or being a Director, and such option shall be
exercisable to the extent it was exercisable as of such last date
of employment or cessation of being a Director.
(c) If a Grantee's employment is terminated by reason of death or a
Director Grantee ceases to be a Director by reason of death, the
representative of his or her estate or beneficiaries thereof to
whom the Stock Option has been transferred shall have the right
during the period ending on the earlier of (i) the date
established by the
-5-
<PAGE> 6
Board at the time of grant or (ii) one year following his or her
death to exercise any then outstanding Non-Qualified Stock Options
in whole or in part.
(d) Upon the termination of a consultant's services to the Company for
any reason whatsoever, any then outstanding Non-Qualified Stock
Options held by the Grantee shall terminate.
IV. GENERAL PROVISIONS
1. Substitution of Options. In the event of a corporate merger or consolidation,
or the acquisition by the Company of property or stock of an acquired
corporation or any reorganization or other transaction qualifying under Section
424 of the Code, the Board may, in accordance with the provisions of that
Section, substitute options under this Plan for options under the plan of the
acquired corporation provided (i) the excess of the aggregate Fair Market Value
of the shares subject to option immediately after the substitution over the
aggregate option price of such shares is not more than the similar excess
immediately before such substitution and (ii) the new option does not give the
Grantee additional benefits, including any extension of the exercise period.
2. Adjustment Provisions.
(a) In the event that a dividend shall be declared upon the Stock
payable in shares of the Company's common stock, the number of
shares of Stock then subject to any Stock Option outstanding
under the Plan and the number of shares reserved for the grant of
Stock Options pursuant to the Plan shall be adjusted by adding to
each such share the number of shares which would be distributable
in respect thereof if such shares had been outstanding on the
date fixed for determining the shareholders of the Company
entitled to receive such share dividend.
(b) If the shares of Stock outstanding are changed into or exchanged
for a different number or kind of shares or other securities of
the Company or of another company, whether through
reorganization, recapitalization, split-up, combination of
shares, merger, or consolidation, then there shall be substituted
for each share of Stock subject to any such Stock Option and for
each share of Stock reserved for the grant of Stock Options
pursuant to the Plan the number and kind of shares or other
securities into which each outstanding share of Stock shall have
been so changed or for which each such share shall have been
exchanged.
(c) In the event there shall be any change, other than as specified
above in this Section 2, in the number or kind of outstanding
shares of Stock or of any shares or other securities into which
such shares shall have been changed or for which they shall have
been exchanged, then if the Board shall, in its sole discretion,
determine that such change equitably requires an adjustment in
the number or kind of shares theretofore reserved for the grant
of Stock Options pursuant to the Plan and of the
-6-
<PAGE> 7
shares then subject to Stock Options, such adjustment shall be made
by the Board and shall be effective and binding for all purposes of
the Plan and of each Stock Option outstanding thereunder.
(d) In the case of any such substitution or adjustment as provided
for in this Section 2, the option price set forth in each
outstanding Stock Option for each share covered thereby prior to
such substitution or adjustment will be the option price for all
shares or other securities which shall have been substituted for
such share or to which such share shall have been adjusted
pursuant to this Section 2, and the price per share shall be
adjusted accordingly.
(e) No adjustment or substitution provided for in this Section 2 shall
require the Company to sell a fractional share, and the total
substitution or adjustment with respect to each outstanding Stock
Option shall be limited accordingly.
(f) Upon any adjustment made pursuant to this Section 2 the Company
will, upon request, deliver to the Grantee a certificate setting
forth the option price thereafter in effect and the number and kind
of shares or other securities thereafter purchasable on the exercise
of such Stock Option.
3. General.
(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this
Plan, as the Board shall approve.
(b) The granting of a Stock Option in any year shall not give the
Grantee any right to similar grants in future years or any right to
be retained in the employ of or as a Director or consultant to the
Company, and all Employees shall remain subject to discharge to the
same extent as if the Plan were not in effect.
(c) No employee, and no beneficiary or other person claiming under or
through him or her, shall have any right, title or interest by
reason of any Stock Option to any particular assets of the Company,
or any shares of Stock allocated or reserved for the purposes of the
Plan or subject to any Stock Option except as set forth herein.
The Company shall not be required to establish any fund or make any
other segregation of assets to assure the payment of any Stock
Option.
(d) No right under the Plan shall be subject to anticipation, sale,
assignment, pledge, encumbrance, or charge except by will or the
laws of descent and distribution, and a Stock Option shall be
exercisable during the Grantee's lifetime only by the Grantee or his
or her conservator.
(e) Notwithstanding any other provision of this Plan or agreements made
pursuant thereto, the Company's obligation to issue or deliver any
certificate or certificates
-7-
<PAGE> 8
for shares of Stock under a Stock Option, and the transferability of
Stock acquired by exercise of a Stock Option, shall be subject to
all of the following conditions:
(i) Any registration or other qualification of such shares under
any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which
the Board shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable;
(ii) The obtaining of any other consent, approval, or permit from
any state or federal governmental agency which the Board
shall, in its absolute discretion upon the advice of counsel,
determine to be necessary or advisable; and
(iii) Each stock certificate issued pursuant to a Stock Option shall
bear the following legend:
"The transferability of this certificate and the shares of
Stock represented hereby are subject to restrictions, terms
and conditions contained in the PC Flowers & Gifts, Inc. 1999
Stock Option Plan, and an Agreement between the registered
owner of such Stock and PC Flowers & Gifts, Inc. A copy of the
Plan and Agreement are on file in the office of the Secretary
of PC Flowers & Gifts, Inc."
(f) All payments to Grantees or to their legal representatives shall
be subject to any applicable tax, community property, or other
statutes or regulations of the United States or of any state
having jurisdiction thereof. The Grantee may be required to pay
to the Company the amount of any withholding taxes which the
Company is required to withhold with respect to a Stock Option or
its exercise. In the event that such payment is not made when
due, the Company shall have the right to deduct, to the extent
permitted by law, from any payment of any kind otherwise due to
such person all or part of the amount required to be withheld.
(g) In the case of a grant of a Stock Option to any Employee of a
subsidiary of the Company, the Company may, if the Board so
directs, issue or transfer the shares, if any, covered by the
Stock Option to the subsidiary, for such lawful consideration as
the Board may specify, upon the condition or understanding that
the subsidiary will transfer the shares to the Employee in
accordance with the terms of the Stock Option specified by the
Board pursuant to the provisions of the Plan. For purposes of
this Section, a subsidiary shall mean any subsidiary corporation
of the Company as defined in Section 424 of the Code.
(h) A Grantee entitled to Stock as a result of the exercise of an
option shall not be deemed for any purpose to be, or have rights
as, a shareholder of the Company by virtue of such exercise,
except to the extent a stock certificate is issued therefor and
then only from the date such certificate is issued. No
adjustments shall be
-8-
<PAGE> 9
made for dividends or distributions or other rights for which the
record date is prior to the date such stock certificate is issued.
-9-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders:
PC Flower & Gifts.com, Inc.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" and "Selected Combined Financial Data" in
the prospectus.
KPMG LLP
New York, New York
May 10, 1999
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 4,173,000 1,640,000
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<CURRENT-ASSETS> 4,286,000 1,715,000
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<DEPRECIATION> (105,000) (90,000)
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<INCOME-PRETAX> (611,000) (451,000)
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