<PAGE>
As filed with the Securities and Exchange Commission on May 20, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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ftd.com inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 7389 36-4294509
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
3113 Woodcreek Drive
Downers Grove, Illinois 60515
(630) 724-6200
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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Michael J. Soenen
President and Chief Executive Officer
3113 Woodcreek Drive
Downers Grove, Illinois 60515
(630) 724-6200
(Name, Address Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Timothy J. Melton Matthew J. Mallow
Jones, Day, Reavis & Pogue Skadden, Arps, Slate, Meagher & Flom
77 West Wacker Drive LLP
Chicago, Illinois 60601 919 Third Avenue
(312) 782-3939 New York, New York 10022
(212) 735-3000
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Maximum Amount Of
Title Of Each Class Of Aggregate Registration
Securities To Be Registered Offering Price (1) Fee
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<S> <C> <C>
Class A common stock (par value $.01 per
share)...................................... $90,000,000 $25,020
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 20, 1999
PROSPECTUS
Shares
[LOGO]
ftd.com inc.
Class A Common Stock
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This is an initial public offering of shares of Class A common stock of
ftd.com. We are selling all of the shares of Class A common stock offered under
this prospectus.
There is currently no public market for the shares. We anticipate that the
initial public offering price will be between $ and $ per share. We
intend to apply to have our Class A common stock approved for quotation on the
Nasdaq National Market under the symbol "EFTD."
See "Risk Factors" beginning on page 7 to read about various risks that you
should consider before buying shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
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<TABLE>
<CAPTION>
Per
Share Total
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<S> <C> <C>
Public offering price...................................... $ $
Underwriting discounts and commission...................... $ $
Proceeds, before expenses, to us........................... $ $
</TABLE>
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The underwriters may, under some circumstances, purchase up to an additional
shares of Class A common stock from us at the initial public offering
price less the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
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Bear, Stearns & Co. Inc.
Volpe Brown Whelan & Company
Thomas Weisel Partners LLC
The date of this prospectus is , 1999.
<PAGE>
[Description of pictures and captions to come.]
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The information on our Web site is not a part of this prospectus. FTD(R),
the Mercury Man(R) logo and the FTD logo are the property of Florists'
Transworld Delivery, Inc. This prospectus includes trademarks, trade names and
service marks of other companies. Each trademark, trade name or service mark
of any other company appearing in this prospectus is the property of its
owner.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in the Class A common stock. You should read the entire
prospectus carefully, especially the risks of investing in the Class A common
stock discussed under "Risk Factors." Unless we indicate otherwise in this
prospectus, references to "the Company," "ftd.com," "we" or "our" mean ftd.com
inc., and references to "FTDI" mean Florists' Transworld Delivery, Inc.
ftd.com is a leading Internet and telephone marketer of flowers and
specialty gifts. We were founded by FTD, the world's largest floral services
organization, to sell directly to consumers through our www.ftd.com Web site
and our 1-800-SEND-FTD toll-free telephone number. Utilizing a select group of
approximately 6,500 FTD florists who adhere to the highest service standards in
the industry, we can provide same-day delivery of floral orders to over 97% of
the U.S. population. We offer over 150 floral arrangements for holidays and
other occasions as well as 50 specialty gifts, including stuffed animals and
other plush toys, gourmet gift baskets, holiday gift sets and collectible
containers. Our products are available at prices ranging from $29.99 to
$176.99. For the latest twelve months ended March 31, 1999, our total revenues
were $42.8 million and we received a total of 764,382 orders. For the three
months ended March 31, 1999, Internet orders represented 57% of total customer
orders.
The Internet is dramatically affecting the methods by which consumers buy
goods and services. We believe that the number of consumers who purchase
flowers and specialty gifts online and the purchasing frequency of those
consumers will increase substantially over the next few years. We expect this
growth to be driven by several factors, including the consumer's ability to
view and obtain detailed information about the products they are considering
purchasing, the unparalleled convenience offered by shopping online and the
ability to be personally reminded of upcoming purchasing occasions. Forrester
Research estimates that U.S. retail consumer purchases of goods and services
over the Internet will increase from $7.8 billion in 1998 to over $108 billion
in 2003. Forrester Research also forecasts that the U.S. online market for
flowers will increase from $212 million in 1998 to $906 million in 2003 and
that the U.S. online market for specialty gifts will increase from $63 million
in 1998 to $544 million in 2003. We believe that the online flower and
specialty gift markets are highly fragmented and that our strategies to take
advantage of this market opportunity, combined with our competitive strengths
will enable us to grow our business and build market share.
Competitive Strengths
We believe that we will be able to significantly grow our business by
capitalizing on the following competitive advantages:
. Highly recognized brand name. The FTD brand and Mercury Man logo are
among the most recognized consumer brands in America.
. Ideal URL. www.ftd.com is an ideal URL because of the strength and
simplicity of the FTD brand name.
. Unmatched fulfilling florist network. Nearly all of our floral orders are
fulfilled by a select group of approximately 6,500 FTD florists. Our
fulfilling florists adhere to the highest service standards in the
industry, including our 100% satisfaction guarantee and same-day
delivery.
. Superior customer service and quality control. We provide highly trained
customer support at our dedicated call center and through online
services. Our ongoing quality control efforts include randomly placing
test orders with our fulfilling florists and monitoring customer feedback
to ensure customer satisfaction.
. Strong consumer brand relationships. A variety of our products
incorporate other popular consumer brands, such as The Walt Disney
Company's Winnie The Pooh(R), M&M/Mars, Inc.'s M&M's(R) characters,
Hickory Farms(R) and Vermont Teddy Bears(R).
3
<PAGE>
. Significant online presence. We have established a significant online
advertising presence with high-traffic Web sites, such as Yahoo!, the Go
Network(TM), Netscape Netcenter, MSN.com and others. This presence allows
us to stimulate brand awareness and drive traffic to our Web site.
. State-of-the-art interactive e-commerce platform. Our Web site allows us
to store and analyze customer, sales and Web site activity and
incorporates proprietary product search and e-mail reminder services.
Business Strategy
Our objective is to be the leading marketer of flowers and specialty gifts
on the Internet. We intend to pursue this objective by employing the following
strategies:
. Build brand awareness, increase our customer base and increase their
purchasing frequency. We intend to significantly expand our online and
offline advertising, direct marketing/affinity and retention marketing
efforts.
. Enhance our customers' shopping experience. We plan to continue to invest
in technologies that offer customers the most convenient, user-friendly
and secure shopping experience possible.
. Promote our Web site to telephone customers. We intend to encourage
consumers who currently purchase flowers and specialty gifts over the
telephone to make their future purchases through our Web site. We believe
that our Web site provides a superior shopping experience and is a better
medium to retain and market to our customer base.
. Expand our product offerings. We will seek to expand our product
offerings to continue to provide our customers with the best selection of
flowers and specialty gifts.
. Provide superior customer service. By continuing to improve our Web site
and call centers and promoting our 100% customer satisfaction guarantee,
we intend to further develop and strengthen our reputation for superior
customer service.
. Capitalize on FTD's international fulfillment capability. FTD's
fulfilling florist network includes 32,000 florists located outside the
U.S. and Canada. We intend to market our ability to fulfill international
orders to consumers in the U.S.
Recent Developments
In May 1999, MSD Capital, L.P. through DBV Investments, L.P., one of MSD
Capital, L.P.'s investment partnerships, made an investment for a minority
equity stake in ftd.com. MSD Capital, L.P. is the private investment firm for
Michael S. Dell.
------------------
Our principal executive office is located at 3113 Woodcreek Drive, Downers
Grove, Illinois 60515, and our telephone number is (630) 724-6200. Our Web site
address is www.ftd.com and our toll-free telephone number is 1-800-SEND-FTD.
The information contained on our Web site does not constitute a part of this
prospectus.
4
<PAGE>
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by us to purchase additional shares in this offering. The
following information also excludes shares of Class A common stock issuable
upon exercise of options, which vest over various periods of time, outstanding
as of the date of this prospectus.
<TABLE>
<S> <C>
Class A common stock offered shares
by ftd.com...................
Common stock to be outstanding
after the offering:
Class A common stock........ shares
Class B common stock........ shares
Proposed Nasdaq National EFTD
Market symbol................
Use of proceeds............... We intend to use a predominant portion of the
net proceeds from the offering for advertising,
promotion and other marketing activities. We
will use a portion of the net proceeds to repay
indebtedness owed to FTDI and for capital
expenditures and other general corporate
purposes, including working capital. We may
also use a portion of the net proceeds to
acquire or invest in complementary businesses,
services or products, although we currently
have no commitments or agreements with respect
to any transactions of that type.
Voting rights................. The holders of Class A common stock have voting
rights identical to holders of Class B common
stock, except that holders of Class A common
stock are entitled to one vote per share and
holders of Class B common stock are entitled to
ten votes per share. Holders of both classes of
common stock generally will vote together as a
single class on all matters presented to the
stockholders for their vote or approval, except
as otherwise required by applicable Delaware
law.
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Nine months ended
Year ended June 30, March 31,
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1996 1997 1998 1998 1999
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(dollars in thousands, except per order
data)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Total revenues............... $ 18,541 $ 26,255 $ 30,663 $ 19,082 $ 31,183
Gross profit................. 3,110 3,972 4,339 2,281 6,664
Gross profit (%)............. 16.8% 15.1% 14.2% 12.0% 21.4%
Marketing and promotion
expenses.................... $ 4,188 $ 4,864 $ 5,995 $ 3,614 $ 7,797
Loss from operations......... (5,284) (5,705) (6,315) (4,454) (5,755)
Net loss..................... $ (3,306) $ (3,583) $ (3,895) $ (2,774) $ (3,532)
Other Data:
Total orders................. 377,665 513,198 602,396 376,202 538,188
Average order value (1)...... $ 48.96 $ 51.11 $ 50.50 $ 50.70 $ 52.99
Percentage Internet orders... 10.6% 17.0% 33.8% 29.3% 48.9%
</TABLE>
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(1) Average order value represents order revenues and service fees, net of
discounts divided by total orders.
5
<PAGE>
ORGANIZATION AND BACKGROUND OF FTD
Prior to this offering, ftd.com was a wholly owned subsidiary of Florists'
Transworld Delivery, Inc. FTDI is the successor to Florists' Transworld
Delivery Association, a non-profit cooperative association that was founded by
a group of retail florists in the U.S. in 1910. FTDI is a wholly owned
subsidiary of FTD Corporation and, through its subsidiaries, operates all of
the businesses that were conducted by Florists' Transworld Delivery Association
prior to its acquisition by FTD Corporation in December 1994, except for
various trade association activities. Those trade association activities are
conducted by FTD Association, which is a member-owned, non-profit trade
association, representing the interests of, and providing educational and
governmental lobbying services for, FTD florists. Neither FTD Corporation nor
FTDI has any ownership interest in FTD Association.
FTDI is the world's largest floral services organization, based on the
number of members of FTD Association and affiliated organizations. In addition
to the Internet and toll-free telephone businesses conducted by ftd.com, FTDI
and its subsidiaries operate technology-based transaction processing
businesses, which include the Mercury Network(R) and the FTD Clearinghouse. The
Mercury Network is one of the world's largest proprietary telecommunications
networks. It links us, FTDI and approximately 80% of the FTD florists in the
U.S. and Canada, and is used to transmit orders and send messages. The FTD
Clearinghouse provides billing and collection services to FTD florists, for
which FTDI retains a percentage of the sales price of orders it clears. FTDI's
operations also include the FTD Marketplace(R), a leading wholesale supplier of
hardgoods to retail florists in the U.S. and Canada. FTD Marketplace products
include both FTD-branded and non-branded floral arrangement containers and
products, packaging and promotional products and a wide variety of other
floral-related supplies.
In connection with the December 1994 acquisition, FTDI and FTD Association
entered into a Mutual Support Agreement and a Trademark License Agreement,
which govern some aspects of the relationship between FTDI and FTD Association.
These agreements, among other things, provide:
. existing and future FTD florists with the exclusive right to use the FTD
logo and other FTD trademarks in connection with the operation of a
retail florist shop;
. access to the Mercury Network, the FTD Clearinghouse, the FTD Marketplace
and FTDI's other services and products for all FTD florists in good
standing;
. order origination fees, representing a percentage of the order value,
paid by FTDI to FTD Association for every floral order cleared through
the FTD Clearinghouse;
. billing and collection by FTDI on behalf of FTD Association of the
monthly fee that is charged by FTD Association to FTD florists; and
. the rights of FTDI and FTD Association to each designate representatives
to serve on the other's board of directors, including subsidiaries of
FTDI, which means that FTD Association has the right to designate members
of our board of directors, see "Certain Transactions--Rights to Designate
Directors."
6
<PAGE>
RISK FACTORS
An investment in the Class A common stock involves a high degree of risk.
You should consider carefully the following information about these risks
before buying shares of Class A common stock. The risks described below are not
the only ones facing our company. Additional risks may impair our business
operations. If any of the following risks occur, our business, results of
operations or financial condition could be adversely affected. In that case,
the trading price of our Class A common stock could decline, and you may lose
all or part of your investment. You should also refer to the other information
contained in this prospectus, including our financial statements and the notes
to those statements.
Risks Related to Our Business
Our limited operating history makes evaluating our business and its
prospects difficult.
We have a limited operating history on which an investor can evaluate our
business. Our toll-free telephone number, 1-800-SEND-FTD, began operations in
1993 and our Web site, www.ftd.com, began operations in 1994. We have generated
substantially all of our revenues during the past three years. An investor in
our Class A common stock must consider the risks and difficulties we are likely
to encounter as an Internet company in the new and rapidly evolving Internet
markets. If we do not successfully manage these risks, our business, results of
operations and financial condition will be adversely affected. We cannot assure
you that we will successfully address these risks or that our business strategy
will be successful.
We do not have an operating history as an independent company and our
historical financial statements do not reflect operations of an independent
company.
The historical financial statements contained elsewhere in this prospectus
include allocations for technical, human resources, accounting, administrative,
legal and other expenses incurred by FTDI for services rendered to us. These
allocations are not necessarily indicative of, and it is not practical for us
to estimate, the levels of expenses that would have resulted had we been
operating as a separate, stand-alone company. We have also relied on FTDI to
provide financing for our historical operations. As a result, our cash flows to
date are not necessarily indicative of the cash flows that would have resulted
had we been operating as an independent company during the periods presented.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We currently are not profitable and expect to record losses for the
foreseeable future.
We have incurred net losses in each of the past three years. We expect to
record net losses for the foreseeable future. The principal causes of our
losses have been, and are likely to continue to be, significant brand
development costs, marketing costs and systems and technology development
costs. We believe that our ability to make a profit will depend in large part
on our ability to:
. increase awareness of our brand name on the Internet;
. provide our customers with superior e-commerce experiences; and
. continue to enhance our systems and technology to support increased
traffic on our Web site.
Accordingly, we intend to dramatically increase our level of marketing and
promotional expenditures. In addition, we expect to invest heavily to further
develop our Web site, technology and operating infrastructure.
Our brand may not achieve the broad recognition necessary to succeed.
We believe that broader recognition and a favorable consumer perception of
the ftd.com brand are essential to our future success. Successful positioning
of the ftd.com brand will largely depend on the success of our advertising,
marketing and promotion efforts and our ability to continue to provide high
quality products
7
<PAGE>
and customer service. We believe that many consumers currently associate the
ftd.com brand primarily with the sale of flowers and floral arrangements. One
of our growth strategies involves the expansion of our specialty gift
business. To grow our specialty gift business, we will need to increase
awareness of the ftd.com brand in the specialty gift market. As a result, we
intend to continue to pursue an aggressive brand development strategy, which
will include substantially larger advertising, marketing and promotional
programs than those historically undertaken by us. These initiatives will
involve significant expense. If our brand development strategy is
unsuccessful, these expenses may never be recovered and we may be unable to
generate a profit in the future.
In addition, the FTD trademark and associated logos are owned by FTDI and
licensed to us for specific uses. The FTD trademark and associated logos are
also licensed to FTD florists, some of whom also fulfill orders for our
competitors or operate their own Web sites. Any use of the FTD trademark and
associated logos by FTDI or another third party that creates an unfavorable
perception of the FTD trademark and associated logos may dilute our efforts to
broaden recognition and enhance the perception of the ftd.com brand.
Our business could be adversely affected if we are unable to maintain a
significant advertising presence on high-traffic Web sites.
We depend on establishing and maintaining an advertising presence on high-
traffic Web sites, including third party portals and content sites, for a
significant portion of the visits to our Web site. There is intense
competition for placement of advertising on these Web sites, and we may have
to pay significant fees to establish or maintain a presence on these Web sites
in the future. We may be unable to enter into relationships with these sites
on commercially reasonable terms or at all.
Further, many Web sites that we may approach to establish an advertising
presence or who we already have a relationship with may also provide
advertising services for other marketers of flowers and specialty gifts. As a
result, these sites may be reluctant to enter into or maintain relationships
with us. Our business, results of operations and financial condition could be
adversely affected if we do not develop and secure sufficient online
advertising or secure an appropriate presence on commercially reasonable terms
or if these activities do not effectively attract users to our Web site and
lead to a substantial amount of sales.
Our business could be adversely affected if we are unable to maintain our
licensing arrangements.
We intend to continue to seek to market various licensed products, and we
believe that our business benefits when we have the right to market products
that incorporate popular consumer brands. To maintain these relationships, we
need to offer products that are popular with consumers and generate acceptable
returns for the licensors of the brands and characters we use. We rely on FTDI
to develop some of these licensed products. In addition, in order to maintain
these licensing arrangements, it is important that we not take any action that
the licensors believe harms their brands. Our business could be adversely
affected if we are unable to maintain these licensing arrangements with third
parties.
Our quarterly operating results are subject to fluctuations and
seasonality.
Our revenues and operating results may vary from quarter to quarter due to
a number of factors beyond our control, including:
. seasonal fluctuations in consumer purchasing patterns, which tend to be
higher during the most popular floral holidays of Valentine's Day,
Easter, Mother's Day, Thanksgiving and Christmas;
. changes in the growth rate of Internet usage;
. actions of our competitors; and
. general economic and market conditions.
8
<PAGE>
As a result, comparisons of our results of operations from one quarter to
the immediately preceding quarter are of limited relevance in evaluating our
historic financial performance and predicting our future performance. It is
also possible that in some future periods our results of operations may be
below the expectations of public market analysts and investors. In this event,
the price of our Class A common stock may fall.
Market competition among our existing and potential competitors may
adversely affect our business.
Increased competition may result in price reductions, reduced gross margins
and loss of market share. We cannot assure you that we will be able to compete
successfully or that competitive pressures will not adversely affect our
business. We compete with both traditional distribution channels and online
services. A number of Web sites, telephone order originators and catalogs
compete for consumers' attention and spending. In addition, competitors who
are FTD florists are not restricted from using the FTD Clearinghouse and the
network of FTD florists to fill their orders. Some of our existing and
potential competitors may have significant competitive advantages, including
larger customer bases and greater technical expertise, brand recognition or
Internet commerce experience. In addition, some of our existing and potential
competitors may be able to devote significantly greater resources than us to
marketing campaigns, attracting traffic to their Web sites and system
development. We expect competition to continue to increase because there are
few barriers to entry in the floral and specialty gift businesses and because
of the relative ease with which new Web sites can be developed.
Through FTDI's Florists Online(TM) business unit, we currently host Web
sites for approximately 2,500 FTD florists. These florist Web sites are
accessible through our Web site. Consumers may prefer to place orders directly
with these retail florists instead of placing an order through us. Although we
currently receive a monthly fee from FTDI for hosting those Web sites designed
to offset any migration of sales from our Web site to the Web sites of those
retail florists or to those retail florists directly, there can be no
assurance that these revenues will in fact offset revenue loss through this
program. The Florists' Online Hosting Agreement between FTDI and us expires on
May , 2000.
FTDI's relationship with the FTD Association limits the way we can operate
and expand our business.
Our operations are restricted by the terms of the Mutual Support Agreement
between FTDI and FTD Association. The Mutual Support Agreement places various
limitations and restrictions on the manner in which we operate our businesses
and our ability to change or expand our operations. For example, the Mutual
Support Agreement requires us to fill all FTD floral orders using only FTD
florists. Accordingly, our business is dependent in substantial part on the
quality of services provided by FTD florists. The terms of the Mutual Support
Agreement place some limits on our ability to control this quality. In
addition, the terms of the Trademark License Agreement between FTDI and FTD
Association and the Mutual Support Agreement limit the scope of business
activities in which we are permitted to engage. These restrictions may prevent
us from competing efficiently in various extensions to our existing business.
See "Organization and Background of FTD."
Our business operations depend on the continuing contribution of our key
personnel and our ability to attract and integrate new personnel.
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel. Loss of the
services of any of Michael J. Soenen, our President and Chief Executive
Officer, Peter K. Poli, our Vice President and Chief Financial Officer, or
Frederick K. Johnson, our Chief Information Officer, could have an adverse
effect on our business, results of operations and financial condition.
Various members of management joined us in the second quarter of 1999. As a
result, our senior management does not have a history of working together as a
team. Failure to maintain an effective team of senior managers would adversely
affect the operation of our business.
9
<PAGE>
Our future success also depends on our ability to continue to attract,
retain and motivate highly skilled employees. Competition for employees in our
industry is intense. We may be unable to retain our key employees or attract,
assimilate or retain other highly qualified employees in the future. See
"Management."
Conflicts of interest may arise as a result of overlapping management and
boards of directors.
Several of our officers and directors also serve as officers and directors
of FTDI or FTD Corporation. For a description of these overlaps, see
"Management."
Service as both a director or officer of ftd.com and a director or officer
of FTDI or FTD Corporation could create or appear to create potential conflicts
of interest when those directors and officers are faced with decisions that
could have different implications for ftd.com and FTDI or FTD Corporation.
These decisions may relate to potential acquisitions of businesses, the
Intercompany Agreements, competition, the issuance or disposition of
securities, the election of new or additional directors, the payment of
dividends by ftd.com and other matters.
Frederick K. Johnson, our Chief Information Officer, will be employed by
FTDI and ftd.com and will spend a majority of his professional time and effort
on behalf of FTDI. In many instances, these efforts will involve activities
that are unrelated and in some circumstances adverse to the interests of
ftd.com. We have not established any minimum time that Mr. Johnson will be
required to spend on ftd.com matters.
Mr. Johnson and Michael J. Soenen, our President and Chief Executive
Officer, will continue to participate in FTD Corporation's stock option plan. A
number of ftd.com's employees will continue to hold shares of or options to
purchase shares of common stock of FTD Corporation acquired or granted prior to
the employee's transfer to ftd.com. These employees may not yet have received
comparable interests under our Equity Incentive Plan. In addition, following
the closing of the offering, Mr. Johnson may be eligible to participate in
other benefit plans of FTDI or FTD Corporation that provide opportunities to
receive additional shares of common stock of FTD Corporation. These substantial
equity interests in FTD Corporation may present these officers and employees
with incentives potentially adverse to ftd.com's stockholders.
We may not be able to increase capacity or introduce enhancements to our Web
site in a timely manner or without service disruptions.
A key element of our strategy is to generate a high volume of traffic on our
Web site. We believe our present systems may not be adequate to accommodate
rapid growth in user demand. Our inability to add additional hardware and
software to upgrade our existing technology or network infrastructure to
accommodate increased traffic may cause decreased levels of customer service
and satisfaction. Failure to implement new systems effectively or within a
reasonable period of time could adversely affect our business, results of
operations and financial condition.
We also intend to introduce additional or enhanced features and services to
retain current users and attract new users to our Web site. If we introduce a
feature or a service that is not favorably received, our current users may not
use our Web site as frequently and we may not be successful in attracting new
users. We may also experience difficulties that could delay or prevent us from
introducing new services and features. Furthermore, these new services or
features may contain errors that are discovered only after they are introduced.
We may need to significantly modify the design of these services or features to
correct errors. If users encounter difficulty with or do not accept new
services or features, our business, results of operations and financial
condition could be adversely affected.
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Our failure to manage our growth and expansion could adversely affect us.
Growth of our business may place a significant strain on our management
systems and resources and may require us to implement new operational and
financial systems, procedures and controls. We expect that we will need to
continue to expand, train and manage our workforce. Our inability to accomplish
any of these goals could adversely affect our business, results of operations
and financial condition.
The failure of computer software and systems on which our operations are
dependent could adversely affect us.
Our operations depend on the ability of FTDI and our other third party
providers to maintain their respective computer software and systems and
equipment in effective working order. We must also rely on the ability of other
parties to protect their respective computer systems against damage from fire,
power loss, water, telecommunications failures, vandalism and other malicious
acts, and similar unexpected adverse events. Our Web site resides at a third
party site, located in Jersey City, New Jersey, and was developed by a separate
third party. FTDI's systems, including the Mercury Network, are predominantly
located at FTDI's Downers Grove, Illinois facility. The continuing and
uninterrupted performance of these systems is critical to our success.
Unanticipated problems affecting those computer software and systems have
caused from time to time in the past, and in the future could cause,
interruptions in our services. Any damage or failure that interrupts or delays
our operations may dissatisfy our customers and could adversely affect our
business, results of operations and financial condition.
We also depend on a third party to provide communication services to and
from the network of fulfilling FTD florists through the Mercury Network. We may
experience disruptions or interruptions in service due to failures by this
provider. In addition, our Internet customers depend on their Internet service
providers for access to our Web site. These providers have experienced
significant outages in the past and could experience outages, delays and other
difficulties in the future. These types of occurrences could cause users to
perceive our Web site as not functioning properly and therefore cause them to
stop using our services, which could adversely affect our business, results of
operations and financial condition.
We cannot assure you that all of the computer software and systems and
service providers upon which our business depends will be Year 2000 compliant.
We depend heavily upon complex computer software and systems for all phases
of our operations, including, to a significant extent, FTDI's computer systems
and systems of other third parties. Many existing computer software programs
and systems use only two digits to identify a year in the date field. These
software programs and systems were designed and developed without considering
the impact of the upcoming turn of the century. If not corrected, these
computer applications could fail or create erroneous results by or at the Year
2000. In addition to the computer software and systems we use directly, our
operations also depend on the performance of computer software and systems used
by our significant service providers, including providers of financial,
telecommunications and parcel delivery services.
A software or systems Year 2000 compliance failure with respect to FTDI's
internal software and systems, or that of a third party service provider, could
prevent us from being able to process or fulfill orders from our customers or
could disrupt our financial and management controls and reporting systems. Any
of these failures could adversely affect our business, results of operations
and financial condition.
In addition, a significant portion of purchases of merchandise from ftd.com
are made with credit cards, and our business, results of operations and
financial condition could be adversely affected to the extent our customers are
unable to use their credit cards due to Year 2000 issues that are not rectified
by the customers' credit card vendors or third party credit card transaction
processors.
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Our dependence on third parties other than FTDI may adversely affect our
business operations.
Our business depends, in large part, on the ability of the network of
independent FTD florists who fulfill our orders to do so at high quality
levels. Failure of the network of FTD florists to fill our orders at an
acceptable quality level and within the required timeframe would adversely
affect our business, results of operations and financial condition.
We also depend upon a number of third parties to deliver goods and services
to our customers. For example, we rely on third party shippers, including
United Parcel Service and Federal Express, to ship various non-floral
merchandise to our customers. Strikes or other service interruptions affecting
our shippers would have an adverse effect on our ability to deliver merchandise
on a timely basis.
Our success is dependent upon the intellectual property that we use in our
business.
We regard our Internet domain name, copyrights, service marks, trademarks,
trade secrets and similar intellectual property that we use in our business as
critical to our success. We rely on a combination of copyright, trademark and
trade secret laws, confidentiality procedures, contractual provisions and
license and other agreements with employees, customers and others to protect
our intellectual property rights. In addition, we may also rely on the third
party owners of the intellectual property rights we license to protect those
rights. FTDI has pursued and applied for the registration of trademarks and
service marks used in FTDI's and our businesses in the U.S. and various foreign
countries. Effective Internet domain name, copyright, service mark, trademark
and trade secret protection may not be available in every country in which our
products and services are made available online. The steps taken by us, FTDI
and other third parties to protect our intellectual property rights may not be
adequate, and third parties may infringe or misappropriate the intellectual
property and similar proprietary rights used in our business, which could have
an adverse effect on our business, results of operations and financial
condition.
In addition, a substantial portion of the technology incorporated in our Web
site is based on technology licensed from our third party Web site developer,
including our database and Internet server software and the associated source
code. If we are unable to maintain our existing license with our Web site
developer or to timely license necessary technology from other parties on
commercially reasonable terms, we could experience delays and reductions in the
quality of our services.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights we use. The resolution of any
infringement claims may result in lengthy and costly litigation. Moreover,
resolution of a claim may require us to obtain a license to use those
intellectual property rights or possibly to cease using those rights
altogether. Any of those events could have a material adverse effect on our
business, results of operations and financial condition.
Risks associated with potential acquisitions and investments may adversely
affect your investment.
Although we have no present understanding or agreement relating to any
acquisition or investment, we may acquire or make investments in complementary
businesses, products, services or technologies. We cannot assure you that we
will be able to identify suitable acquisition or investment candidates. Even if
we do identify suitable candidates, we cannot assure you that we will be able
to make these acquisitions or investments on commercially acceptable terms. If
we buy a business, we could have difficulty in assimilating the personnel,
operations, products, services or technologies of that business into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses, adversely affect the
prevailing market price of our Class A common stock and adversely affect our
business, results of operations and financial condition. Furthermore, we may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of additional equity securities could be dilutive to our existing
stockholders.
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Risks Related to Our Relationship with FTDI
Control by FTDI and its principal stockholders may adversely affect the
market price of our Class A common stock.
Prior to the closing of this offering, we were a wholly owned subsidiary of
FTDI. FTDI owns, and will continue to own after the close of this offering, all
of the shares of our Class B common stock, which, after the close of this
offering, will represent % of the voting power of our common stock. As a
result of its stock ownership and the other rights described in this
prospectus, FTDI will be able to elect a majority of the members of our board
of directors. This concentration of ownership and other rights could also delay
or prevent a change of control.
Also, FTDI is a wholly owned subsidiary of FTD Corporation, which in turn is
controlled by a group of principal stockholders. The principal stockholders of
FTD Corporation are Perry Acquisition Partners, L.P. and a group of investment
funds and related persons affiliated with Bain Capital, Inc. As a result of
their stock ownership of FTD Corporation and the provisions of a stockholders'
agreement, Perry Acquisition Partners and the Bain Capital entities may be able
to control ftd.com in the same manner that FTDI is able to control us. See
"Certain Transactions--Rights to Designate Directors."
FTDI could elect to sell all or a substantial portion of its equity interest
in ftd.com to a third party. In the event of a sale of FTDI's interest to a
third party, that third party may be able to control ftd.com in the same manner
that FTDI is able to control us. That sale may adversely affect the market
price of our Class A common stock and could adversely affect our business,
financial condition and results of operations. For so long as FTDI maintains a
significant interest in ftd.com, the market price of the Class A common stock
also may be adversely affected by events relating to FTDI that are unrelated to
us.
In addition, under FTDI's credit agreement, all of the Class B common stock
owned by FTDI is pledged to the lenders as security for FTDI's obligations
under that agreement.
Our intercompany arrangements with FTDI may not have been the result of
arm's-length negotiations.
Prior to the closing of this offering, we will enter into a series of
Intercompany Agreements with FTDI. Because we currently are a wholly owned
subsidiary of FTDI, it is possible that these agreements may not have been the
result of arm's-length negotiations. Although we believe the terms of the
Intercompany Agreements are no less favorable to us than those that we could
obtain from unaffiliated third parties, we cannot assure you that this is the
case. We anticipate using a portion of the proceeds of this offering to make
payments to FTDI each year for the foreseeable future under the Intercompany
Agreements. See "Certain Transactions--Intercompany Agreements."
We depend on FTDI as a trademark licensor.
Pursuant to the Trademark License Agreement between FTDI and us, FTDI
licenses to us, on a non-exclusive basis, the FTD and Mercury Man trademarks
and logos and related content in connection with the sale of flowers and
specialty gifts to consumers on the Internet, in our toll-free telephone
business, in our catalogs and in our advertising. The FTD and Mercury Man
trademarks and logos and related content are critical to our marketing and
brand-building activities.
Under the Trademark License Agreement, FTDI can demand that we remove from
our Web site or catalog any content that bears one of FTDI's trademarks that
FTDI determines conflicts with, interferes with or is detrimental to its
reputation or business or for limited other reasons. If FTDI makes this demand,
we are required to remedy the offensive situation, cease using the content in
question or remove FTDI's trademarks. We are also required to conform to FTDI's
guidelines for the use of its trademarks. FTDI has the right to approve all
materials, such as marketing materials, that include any of FTDI's trademarks.
These restrictions may prevent us from marketing our services in the same way
we would if we owned these trademarks.
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FTDI can terminate the Trademark License Agreement between FTDI and us in
some circumstances if more than 20% of the voting power of our common stock is
acquired by a person or group.
In the event more than 20% of the voting power of our common stock is
acquired by a single person or affiliated group, other than Perry Acquisition
Partners, the Bain Capital entities, Fleet Financial Group, Inc. or any of
their affiliates, FTDI has the right to terminate the Trademark License
Agreement between FTDI and us. If the Trademark License Agreement is
terminated, we would need to change the Internet domain name of our Web site
and devote substantial resources toward building new brand names. These events
would have an adverse effect on our business, results of operations and
financial condition.
We depend on FTDI for various services.
Pursuant to the Intercompany Services Agreement between FTDI and us, we may
rely on FTDI for technical, human resources, accounting, administrative, legal
and other services we request. In particular, substantially all of our sales
currently are processed through FTDI's systems, including the Mercury Network
and the FTD Clearinghouse. If FTDI fails to provide these services
satisfactorily, we would be required to obtain these services from another
provider or perform these services. If we choose to obtain these services from
another provider, we may incur additional costs and we may be unable to obtain
these services on commercially reasonable terms. If we choose to perform these
services ourself, we may not be able to perform them adequately. In either
case, our business, results of operations and financial condition could be
adversely affected. The service obligations under the Intercompany Services
Agreement can be terminated by FTDI under circumstances similar to those giving
rise to a right to terminate the Trademark License Agreement.
Contingent liability for FTDI's obligations may adversely affect our
financial condition.
For so long as FTDI continues to own at least 80% of the voting and economic
interest in ftd.com, we will be included in FTD Corporation's consolidated
group for federal income tax purposes. Under the Tax Sharing Agreement, as
amended, for so long as ftd.com is included in FTD Corporation's consolidated
group, we will pay FTD Corporation our proportionate share of FTD Corporation's
income tax liability computed as if we were a separate taxpayer. FTD
Corporation will be required to repay us for any net operating losses or other
tax loss benefits utilized that are attributable to us. By virtue of its
controlling ownership and the Tax Sharing Agreement, as amended, FTD
Corporation effectively will control all of our tax decisions. Under the Tax
Sharing Agreement, as amended, for so long as ftd.com is included in FTD
Corporation's consolidated group, FTD Corporation will have sole authority to
respond to and conduct all tax proceedings (including tax audits) relating to
us, to file all income tax returns on our behalf and to determine the amount of
our liability to (or entitlement to payment from) FTD Corporation.
Notwithstanding the Tax Sharing Agreement, as amended, federal law provides
that each member of a consolidated group is liable for the group's entire tax
obligation. As a result, if FTD Corporation or other members of its
consolidated group fail to make any federal income tax payments required by
law, we would be liable for the shortfall. Similar principles apply for state
income tax purposes in many states. See "Certain Transactions--Income Taxes."
For so long as FTDI continues to own at least 80% of the voting power or
value of ftd.com's capital stock, we also will be jointly and severally liable,
together with all other members of FTD Corporation's "control group," for
pension funding, termination and excise taxes and for other pension-related
matters in the event FTD Corporation fails to fully satisfy its legally
required pension obligations. Because the Class B common stock held by FTDI is
entitled to ten votes per share, we expect that FTDI will retain at least an
80% voting interest for the foreseeable future. We believe that none of these
liabilities were outstanding as of April 30, 1999.
The Intercompany Indemnification Agreement provides that FTDI and FTD
Corporation will indemnify us for specific tax and pension liabilities
resulting from our relationship with FTDI and FTD Corporation, including the
costs of defending against any assertion of claims against ftd.com. We cannot
assure you that
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FTDI or FTD Corporation will be able to fulfill its obligations under that
agreement. In the event we are required to satisfy a significant obligation for
any of these costs, our business, results of operations and financial condition
could be adversely affected. See "Certain Transactions--Intercompany
Agreements--Intercompany Indemnification Agreement."
Potential competition with FTDI may adversely affect our business.
Pursuant to the Trademark License Agreement, we have agreed to refrain from
engaging in activities involving any business currently conducted by FTDI and
FTDI has agreed, on behalf of itself and its affiliates other than us, to
refrain from engaging in the business of directly selling or marketing flowers
or specialty gifts to consumers. In addition, if we make an acquisition that
includes a business currently conducted by FTDI, we have agreed to offer to
sell that business, or the competitive component, to FTDI. Beyond these
obligations, and except as otherwise required by applicable Delaware law,
neither FTDI nor FTD Corporation is under any obligation to refrain from
competing with us or to share with us any future business opportunities
available to it. Accordingly, subject to the Trademark License Agreement,
applicable Delaware law and any future agreement between us and FTDI or FTD
Corporation:
. FTDI, FTD Corporation and their respective officers, directors,
affiliates and employees will not be liable to ftd.com or our
stockholders for breach of any fiduciary duty by reason of any activities
of FTDI or FTD Corporation in competition with ftd.com;
. FTDI and FTD Corporation will not have any duty to communicate or offer
corporate opportunities to ftd.com and will not be liable for breach of
any fiduciary duty as a stockholder of ftd.com in connection with those
opportunities; and
. if a director or officer of ftd.com who also is a director or officer of
FTDI or FTD Corporation learns of a matter that may be a corporate
opportunity for ftd.com, FTDI or FTD Corporation, that director or
officer will not be liable to ftd.com or our stockholders for breach of
any fiduciary duty or duty of loyalty or failure to act in the best
interests of ftd.com if the director or officer offers the corporate
opportunity to FTDI or FTD Corporation rather than us.
Any loss of a corporate opportunity to FTDI or FTD Corporation or any
engagement by FTDI or FTD Corporation in any activity that is similar to the
businesses of ftd.com could have an adverse effect on our business or our other
stockholders.
Risks Related to the Internet
Our success is dependent on continued growth in use of the Internet.
The Internet is new and rapidly evolving. A decrease in the growth of
Internet usage would adversely affect our business, results of operations and
financial condition. The following factors may inhibit growth in Internet
usage, limit visits to ftd.com or limit orders placed through our Web site:
. inadequate Internet infrastructure;
. security and privacy concerns;
. inconsistent quality of service; and
. unavailability of low cost, high-speed service.
Our success is dependent, in large part, upon the ability of the Internet
infrastructure to support increased use. The performance and reliability of the
Internet may decline as the number of users increases or the bandwidth
requirements of users increase. The Internet has experienced a variety of
outages due to damage to portions of its infrastructure. If outages or delays
occur frequently in the future, Internet usage, including usage of our Web
site, could grow slowly or decline. Even if the necessary infrastructure or
technologies are developed, we may have to spend considerable amounts to adapt
our solutions accordingly.
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Our success is dependent on continued growth of Internet commerce.
Our ability to generate a profit in the future depends substantially upon
the widespread acceptance and use of the Internet as an effective medium of
commerce by consumers. Rapid growth in commercial online businesses is a recent
phenomenon. We cannot assure you that a sufficiently broad base of consumers
will visit, or continue to visit, our Web site. Demand for recently introduced
services and products over the Internet is subject to a high level of
uncertainty. The development of the Internet as a viable means of marketing
products directly to consumers is subject to a number of factors, including
continued growth in the number of users of such services, concerns about
transaction security, continued development of the necessary technological
infrastructure, and the development of complementary services and products.
Failure of the Internet and online businesses to become a viable means of
marketing products directly to consumers would adversely affect our business,
results of operations and financial condition.
Concerns related to collection of personal information about our users and
other privacy concerns could adversely affect our business.
Our Web site places various "cookies" on a user's hard drive without the
user's knowledge or consent. We use cookies for a variety of reasons, including
the collection of data derived from the user's Internet activity. Most
currently available Web browsers allow users to remove cookies at any time or
to prevent cookies from being stored on their hard drive. Some commentators,
privacy advocates and governmental bodies have suggested limiting or
eliminating the use of cookies or other data collecting tools. Any reduction or
limitation in the use of cookies or other data collecting tools could limit the
effectiveness of our sales and marketing efforts. In addition, the Federal
Trade Commission and several states have investigated the use by some Internet
companies of personal information. We could incur expenses if new regulations
regarding the use of personal information are introduced or if our privacy
practices are investigated.
Online security breaches could harm our business.
The secure transmission of confidential information over the Internet is
essential in maintaining consumer confidence in our Web site. Substantial or
ongoing security breaches on our system or other Internet-based systems could
significantly harm our business. Any penetration of our network security or
other misappropriation of our users' personal information could subject us to
liability. We may be liable for claims based on unauthorized purchases with
credit card information, impersonation or other similar fraud claims. Claims
could also be based on other misuses of personal information, such as for
unauthorized marketing purposes. These claims could result in litigation and
financial liability. Security breaches also could damage our reputation and
expose us to a risk of loss or litigation and possible liability. We rely on
licensed encryption and authentication technology to effect secure transmission
of confidential information, including credit card numbers. It is possible that
advances in computer capabilities, new discoveries or other developments could
result in a compromise or breach of the technology used by us to protect
customer transaction data.
We may incur substantial expense to protect against and remedy security
breaches and their consequences. A party that is able to circumvent our
security systems could steal proprietary information or cause interruptions in
our operations. Our insurance policies' limits may not be adequate to reimburse
us for losses caused by security breaches. We cannot guarantee that our
security measures will prevent security breaches.
Government regulation and legal uncertainties relating to the Internet and
online commerce could negatively impact our business operations.
Online commerce is new and rapidly changing, and federal and state
regulation relating to the Internet and online commerce is evolving. Currently,
there are few laws or regulations directly applicable to the Internet or online
commerce on the Internet, and the laws governing the Internet that exist remain
largely unsettled. The most recent session of the U.S. Congress resulted in
Internet laws regarding online children's privacy, copyrights and taxation.
This or similar legislation could dampen growth in use and acceptance of the
Internet.
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Due to the increasing popularity of the Internet, it is possible that
additional laws and regulations may be enacted with respect to the Internet,
covering issues such as user privacy, pricing, taxation, content, copyrights,
distribution, antitrust and quality of products and services. In addition,
applicability to the Internet of existing laws governing issues such as
property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. The vast majority
of those laws were adopted prior to the advent of the Internet and related
technologies and, as a result, do not contemplate or address the unique issues
of the Internet and related technologies. Further, growth and development of
online commerce may prompt calls for more stringent consumer protection laws,
both in the U.S. and abroad. We also may be subject to regulation not
specifically related to the Internet, including laws affecting direct marketers
and advertisers. The adoption or modification of laws or regulations applicable
to the Internet could adversely affect our business operations.
In addition, several telecommunications carriers have requested the Federal
Communications Commission to regulate telecommunications over the Internet. Due
to the increasing use of the Internet and the burden it has placed on the
current telecommunications infrastructure, telephone carriers have requested
the FCC to regulate Internet service providers and impose access fees on those
providers. If the FCC imposes access fees, the costs of using the Internet
could increase dramatically. This could result in the reduced use of the
Internet as a medium for commerce, which could adversely affect our business
operations.
We may incur liability for information displayed on and communicated through
our Web sites.
We provide links to Web sites operated by other businesses and we may be
subjected to claims for defamation, negligence, copyright or trademark
infringement or based on other theories relating to the information we publish
on our Web site. These types of claims have been brought, sometimes
successfully, against Internet companies as well as print publications in the
past. Based on links we provide to other Web sites, we could also be subjected
to claims based upon online content we do not control that is accessible from
our Web site.
Our inability to secure and protect our Internet domain name may adversely
affect our business operation.
The ftd.com Internet domain name is our brand on the Internet. The
acquisition and maintenance of Internet domain names generally is regulated by
governmental agencies and their designees. Until recently, Network Solutions,
Inc. was the exclusive registrar for the ".com," ".net" and ".org" generic top-
level Internet domains in the U.S. In April 1999, however, the Internet
Corporation for Assigned Names and Numbers, or ICANN, a new global non-profit
corporation formed to oversee a set of the Internet's core technical management
functions, opened the market for registering Internet domain names to an
initial group of five companies. Network Solutions, Inc. still maintains the
registry containing all the registrations in the generic top-level Internet
domains. The market for registering these Internet domain names in the U.S. and
in foreign countries is expected to undergo further changes in the near future.
We expect the requirements for registering Internet domain names also to be
affected. The relationship between regulations governing Internet domain names
and laws protecting trademarks and similar proprietary rights is unclear. We
may be unable to prevent third parties from acquiring Internet domain names
that are similar to, infringe upon or otherwise decrease the value of our
Internet domain name, the trademarks and other intellectual property rights
used by us and we may need to protect our rights through litigation. If we are
unable to adequately protect our Internet domain name, our trademarks and other
intellectual property rights or incur substantial costs in doing so, it could
have an adverse effect on our business, results of operations and financial
condition.
Changing technology could adversely affect the operation of our Web site.
The Internet, online commerce and online advertising markets are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions and changing customer
preferences. Our future success will depend on our ability to adapt to rapidly
changing technologies and address our customers' changing preferences, however,
we may experience difficulties that delay or prevent our being able to do so.
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Risks Associated With This Offering
The price for our Class A common stock is likely to be highly volatile.
The market price of our Class A common stock is likely to be highly volatile
as the stock market in general, and the market for Internet-related and
technology companies in particular, has been highly volatile. Investors may not
be able to resell their shares of our Class A common stock following periods of
volatility because the market reacts adversely to volatility. The trading
prices of many technology and Internet-related companies' stocks reached
historical highs within the last 52 weeks and reflect relative valuations that
are substantially above historical levels. During the same period, these
companies' stocks also have recorded lows well below historical highs. We
cannot assure you that our stock will trade at the same levels of other
Internet stocks or that we can sustain our Class A common stock's trading
price.
Many of the factors that might cause volatility in the market price of our
Class A common stock are beyond our control. These factors may materially
adversely affect the market price of our Class A common stock, regardless of
how we operate.
Our management's broad discretion in the use of the proceeds of this
offering may adversely affect your investment.
Our management can spend most of the proceeds from this offering in ways
with which our stockholders may not agree. We intend to use a predominant
portion of the net proceeds from the offering for advertising, promotion and
other marketing activities. We also intend to use a portion of the net proceeds
to repay indebtedness owed to our parent under a revolving loan and for capital
expenditures. We expect that the remaining net proceeds will be available for
general corporate purposes, including working capital. We may also use a
portion of the net proceeds to acquire or invest in complementary business,
services or products, although we currently have no commitments or agreements
with respect to transactions of that type. See "Use of Proceeds."
Shares eligible for public sale after this offering may affect our stock
price.
After the closing of this offering, there will be outstanding shares
of our Class A common stock ( if the underwriters' option to purchase
additional shares is exercised in full) and outstanding shares of Class
B common stock. Of these shares, the shares sold in this offering will be
freely tradeable except for any shares purchased by our affiliates as defined
in Rule 144 under the Securities Act. The shares held by our affiliates will be
eligible for sale subject to the volume and manner of sale limitations, other
conditions of Rule 144 under the Securities Act and various lock-up agreements
with the representatives of the underwriters. Sales of a large number of shares
could have an adverse effect on the market price for our Class A common stock.
After the closing of this offering, FTDI will own all of the outstanding
shares of Class B common stock. FTDI will not have any restrictions on selling
any of our securities held by it in the public market, other than as provided
in a lock-up agreement with the representatives of the underwriters and under
applicable securities laws. In addition, FTDI can require us to register the
shares of Class B common stock it owns for public sale. See "Certain
Transactions--FTDI Registration Rights Agreement." Any sales by FTDI could
adversely affect the trading price of our Class A common stock.
As of , 1999, shares of Class A common stock were reserved
for issuance under our Equity Incentive Plan, of which options to
purchase shares were then outstanding, including options that were then
exercisable. We intend to file, within 180 days after the date of this
prospectus, a Form S-8 registration statement under the Securities Act to
register shares issued and reserved for issuance under the Equity Incentive
Plan. Shares of Class A common stock issued under our Equity Incentive Plan or
upon exercise of options after the effective date of the Form S-8 will be
available for sale in the public market,
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subject to Rule 144 volume and manner of sale limitations applicable to
affiliates and various lock-up agreements with the representatives of the
underwriters. The possible sale of a significant number of these shares may
cause the price of our Class A common stock to fall.
The value of your investment will be diluted upon the consummation of the
initial public offering.
Based upon the estimated initial public offering price of $ per share,
purchasers of Class A common stock offered hereby will experience an immediate
dilution in net tangible book value of $ per share of Class A common stock
purchased or $ per share if the underwriters' option to purchase
additional shares of Class A common stock is exercised in full. To the extent
outstanding options to purchase Class A common stock are exercised, there may
be further dilution. See "Dilution."
Anti-takeover provisions of applicable Delaware law and our Certificate of
Incorporation and Bylaws may make it more difficult for a third party to
acquire us.
Provisions of Delaware law, our Certificate of Incorporation or our Bylaws
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--
Anti-Takeover Effects of Various Provisions of Delaware Law and Our
Certificate of Incorporation and Bylaws."
We do not intend to pay dividends.
We currently intend to retain any future earnings for funding growth and,
as a result, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."
------------------
This prospectus contains various "forward-looking statements" that are
based on our current expectations, assumptions, estimates and projections
about ftd.com and our industry. These forward-looking statements involve risks
and uncertainties. Our actual results could differ from those anticipated in
the forward-looking statements as a result of the factors described in this
section 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.
19
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the shares
of Class A common stock offered by this prospectus will be approximately $
million. This estimate is based on an assumed initial public offering price of
$ per share, the mid-point of the offering range ($ million if the
underwriters' option to purchase additional shares is exercised in full), and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses that we will pay. We intend to use a predominant
portion of the net proceeds for advertising, promotion and other marketing
activities. We will use a portion of the net proceeds to repay all outstanding
indebtedness owed to FTDI. As of May , 1999, we owed FTDI $ million under
a $5.0 million revolving loan agreement. This loan matures on and
bears interest at an annual rate of LIBOR plus the applicable margin under
FTDI's credit facility (6.6875% at April 26, 1999). We also intend to use a
portion of the net proceeds for capital expenditures, including technology and
physical infrastructure. We expect to use any remaining net proceeds to fund
general corporate purposes, including working capital. We may also use a
portion of the net proceeds to acquire or invest in complementary businesses,
services or products, although we currently have no commitments or agreements
with respect to any transactions of that type.
As of the date of this prospectus, we cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of the
offering other than the $ million of net proceeds that we will use to repay
all outstanding indebtedness owed to FTDI. Accordingly, our management will
have broad discretion in the application of the net proceeds.
Pending use, the net proceeds will be invested in short-term investment-
grade instruments, certificates of deposit or direct or guaranteed obligations
of the U.S. government.
DIVIDEND POLICY
We currently intend to retain all of our earnings to finance our operations
and we do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We may incur indebtedness in the future that may prohibit
or effectively restrict the payment of dividends, although we have no current
plans to do so.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of ftd.com as of March 31,
1999:
(1) on a pro forma basis giving effect to:
(a) the formation of ftd.com and the initial contribution of assets by
FTDI and assumption of the liabilities by ftd.com related to the
formation; and
(b) the issuance and sale of 30,000 shares of our Series A 8%
Cumulative Redeemable Convertible Preferred Stock to DBV
Investments, L.P. for consideration of $3.0 million; and
(2) on a pro forma as adjusted basis giving effect to:
(a) the sale of the shares of Class A common stock offered by
this prospectus at an assumed initial public offering price of
$ per share, the mid-point of the offering range, and after
deducting the estimated underwriting discounts and commissions and
estimated offering expenses that we will pay; and
(b) the automatic conversion of each share of Series A preferred stock
into one share of Class A common stock upon the closing of this
offering.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the notes to those statements included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
March 31, 1999
---------------------
Pro Forma
Pro Forma As Adjusted
--------- -----------
(in thousands, except
share data)
<S> <C> <C>
Series A 8% Cumulative Redeemable Convertible Preferred
Stock, $.01 par value; 30,000 shares issued and
outstanding pro forma; none issued and outstanding pro
forma as adjusted....................................... $ 3,000 $ --
------- ----
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; 30,000 shares issued and outstanding pro
forma; no shares issued and outstanding pro forma as
adjusted (1)............................................ -- --
Class A common stock, $.01 par value; 250,000,000 shares
authorized; no shares issued and outstanding pro forma;
shares issued and outstanding pro forma as adjusted
(2)..................................................... --
Class B common stock, $.01 par value; 100,000,000 shares
authorized; 3,410,000 shares issued and outstanding pro
forma; shares issued and outstanding pro forma as
adjusted................................................ 34
Retained deficit......................................... (1,403)
------- ----
Total stockholders' equity (deficit)................... (1,369)
------- ----
Total capitalization................................. $ 1,631 $
======= ====
</TABLE>
- ----------
(1) Pursuant to the terms of the outstanding shares of preferred stock, each
share will automatically convert into one share of Class A common stock
upon the closing of this offering.
(2) Excludes shares of Class A common stock issuable upon the exercise of
options outstanding with a weighted average exercise price of $ per
share. Assumes the conversion of the outstanding shares of preferred stock
into Class A common stock.
21
<PAGE>
DILUTION
The pro forma net tangible book value of ftd.com as of March 31, 1999 was
approximately $ , or $ per share of common stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the pro forma shares of common stock
outstanding as of March 31, 1999. After giving effect to the issuance and sale
of the shares of Class A common stock offered by this prospectus at an assumed
initial public offering price of $ per share, the mid-point of the offering
range, after deducting estimated underwriting discounts and commissions and
estimated offering expenses that we will pay, the pro forma net tangible book
value of ftd.com as of March 31, 1999 would have been $ million, or $
per share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors. The following table illustrates this per
share dilution assuming the underwriters' option to purchase additional shares
of Class A common stock is not exercised:
<TABLE>
<S> <C>
Initial public offering price per share............................... $
Pro forma net tangible book value per share at March 31, 1999......... $
Increase in pro forma net tangible book value per share attributable
to new investors.....................................................
Pro forma net tangible book value per share after offering............
--------
Dilution per share to new investors................................... $
========
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
the differences between the number of shares of common stock purchased from
ftd.com, the aggregate cash consideration paid and the average price per share
paid by existing stockholders and new investors purchasing shares of Class A
common stock in this offering:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------
Shares Total
Purchased Consideration
-------------- --------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. % $ % $
New investors......................
------ ----- ------- -----
Total.......................... 100.0% $ 100.0%
====== ===== ======= =====
</TABLE>
The foregoing discussion and table assumes no exercise of any stock options
and the automatic conversion of all outstanding shares of our Series A
preferred stock into shares of Class A common stock upon the
closing of this offering. As of , 1999, there were options
outstanding to purchase a total of shares of Class A common stock at a
weighted average exercise price of $ per share. To the extent that any of
these options are exercised, there may be further dilution to the new
investors.
22
<PAGE>
SELECTED FINANCIAL DATA
ftd.com was formed in May 1999 to own and operate the Internet and telephone
flower and specialty gift business of FTDI. The telephone business was
previously operated by FTD Direct Access, Inc., a wholly owned subsidiary of
Florists' Transworld Delivery Association, which was acquired by FTD
Corporation on December 18, 1994. FTD Direct Access, Inc. continued to operate
this business as a wholly owned subsidiary of FTDI until May 31, 1995 when FTD
Direct Access, Inc. was dissolved and the results of its operations and its
financial position were subsequently accounted for as the consumer floral order
business unit of FTDI.
The following table sets forth selected historical data of FTD Direct
Access, Inc., the Predecessor Company, until its May 31, 1995 dissolution date
and for FTDI's consumer floral order business unit for the period June 1, 1995
to March 31, 1999. Although ftd.com was not formed as a subsidiary until May
1999, the financial statements present the operations of the businesses owned
and operated by ftd.com as if it had been a separate entity since June 1, 1995.
The statement of operations presented below for the years ended June 30,
1994 and 1995 and the selected balance sheet data as of June 30, 1994, 1995 and
1996 are derived from unaudited financial statements not included in this
prospectus. The statement of operations presented below for the years ended
June 30, 1996, 1997 and 1998 and the balance sheet data as of June 30, 1997 and
1998 are derived from our audited financial statements included elsewhere in
this prospectus. Interim data for the nine months ended March 31, 1998 and 1999
are unaudited, but include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of that data. Results for the nine months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole. The selected financial data is
qualified by reference to, and should be read in conjunction with, our
financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessor Company
------------------------ Nine months ended March
Year ended June 30, 31,
--------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Order revenues and
service fees, net of
discounts.............. $ 6,503 $ 14,574 $ 18,490 $ 26,230 $ 30,423 $ 19,072 $ 28,520
Commissions from FTDI... -- -- -- -- -- -- 2,596
Other................... -- -- 51 25 240 10 67
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues....... 6,503 14,574 18,541 26,255 30,663 19,082 31,183
Fulfillment and
processing services.... 5,847 9,629 15,431 22,283 26,324 16,801 24,519
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 656 4,945 3,110 3,972 4,339 2,281 6,664
Operating Expenses:
Marketing and
promotion............. 1,701 2,668 4,188 4,864 5,995 3,614 7,797
Technology
development........... 217 232 1,251 1,546 1,420 1,019 1,442
General and
administrative........ 1,240 4,082 2,955 3,267 3,239 2,102 3,180
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 3,158 6,982 8,394 9,677 10,654 6,735 12,419
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations.... (2,502) (2,037) (5,284) (5,705) (6,315) (4,454) (5,755)
Interest expense........ 263 245 226 267 177 170 131
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before income
taxes.................. (2,765) (2,282) (5,510) (5,972) (6,492) (4,624) (5,886)
Income tax benefit...... 1,106 913 2,204 2,389 2,597 1,850 2,354
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss................ $ (1,659) $ (1,369) $ (3,306) $ (3,583) $ (3,895) $ (2,774) $ (3,532)
=========== =========== =========== =========== =========== =========== ===========
Selected Statement of
Operations Percentages: (unaudited) (unaudited) (unaudited) (unaudited)
Total revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 10.1 33.9 16.8 15.1 14.2 12.0 21.4
Marketing and promotion. 26.2 18.3 22.6 18.5 19.6 18.9 25.0
Technology and
development............ 3.3 1.6 6.7 5.9 4.6 5.3 4.6
General and
administrative......... 19.1 28.0 15.9 12.4 10.6 11.0 10.2
Balance Sheet Data: (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Total assets............ $ 110 $ 141 $ 148 $ 247 $ 2,212 $ 2,439 $ 1,711
Total liabilities....... 1,989 1,769 1,719 2,265 2,363 1,548 3,080
Stockholder's equity
(deficit).............. (1,879) (1,628) (1,571) (2,018) (151) 891 (1,369)
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements that appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ from
those discussed in the forward-looking statements. Factors that could cause or
contribute to any differences include, but are not limited to, those discussed
below and elsewhere in this prospectus, particularly in "Risk Factors."
Overview
We began selling our products directly to consumers through our 1-800-SEND-
FTD toll-free telephone number in 1993 and through our www.ftd.com Web site in
1994. Prior to May 19, 1999, our business was conducted through a business unit
of FTDI. As a business unit of FTDI, we relied on FTDI to provide all financing
for our operations.
ftd.com was formed in May 1999 to own and operate the Internet and telephone
flower and specialty gift business of FTDI. The telephone business was
previously operated by FTD Direct Access, Inc., a wholly owned subsidiary of
Florists' Transworld Delivery Association, which was acquired by FTD
Corporation on December 18, 1994. FTD Direct Access, Inc. continued to operate
this business as a wholly owned subsidiary of FTDI until May 30, 1995 when FTD
Direct Access, Inc. was dissolved and the results of operations of its
operations and its financial position were subsequently accounted for as the
consumer floral order business unit of FTDI.
The historical financial statements included elsewhere in this prospectus
and discussed below reflect various assumptions relating to the allocation of
revenues and expenses attributable to our business and the other businesses of
FTDI. These assumptions may not be indicative of the financial results that
would have resulted if we had been an independent company during the periods
presented. The cash flows reflected as contribution from FTDI in the statements
of cash flows represent contributions from FTDI to finance our operations.
These cash flows are not indicative of the cash flows that would have resulted
had we been operating as a separate stand-alone company during the periods
presented. Furthermore, the historical financial information indicates that we
have incurred significant net losses.
As we seek to expand our business, we believe that our operating expenses
will significantly increase as a result of the financial commitments related to
increased advertising, marketing and promotional activities and expenditures
designed to enhance our brand and Web site. We expect that we will continue to
incur losses and generate negative cash flow from operations for the
foreseeable future.
In view of the rapidly changing nature of our business, our limited
operating history and the seasonality of our business, we believe that
comparisons of our operating results for any period with those of the preceding
period are not necessarily meaningful and should not be relied upon as an
indication of future performance. Our revenues and operating results may vary
from quarter to quarter due to a number of factors, some of which are beyond
our control. This fluctuation primarily is attributable to increased sales and
advertising expenditures during the popular floral holiday seasons in the
fiscal quarters ending March 31, June 30 and December 31.
Product inventory is maintained by our fulfilling florists and other third
party manufacturers or distributors. As a result, we offer a large selection of
merchandise without the investment in inventory, the ongoing expense related to
the management of that inventory or the risk of product obsolescence or
spoilage.
Total revenues include order revenues and service fees, net of discounts;
commissions from FTDI; and other revenues. Order revenues and service fees, net
of discounts, represent revenues attributable to the sale of products through
our Web site and 1-800-SEND-FTD, and the service fees charged to our customers
for each
24
<PAGE>
order. These service fees are $6.99 for most orders placed through our Web site
and $9.99 for most orders placed through 1-800-SEND-FTD. Commissions represent
a $5.00 commission paid to us by FTDI since July 1998 for each order that we
clear through the FTD Clearinghouse. FTDI will continue to pay us these
commissions pursuant to a three-year agreement expiring in 2002.
Effective May , 1999, we began to earn fees in connection with our hosting of
Florists Online Web sites. Until May 2000, FTDI will pay us a monthly service
fee of $50.00 for each Web site hosted. The monthly service fee under this
agreement will be reviewed, and possibly adjusted, on an annual basis in the
event we agree to continue to provide these hosting services.
Costs and expenses related to our revenues consist of fulfillment and
processing services. Fulfillment costs primarily consist of costs of fulfilling
orders and related delivery charges. For orders fulfilled by an FTD florist, we
historically paid FTDI between 73% and 80% of the sales price of the order for
fulfillment. Effective , 1999, this payment was decreased from 80% to
73% of the sales price of the order. For orders that are not fulfilled by an
FTD florist, such as holiday gift baskets, the cost of fulfillment is based on
a prenegotiated price for the product and is paid to the manufacturer or third
party distributor who fulfills the order. Processing services costs primarily
consist of salaries and related expenses of processing service employees, fees
due to FTDI for credit card processing services, a fee of 7% of the sales price
of an order that we pay FTDI for orders that are cleared through the FTD
Clearinghouse and amounts due to the third party call center that processes
orders through our toll-free telephone number.
Marketing and promotion expenses primarily consist of costs related to
advertising and affinity programs. In future periods, we expect that these
expenditures will increase significantly. In addition, in the historical
periods, marketing and promotion expenses included cost allocations from FTDI's
expenditures related to shared advertising and publicity. These allocations
will not be charged in the future. Technology development consists of fees due
to the developer of our Web site, allocated information technology costs from
FTDI related to shared systems and personnel. General and administrative
expenses primarily consist of direct corporate expenses; customer service
costs; royalty expenses; and amounts charged to us in connection with services
provided to us by FTDI related to the utilization of resources, including
executive, accounting and administrative personnel, space and equipment rental,
facilities expenses, recruiting expenses, professional fees and other corporate
expenses.
Interest expense for all periods was allocated using FTDI's weighted average
interest rate applied to average stockholder's deficit which represents FTDI's
cumulative funding of our cash requirements and results of operations until our
date of incorporation. Effective with the May 1999 execution of a $5.0 million
revolving loan agreement with FTDI to provide financing from the date of
incorporation to the closing of this offering, interest expense will be
reflected in our financial statements pursuant to the contractual interest rate
on the loan and borrowings thereunder.
We have entered into an amendment to FTDI's and FTD Corporation's Tax
Sharing Agreement pursuant to which our operating results will be included in
the consolidated tax returns of FTD Corporation, our ultimate parent, and we
will be reimbursed for any tax benefits realized by FTD Corporation as a result
of that inclusion. The tax provisions are based upon management's estimate of
our annualized effective tax rate, which approximates a tax provision computed
on a stand-alone basis as if we filed a separate tax return. Income tax benefit
for the nine months ended March 31, 1999 was $2.4 million compared to $1.8
million for the nine months ended March 31, 1998 and $2.6 million, $2.4 million
and $2.2 million for each of the years ended June 30, 1998, 1997 and 1996,
respectively.
We will incur costs associated with some of our Intercompany Agreements.
Pursuant to our Trademark Licensing Agreement, we will pay FTDI a royalty equal
to 1% of our order revenues and service fees, net of discounts, in exchange for
the right to use FTDI's trademarks in connection with the sale of goods and
services on the Internet, through catalogs and over the telephone. The
Intercompany Services Agreement will require FTDI to provide us with various
corporate services and space sharing. In exchange for FTDI's provision of
corporate services, we will pay FTDI an amount equal to 105% of FTDI's
allocated costs associated with these
25
<PAGE>
services. FTDI will allow us to use a portion of its offices at a cost equal to
an estimate of the prevailing market rate for such space and including 105% of
operating expenses. For a more complete discussion of these Intercompany
Agreements, see "Certain Transactions--Intercompany Agreements."
Results of Operations
Nine months ended March 31, 1999 compared to nine months ended March 31,
1998.
Total revenues increased by $12.1 million, or 63%, to $31.2 million for the
nine months ended March 31, 1999 from $19.1 million for the nine months ended
March 31, 1998. The increase in total revenues was attributable to a
significant increase in the number of orders, as well as an increase in average
order value.
Order revenues and service fees, net of discounts, increased by $9.4
million, or 49%, to $28.5 million for the nine months ended March 31, 1999 from
$19.1 million for the nine months ended March 31, 1998. The increase from the
corresponding period of the prior year was primarily the result of an increase
of Internet order volume as well as an increase in order value and service
fees. During the nine months ended March 31, 1999, 51% of our order revenues
and service fees were generated by telephone orders and 49% through the
Internet compared to 71% by telephone and 29% through the Internet during the
nine months ended March 31, 1998.
Commission revenue was $2.6 million for the nine months ended March 31,
1999. We did not generate any commission revenue during the nine months ended
March 31, 1998. The increase from the corresponding period of the prior year
was the result of the commencement in July 1998 of an incentive program to
gather orders for FTDI. Commission revenue was 8.3% of total revenues for the
nine months ended March 31, 1999.
Other revenues increased by $57,000 to $67,000 for the nine months ended
March 31, 1999 from $10,000 for the nine months ended March 31, 1998. Other
revenues were less than 1% of total revenues for the nine months ended March
31, 1999 and 1998, respectively.
Cost of fulfillment and processing services increased by $7.7 million, or
46%, to $24.5 million for the nine months ended March 31, 1999 from $16.8
million for the nine months ended March 31, 1998. This was the result of
increased order volume, which was primarily attributable to the increase in
Internet sales discussed above. In addition, we realized cost reductions that
resulted from improvements in order processing operations. As a percentage of
total revenues, cost of fulfillment and processing services decreased to 79%
for the nine months ended March 31, 1999 from 88% for the nine months ended
March 31, 1998. This decrease was principally due to the increase in commission
revenue in the nine months ended March 31, 1999.
Marketing and promotion expenses increased by $4.2 million, or 117%, to $7.8
million for the nine months ended March 31, 1999 from $3.6 million for the nine
months ended March 31, 1998. The increase was primarily due to an increase in
Internet advertising, promotion and customer acquisition marketing.
Technology development expenses increased by $423,000, or 42%, to $1.4
million for the nine months ended March 31, 1999 from $1.0 million for the nine
months ended March 31, 1998. The increase was primarily due to costs related to
Web site maintenance and enhancements required to handle the increased volume
on our site as well as to improve the speed of order processing.
General and administrative expenses increased by $1.1 million, or 52%, to
$3.2 million for the nine months ended March 31, 1999 from $2.1 million for the
nine months ended March 31, 1998. The increase was primarily due to our
increased expenses required to handle the growth in Internet sales.
Year ended June 30, 1998 compared to year ended June 30, 1997.
Total revenues increased by $4.4 million, or 17%, to $30.7 million for the
year ended June 30, 1998 from $26.3 million for the year ended June 30, 1997.
The increase in total revenues was attributable to a significant increase in
the number of orders and was partially offset by a decline in average order
value.
Order revenues and service fees, net of discounts, increased by $4.2
million, or 16% to $30.4 million for the year ended June 30, 1998 from $26.2
million for the year ended June 30, 1997. The increase from the
26
<PAGE>
corresponding period of the prior year was primarily the result of an increase
of Internet order volume as well as an increase in order value and service
fees. During the year ended June 30, 1998, 66% of our order revenues and
service fees were generated by telephone orders and 34% through the Internet
compared to 83% by telephone and 17% through the Internet during the year ended
June 30, 1997.
Other revenues increased to $215,000 for the year ended June 30, 1998 from
$25,000 for the year ended June 30, 1997. Other revenues were less than 1% of
total revenues for the years ended June 30, 1998 and 1997, respectively.
Cost of fulfillment and processing services increased by $4.0 million, or
18%, to $26.3 million for the year ended June 30, 1998 from $22.3 million for
the year ended June 30, 1997. This increase was the result of increased order
volume, which was primarily attributable to the increase in Internet sales
discussed above, as well as higher product costs attributable to an increase in
the percentage of the floral order value due to florists who fulfill the
orders. As a percentage of total revenues, cost of fulfillment and processing
services was 86% for the year ended June 30, 1998 and 85% for the year ended
June 30, 1997.
Marketing and promotion expenses increased $1.1 million, or 22%, to $6.0
million for the year ended June 30, 1998 from $4.9 million for the year ended
June 30, 1997. The increase was primarily due to an increase in Internet
advertising, and customer acquisition marketing.
Technology development expenses decreased $126,000, or 8%, to $1.4 million
for the year ended June 30, 1998 from $1.5 million for the year ended June 30,
1997. The decrease was primarily due to a decrease in general information
technology expenses from FTDI as a result of a decrease in their expenditures
as well as a new contract with our Web site developer that reduced the variable
expenses for their services.
General and administrative expenses decreased slightly to $3.2 million for
the year ended June 30, 1998 from $3.3 million for the year ended June 30,
1997.
Year ended June 30, 1997 compared to year ended June 30, 1996.
Total revenues, consisting primarily of order revenues and service fees, net
of discounts, increased by $7.8 million, or 42%, to $26.3 million for the year
ended June 30, 1997 from $18.5 million for the year ended June 30, 1996. The
increase in total revenues was attributable to a significant increase in the
numbers of orders, as well as an increase in average order value.
Cost of fulfillment and processing services increased by $6.9 million, or
45%, to $22.3 million for the year ended June 30, 1997 from $15.4 million for
the year ended June 30, 1996. This was the result of increased order volume,
due primarily to the increase in orders from marketing programs discussed
above, as well as higher product costs attributable to an increase in the
percentage of the floral order value due to florists who fulfill the orders. As
a percentage of total revenues, cost of fulfillment and processing services
provided was 85% for the year ended June 30, 1997 and 83% for the year ended
June 30, 1996.
Marketing and promotion expenses increased by $676,000, or 16%, to $4.9
million for the year ended June 30, 1997 from $4.2 million for the year ended
June 30, 1996. The increase was due to increased advertising, promotion and
other customer acquisition marketing related to affinity programs.
Technology development expenses increased by $295,000, or 25%, to $1.5
million for the year ended June 30, 1997 from $1.2 million for the year ended
June 30, 1996. The increase was primarily due to increased costs related to
order processing system development and maintenance required to handle the
increased volume and to better track the source of our orders as well as
customer demographic information.
General and administrative expenses increased by $312,000, or 10%, to $3.3
million for the year ended June 30, 1997 from $3.0 million for the year ended
June 30, 1996. The increase was primarily due to an increase in expenses that
were required to handle the growth of our business.
27
<PAGE>
Quarterly Results of Operations and Seasonality
The following table sets forth unaudited quarterly statement of operations
for the eight quarters ended March 31, 1999. This unaudited quarterly
information has been derived from our unaudited financial statements and, in
the opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information of
the periods covered. The quarterly data should be read in conjunction with the
financial statements and the notes to those statements that appear elsewhere in
this prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------------------------------------------------
June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- ------------- ------------ --------- -------- ------------- ------------ ---------
(unaudited, dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Order revenues and
service fees, net of
discounts.............. $8,385 $3,383 $ 8,031 $ 7,658 $11,351 $5,574 $11,566 $11,380
Commissions from FTDI... -- -- -- -- -- 530 1,056 1,010
Other................... 4 2 7 1 230 1 66 --
------ ------ ------- ------- ------- ------ ------- -------
Total revenues......... 8,389 3,385 8,038 7,659 11,581 6,105 12,688 12,390
Fulfillment and
processing services.... 6,878 2,990 7,075 6,736 9,523 4,860 9,870 9,789
------ ------ ------- ------- ------- ------ ------- -------
Gross profit............ 1,511 395 963 923 2,058 1,245 2,818 2,601
Operating expenses:
Marketing and promotion. 1,438 532 1,464 1,618 2,381 1,585 3,115 3,097
Technology development.. 294 364 393 262 401 473 396 573
General and
administrative......... 955 559 760 783 1,137 803 1,087 1,290
------ ------ ------- ------- ------- ------ ------- -------
Total operating
expenses............... 2,687 1,455 2,617 2,663 3,919 2,861 4,598 4,960
------ ------ ------- ------- ------- ------ ------- -------
Loss from operations.... (1,176) (1,060) (1,654) (1,740) (1,861) (1,616) (1,780) (2,359)
Interest expense........ 79 84 81 5 7 30 75 26
------ ------ ------- ------- ------- ------ ------- -------
Loss before income
taxes.................. (1,255) (1,144) (1,735) (1,745) (1,868) (1,646) (1,855) (2,385)
Income tax benefit...... 502 458 694 698 747 658 742 954
------ ------ ------- ------- ------- ------ ------- -------
Net loss................ $ (753) $ (686) $(1,041) $(1,047) $(1,121) $ (988) $(1,113) $(1,431)
====== ====== ======= ======= ======= ====== ======= =======
<CAPTION>
Three months ended
-----------------------------------------------------------------------------------------------
June 30, September 30, December 31, March 31, June 30, September 30, December 31, March 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- ------------- ------------ --------- -------- ------------- ------------ ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Order revenues and
service fees, net of
discounts.............. 100.0% 100.0% 99.9% 100.0% 98.0% 91.3% 91.2% 91.8%
Commissions from FTDI... 0.0 0.0 0.0 0.0 0.0 8.7 8.3 8.2
Other................... 0.0 0.0 0.1 0.0 2.0 0.0 0.5 0.0
------ ------ ------- ------- ------- ------ ------- -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Fulfillment and
processing services.... 82.0 88.3 88.0 88.0 82.2 79.6 77.8 79.0
------ ------ ------- ------- ------- ------ ------- -------
Gross profit............ 18.0 11.7 12.0 12.0 17.8 20.4 22.2 21.0
Operating expenses:
Marketing and promotion. 17.1 15.7 18.2 21.1 20.5 26.0 24.5 25.0
Technology development.. 3.5 10.8 4.9 3.4 3.5 7.8 3.1 4.6
General and
administrative......... 11.4 16.5 9.5 10.2 9.8 13.1 8.6 10.4
------ ------ ------- ------- ------- ------ ------- -------
Total operating
expenses............... 32.0 43.0 32.6 34.7 33.8 46.9 36.2 40.0
------ ------ ------- ------- ------- ------ ------- -------
Interest expense........ 1.0 2.5 1.0 0.1 0.1 0.5 0.6 0.2
------ ------ ------- ------- ------- ------ ------- -------
Loss from operations.... (14.0) (31.3) (20.6) (22.7) (16.0) (26.5) (14.0) (19.0)
Income tax benefit...... 6.0 13.5 8.6 9.4 6.3 10.8 5.8 7.7
------ ------ ------- ------- ------- ------ ------- -------
Loss before income
taxes.................. (15.0) (33.8) (21.6) (22.8) (16.1) (27.0) (14.6) (19.2)
Net loss................ (9.0)% (20.3)% (13.0)% (13.4)% (9.8)% (16.2)% (8.8)% (11.5)%
====== ====== ======= ======= ======= ====== ======= =======
</TABLE>
28
<PAGE>
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside of our
control. For example, Easter, which is a popular floral holiday, sometimes
falls in our fiscal quarter ended March 31 and sometimes falls in our fiscal
quarter ended June 30. In addition to this fact and the general increases in
sales and advertising expenditures during the popular floral holiday seasons in
the fiscal quarters ended March 31, June 30 and December 31 discussed above
under the caption "--Overview," other factors that may adversely affect our
quarterly operating results include:
. our ability to retain existing customers, attract new customers at a
steady rate and maintain customer satisfaction;
. our ability to manage fulfillment operations;
. the development, announcement or introduction of new Web sites, services
and products by us or our competitors;
. price competition;
. our ability to upgrade and develop our systems and infrastructure;
. the level of use of the Internet for the purchase of consumer products
like those we offer;
. our ability to attract new and qualified personnel in a timely manner;
. the level of traffic on our Web site;
. our ability to manage effectively our development of new business
segments and markets, including the expansion of our business in the
specialty gift market;
. technical difficulties, system downtime or Internet brownouts;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure;
. disruptions in service by common carriers due to strikes or otherwise;
. our ability to successfully manage the integration of operations and
technology of acquisitions and other business combinations; and
. general economic conditions and economic conditions specific to the
Internet, e-commerce and the floral and specialty gift industries.
Liquidity and Capital Resources
We currently are indebted to FTDI in an aggregate principal amount of $
million as of May , 1999 in connection with a $5.0 million revolving loan
agreement executed on May , 1999. The loan bears interest at an annual rate
of LIBOR plus the applicable margin under FTDI's credit facility. Upon
completion of this offering and the application of a portion of the proceeds to
repay all outstanding indebtedness owed to FTDI, our liquidity requirements
will primarily be for capital expenditures and working capital needs, including
substantially increased advertising, promotion and other marketing expenses. In
the fiscal year ended June 30, 1998, we made capital expenditures of $2.5
million, which related to the purchase of a distribution agreement for use in
interactive advertising. We expect that the net proceeds of this offering and
cash flow from operations will be sufficient to fund anticipated capital
expenditures and working capital needs for the foreseeable future.
Cash used by operating activities was $1.6 million for the nine months ended
March 31, 1999, compared to cash used by operating activities of $3.2 million
for the nine months ended March 31, 1998. Amortization expense was $1.1 million
and $208,000 for the nine months ended March 31, 1999 and 1998, respectively.
The decrease in cash used in operating activities is primarily due to the net
loss for the period, partially offset by an increase in amortization and
accounts payable for the nine months ended March 31, 1999.
29
<PAGE>
Cash used by investing activities was $689,000 and $2.5 million for the nine
months ended March 31, 1999 and 1998, respectively. During the nine months
ended March 31, 1999 and 1998, cash used by investing activities primarily
consisted of capital expenditures related to the purchase of additional
distribution agreements.
Cash provided by financing activities, which reflects contributions from
FTDI, was $2.3 million for the nine months ended March 31, 1999 compared to
$5.7 million for the nine months ended March 31, 1998.
Cash used by operating activities was $3.3 million for the year ended June
30, 1998 compared to cash used by operating activities of $3.1 million for the
year ended June 30, 1997. Amortization expense was $521,000 for the year ended
June 30, 1998. There were no assets to amortize during the prior ended June 30,
1997. Factors contributing to the increase in cash used in operating activities
were the net loss for the period and a decrease in accounts payable offset by
amortization and an increase in accrued expenses.
Cash used by investing activities was $2.5 million for the year ended June
30, 1998. There was no cash used by investing activities for the year ended
June 30, 1997. As discussed above, cash used by investing activities during the
year ended June 30, 1998 consisted of the purchase of a distribution license
for use in interactive advertising.
Cash provided by financing activities, which reflects contributions from
FTDI, was $5.8 million for the year ended June 30, 1998 compared to $3.1
million for the year ended June 30, 1997.
From the date of incorporation until the completion of this offering, we
will utilize the proceeds from the sale of shares of our Series A preferred
stock to DBV Investments, L.P. and borrowings from FTDI under a $5.0 million
revolving loan to meet our liquidity requirements. Upon completion of this
offering, we intend to repay this note and utilize a portion of the remaining
offering proceeds to fund our liquidity needs. We expect that the remaining
proceeds from the offering will be sufficient to meet our short-term and long-
term liquidity requirements through fiscal 2001.
Year 2000 Issues
Most of our information technology (IT) functions are performed by FTDI
pursuant to the Intercompany Agreements. Accordingly, we have relied on FTDI to
assist us in assessing Year 2000 issues related to FTDI and us. The information
supplied with respect to these matters has been provided by FTDI. FTDI
conducted a review of our computer systems, as well as those of FTDI, and
identified the systems (IT systems, as well as non-IT systems) that could be
affected by the "Year 2000" issue. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the computer programs used by us that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a major system failure or miscalculation.
The Year 2000 issue is believed to affect virtually all companies and
organizations, which would include us and FTDI, as well as systems and
applications of our vendors or customers. FTDI identified various IT systems,
such as those internal systems that reside on FTDI's mainframe, that are
considered "mission critical" and have developed a plan for converting these
computer systems for Year 2000 compliance.
As of March 31, 1999, FTDI has contracted with an outside consulting firm,
which has assisted us in the evaluation and selection of a compatible software
package based on our IT system requirements and those of FTDI. FTDI is
currently in the implementation and training process for this new software
package. There are three phases to the software implementation process. Phase 1
consists of the software implementation for the general ledger and accounts
payable systems. Phase 2 consists of the software implementation for FTD
Marketplace distribution, floral order processing and accounts receivable.
Phase 3 consists of the software implementation for credit card processing and
directory publications. As of March 31, 1999, Phase 1 has been completed and
tested. Phase 2 was tested and completed as of April 5, 1999. FTDI expects
Phase 3 of the project to be completed and tested by August 31, 1999. This new
software package will allow FTDI to improve its execution and efficiency in
recording financial and operational information in addition to providing a
solution to the Year 2000 issue with respect to our IT computer systems.
30
<PAGE>
In addition to the computer systems and software we use directly, our
operations also depend on the performance of computer systems and software used
by our significant service providers, including providers of financial,
telecommunications and parcel delivery services. We also cannot assure you that
our service providers have, or will have, operating software and systems that
are Year 2000 compliant.
As part of our Year 2000 compliance efforts with FTDI, our plan includes
contacting suppliers and other third parties whose business interruption could
have a significant impact on our business. Together with FTDI, we have not
completed the assessment of the Year 2000 issue as it relates to these
suppliers and third party vendors and suppliers. However, it should be noted
that there are over 19,000 FTD florists generally available to fulfill our
orders, none of which individually accounts for a material portion of our
revenues or profits. With respect to vendors and suppliers, FTDI has begun
contacting key third parties in order to secure appropriate representation of
Year 2000 compliance and to address the compatibility of systems. These vendors
and suppliers include financial institutions and communication and
transportation providers with whom ftd.com and FTDI do business. FTDI's
business is not significantly dependent on any one vendor or supplier. As of
March 31, 1999, FTDI has received representation of Year 2000 compliance from
approximately 44% of the vendors and suppliers that ftd.com and FTDI use. FTDI
and ftd.com intend to establish alternative sources or strategies in the event
that a vendor or supplier is unable to provide appropriate representations of
Year 2000 compliance.
In addition, purchases of merchandise from ftd.com generally are made with
credit cards, and our business, results of operations and financial condition
may be adversely affected to the extent our customers are unable to use their
credit cards due to Year 2000 issues that are not rectified by the customers'
credit card vendors or third party credit card transaction processors.
FTDI has indicated that it has included in its Year 2000 compliance efforts
FTDI products such as Mercury 2000, 3000 and 4000 terminals, Mercury Interface
Box, Mercury Wings and Advantage (Solaris and SCO) computer systems. These
products are sold and leased by FTDI to FTD florists as elements of the Mercury
Network that links FTDI and FTD florists. FTDI has indicated that it is well
along in its efforts to test these systems and intends to remedy these systems,
if necessary. In the event that appropriate Year 2000 readiness is not achieved
for a service or product identified by us or FTDI as Year 2000 compliant, FTDI
will use commercially reasonable efforts to repair the affected portion of the
service or product.
FTDI has undertaken a review of the non-IT systems that we use and that rely
on embedded computer technology and are in the process of implementing a
remediation program with respect to those systems. The non-IT systems on which
we rely primarily consist of those systems relating to the building and
facilities and are not expected to adversely affect our operations. FTDI is in
the process of replacing any of these systems that are not Year 2000 compliant
and expect to complete this process by June 30, 1999.
To date, we have not been allocated any significant costs incurred by FTDI
in connection with its Year 2000 compliance efforts. Although we expect our
Year 2000 compliance costs to be immaterial, we expect that any Year 2000
compliance costs that we incur after the closing of this offering will be
funded from operating cash flow. The Year 2000 budget has not required the
diversion of funds from or the postponement of the implementation of other
planned IT projects. If FTDI and we are unsuccessful in implementing the
software or if the software does not function as it is expected to, the related
potential effect is expected to adversely affect our business, financial
condition and results of operations. As of March 31, 1999, all scheduled
implementation dates have been met, and we continue to anticipate the
implementation to be completed by August 31, 1999. We intend to develop by
August 31, 1999 and implement, if necessary, appropriate contingency plans to
mitigate, to the extent possible, any significant Year 2000 areas of
noncompliance.
The economy in general may be adversely affected by risks associated with
the Year 2000 issue. Our business, financial condition and results of
operations could be adversely affected if systems on which we rely, including
systems that are operated by other parties with whom we do business, are not
Year 2000 compliant in time. There can be no assurance that these third party
systems will continue to properly function and interface
31
<PAGE>
and will otherwise be Year 2000 compliant. Although we are not aware of any
threatened claims related to the Year 2000, we may be subject to litigation
arising from such claims and, depending on the outcome, such litigation could
adversely affect our business.
Based on the reviews and analysis done to date by us and FTDI, we believe
that the reasonably likely worst-case scenario with respect to the Year 2000
issues could result in difficulty for customers placing orders should the Year
2000 problem disrupt power or communication facilities. Although these events
could have an adverse affect on our business in the short-term, we do not
believe that Year 2000 issues will materially and adversely affect our
business, results of operations or financial condition over the long-term. No
assurances can be given that our expectations will be realized.
The expected costs and completion dates for the Year 2000 project and our
expectations regarding likely outcomes are forward-looking statements based on
management's best estimates, that were derived using numerous assumptions of
future events, including the continued availability of resources, third party
modification plans and other factors. Actual results could differ from these
estimates as a result of factors that include the availability and cost of
trained personnel, the ability to locate and correct all relevant computer
codes, and similar uncertainties.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires that public companies report certain information about operating
segments in their annual financial statements and in subsequent condensed
financial statements of interim periods issued to shareholders. This statement
also requires that public companies report certain information about their
products and services, the geographic areas in which they operate and their
major customers. We have determined that the adoption of this new standard does
not have a material effect on our disclosure for all periods presented because
we currently operate in one segment.
32
<PAGE>
BUSINESS
ftd.com is a leading Internet and telephone marketer of flowers and
specialty gifts. We began selling our products directly to consumers through
our 1-800-SEND-FTD toll-free telephone number in 1993 and electronically to
consumers through our www.ftd.com Web site in 1994. We offer same-day delivery
of floral orders to over 97% of the U.S. population. Our floral orders are
fulfilled by a select group of approximately 6,500 FTD florists who adhere to
the highest service standards in the floral industry. We believe that the
process of purchasing flowers and specialty gifts is significantly enhanced
through the use of the Internet. We also believe that our Web site offers
unparalleled convenience and a superior shopping experience compared to
traditional telephone ordering by allowing consumers to view pictures of the
flowers and specialty gifts they are considering purchasing and to be
personally reminded of upcoming purchasing occasions. By capitalizing on the
strength of the FTD brand, our easy-to-remember URL, our unmatched fulfilling
florist network and our licensing relationships with companies like The Walt
Disney Company and M&M/Mars, Inc., we believe that we will be able to
significantly grow our business and build market share.
FTD, founded in 1910, is the world's largest floral services organization.
The FTD brand and the Mercury Man logo are among the most recognized consumer
brands in America. Our product offerings vary by season and holiday. On
average, we offer over 150 floral arrangements designed by FTD's floral
designers for holidays and other occasions. We also offer over 50 specialty
gifts, including stuffed animals and other plush toys, gourmet gift baskets,
holiday gift sets and collectible containers. Our product offerings are
available at prices ranging from $29.99 to $176.99. For the latest twelve
months ended March 31, 1999, our total revenues were $42.8 million and we
received a total of 764,382 orders. For the three months ended March 31, 1999,
Internet orders represented 57% of total customer orders.
Industry Background
Growth of online commerce. The Internet is dramatically affecting the
methods by which consumers buy goods and services. The Internet provides online
merchants with the ability to reach a broad audience and to operate with
minimal infrastructure, reduced overhead and greater economies of scale, while
providing consumers with a broad selection, detailed product information and
unparalleled convenience. As a result, a growing number of parties are
transacting business on the Internet. In November 1998, Forrester Research
estimated that U.S. retail consumer purchases of goods and services over the
Internet will increase from approximately $7.8 billion in 1998 to over $108
billion in 2003. According to Forrester Research, almost 9 million households,
or approximately 30% of all current online households in the U.S., made at
least one online purchase in 1998. By 2003, this figure is expected to grow to
over 40 million households, or over 75% of all projected online households in
the U.S., as Internet use becomes more convenient through higher-speed access
and more common through the use of alternative Internet access devices.
Online floral and specialty gift market. The floral and specialty gift
markets are large and growing markets that are both well suited for e-commerce.
According to an October 1997 United States Department of Agriculture Economic
Research Service study, the U.S. retail market for cut flowers and cut greens
was $6.5 billion in 1996 and has grown at a compound annual growth rate of
approximately 5% from 1993 to 1996. In November 1998, Forrester Research
forecasted that the U.S. online market for flowers will increase from $212
million in 1998 to $906 million in 2003 and that the U.S. online market for
specialty gifts will increase from $63 million in 1998 to $544 million in 2003.
In addition, according to a June 1998 report published by the World Conference
on Horticultural Research, the U.S. ranked 13th worldwide in per capita retail
expenditures for cut flowers and cut greens. As a result, we believe that there
are significant opportunities to increase the number of online flower purchases
in the U.S. and that increased advertising and the superior shopping experience
afforded by the Internet will be catalysts for this growth.
33
<PAGE>
Strengths
We believe that the following competitive advantages will allow us to
differentiate our services from those of our competitors:
. Strength of the FTD brand. An April 1999 Market Facts, Inc. research
study commissioned by FTD reported that the FTD brand is regarded as the
floral industry leader in several key categories, including first choice
when ordering flowers over the Internet, brand awareness, customer
service and convenience.
. Ideal URL. We believe that www.ftd.com is an ideal URL because of the
strength and simplicity of the FTD brand name.
. Unmatched fulfilling florist network. Nearly all of our floral orders are
fulfilled by a select group of approximately 6,500 FTD florists. These
florists allow us to provide same-day delivery to 97% of the U.S.
population for orders we receive by 1:00 p.m. in the recipient's time
zone. To fulfill our customers' orders, florists must adhere to the
highest set of service standards in the industry, including our 100%
satisfaction guarantee. Our ongoing quality control efforts include
randomly placing test orders with our fulfilling florists and monitoring
customer feedback to ensure customer satisfaction. We believe that this
is the strongest quality monitoring program in the industry.
. Superior customer service. We provide highly trained customer support at
our dedicated call centers and through online services. All customer
orders are backed by a 100% satisfaction guarantee.
. Strong consumer brand relationships. A variety of our floral and
specialty gift products incorporate other popular consumer brands, such
as Winnie The Pooh(R), M&M's(R), Hickory Farms(R) and Vermont Teddy
Bears(R).
. Significant online presence. We have established a significant online
advertising presence with high-traffic Web sites, such as Yahoo!, the Go
Network(TM), Netscape Netcenter, MSN.com and others. This presence allows
us to stimulate brand awareness and drive traffic to our Web site.
. State of the art interactive e-commerce platform. Our Web site allows us
to store and analyze customer, sales and Web site activity. In addition,
we have developed a sophisticated e-mail notification service which
allows us to remind customers of key gift giving occasions. Our Web site
also allows users to search for flowers and specialty gifts using a
variety of criteria, including holiday, occasion, product, price, flower
by color and flower by name.
. Well suited businesses for e-commerce. Our floral and specialty gift
businesses are well suited for e-commerce. Our Web site provides our
customers with a fast and convenient way to shop. It also allows our
customers to view the flowers and specialty gifts that they are
considering purchasing, to obtain detailed information about our products
and to be personally reminded of upcoming purchasing occasions.
Business Strategy
Our objective is to be the leading marketer of flowers and specialty gifts
on the Internet. We intend to pursue this objective by employing the following
strategies:
Build brand awareness, increase our customer base and increase their
purchasing frequency. We intend to build brand awareness, increase our customer
base and increase their purchasing frequency by significantly expanding our
online and offline advertising, direct marketing/affinity and retention
marketing efforts. These initiatives include:
. Expansion of our online and offline marketing and promotion efforts. We
intend to implement a targeted television, radio and print advertising
campaign focused on increasing consumer usage of ftd.com. In addition, we
intend to increase our advertising presence on highly trafficked Web
sites to encourage consumers to visit ftd.com. We also plan to focus our
marketing efforts on differentiating
34
<PAGE>
ftd.com from our competitors by emphasizing our unmatched fulfilling
florist network, our 100% satisfaction guarantee, our superior customer
service, our professionally designed product offerings, our licensing
agreements with Disney and M&M/Mars, the ease of using ftd.com and the
innovative and helpful features available on our Web site.
. Utilization of direct marketing/affinity programs. We will continue to
utilize a direct marketing campaign designed to acquire new customers. We
have developed affinity programs with a variety of companies, including
Citibank, MBNA and United Airlines. We utilize statement inserts, e-mail
and catalogs to market to their customers and often offer discounts or
frequent flier mileage awards for purchases of our products.
. Strengthening retention marketing programs. We currently utilize our
customer information to provide a personalized reminder service and other
incentives designed to replicate historical buying patterns. In addition,
we send e-mail reminders and printed catalogs to targeted customers prior
to key purchasing occasions. We believe these efforts will allow us to
retain our customers longer and increase the frequency with which they
purchase from ftd.com.
Capitalize on our relationship with FTD. We believe that our relationship
with FTD provides us with significant advantages, specifically our access to
high quality fulfilling florists, our ability to utilize the FTD brand name and
the www.ftd.com URL and the substantial experience of FTD's management.
Enhance our customers' shopping experience. We plan to continue to invest in
technologies that improve our ability to support future growth while offering
customers the most convenient, user-friendly and secure shopping experience
possible.
Promote our Web site to telephone customers. Because we believe our Web site
provides a superior shopping experience to that of the telephone and enhances
the success of our retention marketing efforts, we will promote our Web site to
telephone customers. By promoting the www.ftd.com URL in our catalogs, asking
for e-mail addresses when taking telephone orders, promoting our Web site
through our telephone customer service representatives and heightening brand
awareness of ftd.com through our advertising, marketing and promotion efforts,
we believe we will be able to grow our online business.
Expand our product offerings. We will seek to expand our product offerings
to continue to provide our customers with the best selection of flowers and
specialty gifts. While our major focus is and will continue to be selling
flowers, we believe that our specialty gifts are complementary to our floral
product offerings. We believe that the strength of the FTD brand will allow us
to continue to enhance our product offerings through relationships with other
consumer brands.
Provide superior customer service. We currently offer a 100% satisfaction
guarantee under which customers are entitled to a full refund or a replacement
arrangement at no additional cost if they are unsatisfied for any reason. By
making additional investments to integrate our call centers and Web site
environments, we believe that we will continue to enhance our reputation for
superior customer service.
Capitalize on FTD's international fulfillment capability. One of FTD's
unique capabilities is its affiliation with 32,000 quality florists outside the
U.S. and Canada. There are many people living in the U.S. who may be interested
in sending flowers and specialty gifts to relatives, friends and business
associates living abroad. We intend to market FTD's international fulfillment
capabilities to these consumers.
Product Offerings
We sell both floral arrangements whose designs have been created by FTD as
well as traditional floral arrangements that are chosen by the customer. Our
specialty gift products include plush toys, gourmet gift
35
<PAGE>
baskets and collectible containers. These products are available at a wide
range of price points. The following table illustrates a sample of current
product offerings.
<TABLE>
<CAPTION>
Retail Price
Product Type Product Examples Range
------------ ---------------- ------------
<S> <C> <C>
FTD Branded Products FTD Anniversary Bouquet $34.99 to $84.99
FTD Thanks A Bunch(R) Bouquet
FTD Birthday Party(R) Bouquet
FTD Licensed Products Winnie The Pooh(R) bouquets $39.99 to $94.99
M&M's(R) character bouquets
Mickey Mouse(R) bouquets
(beginning in late 1999)
Traditional Floral Arrangements Roses and other mixed flower bouquets $29.99 to $176.99
Specialty Gifts Hickory Farms(R) products $36.99 to $89.99
NFL(TM) gift baskets
</TABLE>
FTD branded products. Each year, FTD designs floral and specialty gift
products for significant occasions, such as birthdays and anniversaries, and
major holidays, including the most popular floral holidays of Valentine's Day,
Easter, Mother's Day, Thanksgiving and Christmas. We typically offer
approximately 15 products in this category at any one time. Utilizing FTD's
best professional floral designers, FTD begins developing new products well in
advance of their expected release dates and conducts extensive testing with
florists and consumers to help ensure the success of these new products.
FTD licensed products. FTD also seeks to enter into licensing arrangements
with other popular consumer brands with the goal of developing new and
innovative products. In this regard, FTDI has developed relationships with
companies that have well recognized brand names, such as The Walt Disney
Company and M&M/Mars, Inc. We typically offer approximately four products in
this category at any one time and introduce new products for specific holidays.
Traditional floral arrangements. Consumers can also purchase traditional
floral arrangements, such as roses and mixed flower bouquets. We typically
offer over 100 products in this category at any one time.
Specialty gifts. We also offer specialty gift products in key categories
such as plush toys, gourmet food, health and beauty and candles/aromatherapy.
These offerings include products from Hickory Farms, Inc. and licensees of the
National Football League, and we typically offer approximately 45 products in
this category at any one time. FTD continuously seeks to add strong brands to
include in this category of product offerings. These products are developed in
a relatively short period of time and are shipped directly from the vendor's
manufacturing facilities to the consumer.
Transaction Execution
The execution of an order consists of the following steps illustrated below:
Order placement
. Internet orders--Once a customer has selected a product, our Web site
prompts the customer to select a payment method and provide other
relevant information; this information is then transmitted over the
Internet to the servers that process our orders and communicate with
the Mercury Network.
. 1-800-SEND-FTD orders--A sales representative collects the relevant
order and payment information; this information is then transmitted to
the servers that process our orders and communicate with the Mercury
Network.
36
<PAGE>
Order fulfillment
. Orders fulfilled by florists--The fulfilling florist fills the order by
delivering the floral or specialty gift order directly to the
recipient.
. Orders fulfilled by manufacturers or third party distributors--The
manufacturer or third party distributor of the specialty gift order
sends the specialty gift order to the recipient through an express
delivery service such as United Parcel Service or Federal Express;
these items typically arrive in one to two days depending on the
delivery method chosen by the customer.
Transaction Economics
Orders placed through our Web site or 1-800-SEND-FTD typically are paid for
using a credit card. For each order generated by us that is fulfilled by an FTD
florist, we pay FTDI a percentage of the sales price of the order. This payment
is allocated between FTDI and the fulfilling florist. A commission of $5.00 is
paid to us by FTDI for each order that we clear through the FTD Clearinghouse.
For orders that are not fulfilled by an FTD florist, such as holiday gift
baskets, we pay a prenegotiated price for the product to the manufacturer or
third party distributor. We do not receive a commission from FTDI for these
orders. In addition, our customers pay us a service fee of $6.99 for most
orders placed through our Web site and $9.99 for most orders placed through 1-
800-SEND-FTD.
Marketing and Promotion
To date, we have focused our marketing and promotion strategy on purchasing
advertising on high-traffic Web sites. We also have conducted a marketing
campaign that targets our proprietary database of customers through the use of
seasonal e-mail solicitations and printed catalogs. We intend to significantly
expand our advertising and marketing efforts with the predominant portion of
proceeds raised from this offering through the development of new online and
offline advertising. Our marketing and promotion strategy is designed to
enhance the awareness and value of our brand.
Online advertising. We believe that we are one of the floral and specialty
gift industries' leaders in establishing a substantial online advertising
presence. We currently maintain a significant advertising presence on several
leading Web sites, including Yahoo!, the Go NetworkTM, Netscape Netcenter,
MSN.com, Disney.com, InfoSpace, Excite, Hotbot, Infoseek and Lycos. We intend
to continue to seek new opportunities to expand this presence within top-tier
portal sites and highly trafficked content sites.
Offline advertising. We intend to actively pursue a variety of offline
advertising channels to promote the ftd.com brand. Our efforts in this area
will focus on promoting our brand through television, radio and print
advertisements. While we have not spent significant marketing dollars in this
area in the past, we expect to significantly increase our offline advertising
campaign in the future.
Direct marketing/affinity programs. Through an aggressive direct marketing
campaign designed to acquire new customers, we develop relationships with many
companies that have large consumer databases, including United Airlines and
credit card issuers such as Citibank and MBNA. We utilize statement inserts,
e-mail and printed catalogs to market to these consumers and often offer
discounts or frequent flier mileage awards for purchases.
Retention marketing. We use our extensive database of customer information
to enhance our customer retention efforts. We provide a personalized reminder
service and various incentives designed to match customers' historical buying
patterns. For example, we allow our Internet customers to establish an account
with us that stores an address book, credit card numbers and ordering
preferences and allows customers to review their previous purchases. In
addition, we e-mail reminders and printed catalogs to targeted consumers prior
to key purchasing occasions. We intend to continue to expand these efforts.
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In addition, FTDI utilizes a variety of advertising channels to promote the
FTD brand and the Mercury Man logo, including television and print
advertisements. FTD has utilized football Hall-of-Famer and actor Merlin Olsen
as a spokesman since 1983. FTDI also has an active sponsorship campaign,
featuring a float in the annual Tournament of RosesTM Parade and sponsorship of
the Champions on IceTM professional ice skating tour.
Technology and Systems
We believe that we currently have a state-of-the-art interactive e-commerce
platform. Our Internet technology utilizes FTDI's systems and technology
licensed from other parties, enabling us to offer our customers a convenient
and user-friendly online shopping experience. The overall mix of technologies
and applications that we use allows us to support a distributed, scalable and
secure e-commerce environment.
We currently utilize third party Web site development services. Our Web site
developer oversees and maintains our server and our server software. It also
develops and implements our Web site software and works with us to develop the
user interface design for our Web site. We currently pay our developer a fee
per Internet order for its services, and we operate under a one-year contract
that is automatically renewed for successive one-year terms unless either party
terminates the contract upon not less than 180 days' notice.
We use server technology in a fully redundant configuration to power our Web
site. Our hosting location is configured with burstable bandwith to avoid any
network saturation.
Our transaction system primarily is supported by fully redundant servers,
which FTDI owns. These servers accept and validate floral and non-floral
orders, assess product availability, handle credit card transaction processing
and automated customer communications and facilitate florist selection. With
respect to these orders, the servers communicate with the Mercury Network,
which is a scalable, redundant network that facilitates communication with and
among FTD florists, manufacturers and third party distributors.
Orders generated through 1-800-SEND-FTD are processed by call centers
operated by a third party service provider and, to a lesser degree, by us. The
sales representatives at these customer call centers, which provide 24-hour
phone services, collect the billing and order information for each order
generated through 1-800-SEND-FTD. Having access to both an in-house and
independent call center gives us the flexibility to allocate calls during peak
hours, facilitates call center expansion capabilities during the holiday
periods without additional capital expenditures and ensures that we will have
adequate call center coverage.
Customer Service
We believe that our ability to establish and maintain long-term
relationships with our customers and encourage repeat visits and purchases
depends, in part, on the strength of our customer service. The Internet allows
nearly instant user feedback, which we use to promptly address customer
requests and needs. In addition, we value frequent communication with and
feedback from our customers to continually improve our services. We operate
customer call centers that provide problem resolution services through our Web
site and by telephone at 1-800-SEND-FTD, Monday through Friday, 7:00 a.m.
through 7:00 p.m., and Saturday, 7:00 a.m. through 5:00 p.m., Central time.
During holiday periods, customer service is also available Sunday, 8:00 a.m.
through 3:00 p.m., Central time. Our customer service personnel are responsible
for handling general customer inquiries, answering customer questions about the
ordering process and investigating the status of orders, shipments and
payments. In addition, we license software that enables us to provide online,
automated customer service support and reduce our customer service costs.
Competition
The consumer markets for flowers and specialty gifts are highly competitive
and highly fragmented, and there are few barriers to entry in the markets in
which we compete. The number of e-commerce Web sites
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competing for consumers' attention has increased rapidly during the past
several years. We compete with marketers of flowers and specialty gifts who
sell through various channels, including retail stores, the Internet, the
telephone and catalogs. Our competitors may have greater resources or more
established customer bases than ours. Our principal competitors are 1-800-
FLOWERS, Inc., Gerald Stevens, Inc. and PC Flowers & Gifts.com Inc.
We believe that the primary competitive factors in our markets are trust in
the brand, brand recognition, site content, ease of use, price, fulfillment
capabilities, customer service and reliability. Our success will depend heavily
on our ability to continue to provide a satisfactory shopping experience. Other
factors that will affect our success include our continued ability to attract
experienced marketing, technology, operations and management talent. We are
aware that some of our competitors have and may continue to adopt aggressive
pricing and marketing strategies. Increased competition may adversely affect
operating margins and result in loss of market share and a diminished brand
franchise. The nature of the Internet as an electronic marketplace, which may,
among other things, lower barriers to entry for our competitors and facilitate
comparison shopping, may render it inherently more competitive than traditional
retailing formats.
Intellectual Property
We regard our Internet domain name, copyrights, service marks, trademarks,
trade secrets and similar intellectual property as critical to our success.
Much of our intellectual property is licensed from third parties, principally
FTDI. These license arrangements include our Trademark License Agreement with
FTDI, pursuant to which we license the right to use the FTD name, including the
use of the FTD trademark and associated logos as part of our Internet domain
name and our toll-free telephone number. In addition, a substantial portion of
the technology incorporated in our Web site is based on technology licensed
from our third party Web site developer, including our database and Internet
server software and the associated source code. To protect our intellectual
property rights, we rely on a combination of copyright, trademark and trade
secret laws, confidentiality procedures, contractual provisions and agreements
with employees, customers, strategic partners and others. We also depend on the
third party owners of the intellectual property rights we license to protect
those rights.
Employees
We currently employ 41 people who devote all or substantially all of their
time to our business. In addition, approximately 130 of FTDI's employees
provide services to us pursuant to the Intercompany Agreements. None of our
employees is represented by a union, and we consider relations with our
employees to be good.
Legal Proceedings
We are not involved in any legal proceeding that management believes would
adversely affect our business, results of operations or financial condition.
Facilities
Our principal offices are located at 3113 Woodcreek Drive, Downers Grove,
Illinois 60515, and have historically been shared with FTDI, which owns the
property. Following this offering, we expect to continue to use a portion of
this property under a space-sharing arrangement with FTDI. As we expand, we
expect that suitable additional space will be available on commercially
reasonable terms, although no assurance can be made in this regard. We do not
own any real estate.
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MANAGEMENT
Executive Officers and Directors
Our board of directors consists of five directors, all of whom are elected
for one-year terms at each annual meeting of stockholders. Our executive
officers are elected annually by our board of directors, however, they may be
removed from office at any time by our board of directors.
The following table sets forth, as of May , 1999, the name, age and
position within ftd.com of each of our executive officers and directors. Each
of the individuals identified in the following table has served in his or her
position within ftd.com since May , 1999. Their respective backgrounds are
described following the table.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard C. Perry..... 44 Chairman of the Board
Michael J. Soenen.... 29 President, Chief Executive Officer and Director
Peter K. Poli........ 37 Vice President and Chief Financial Officer
Frederick K. Johnson. 52 Chief Information Officer
Habib Y. Gorgi....... 42 Director
Veronica K. Ho....... 38 Director
Gary K. Silberberg... 38 Director
</TABLE>
Some of the current members of our board of directors have been appointed
pursuant to various parties' contractual rights to designate directors under an
FTD Corporation stockholders' agreement. Mr. Perry, Ms. Ho and Mr. Silberberg
are designees of Perry Acquisition Partners, L.P.; and Mr. Gorgi is a designee
of the investment funds and related persons affiliated with Bain Capital, Inc.
These rights to designate directors are more fully described under the caption
"Certain Transactions--Rights to Designate Directors."
Richard C. Perry is the President and Managing Member of Perry Capital LLC,
founded in 1998, and President of Perry Corp., both of which are private money
management firms. He founded Perry Corp. in 1988. Mr. Perry had been an Adjunct
Associate Professor at New York University's Stern School of Business. Mr.
Perry serves as Chairman of the Board of FTDI and FTD Corporation. He is also a
director of Radio & Records, Inc. and Uniplast Industries Co. and a trustee of
the Allen Stevenson School and the National Advisory Board of Facing History
and Ourselves. Mr. Perry received a B.S. from the Wharton School of the
University of Pennsylvania in 1977 and an M.B.A. from New York University's
Stern School of Business in 1980.
Michael J. Soenen was Vice President--Marketing of FTDI prior to joining
ftd.com in May 1999. From January 1997 until August 1998, he was Director of
Sales Promotion for FTDI. Mr. Soenen was an associate at Perry Corp. from
August 1996 to December 1996. From July 1993 to July 1996, Mr. Soenen worked
for Salomon Brothers Inc, an investment banking firm. Mr. Soenen received a
B.A. from Kalamazoo College in 1992.
Peter K. Poli was named Vice President and Chief Financial Officer of
ftd.com in April 1999. Prior to joining us, Mr. Poli was Chief Financial
Officer of Discover Brokerage Direct, Inc., an Internet brokerage firm that is
a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., from March 1997
to April 1999. He was also a director of Discover Brokerage Direct from July
1998 to April 1999. From 1987 until he joined Discover Brokerage Direct, Mr.
Poli served in various capacities at Dean Witter Reynolds Inc., an investment
banking firm. Mr. Poli received an A.B. from Brown University in 1983 and an
M.B.A. from Harvard Business School in 1987.
Frederick K. Johnson joined FTDI as Executive Vice President Technology in
July 1997. Prior to that time, Mr. Johnson was Senior Vice President--MIS for
Fabri-Centers of America, Inc., a retail chain of fabric
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and craft stores that is now known as Jo-Ann Stores, Inc., for more than five
years. Mr. Johnson received a B.S. from Case Institute of Technology in 1969
and an M.B.A. from Case Western Reserve University in 1977.
Habib Y. Gorgi currently is President of Fleet Private Equity Co. Inc., a
subsidiary of Fleet Financial Group, Inc. He was Executive Vice President of
Fleet Private Equity Co. Inc. from 1993 until he became President in January
1996. Mr. Gorgi serves as a director of FTDI and FTD Corporation. He is also a
director of several privately-held companies. Mr. Gorgi received an A.B. from
Brown University in 1978 and an M.B.A. from Columbia University in 1983.
Veronica K. Ho is a Managing Director and Member of Perry Capital LLC and
has been a Managing Director of Perry Corp. since 1993. Ms. Ho serves as a
director of FTDI and FTD Corporation. She is also a director of Radio &
Records, Inc., AT Plastics Inc. and Uniplast Industries Co., and a member of
the New York Advisory Board of Facing History and Ourselves. Ms. Ho received an
A.B. from Brown University in 1982 and an M.B.A. from Harvard Business School
in 1986. Ms. Ho is married to Mr. Silberberg.
Gary K. Silberberg is a Managing Director and Member of Perry Capital LLC
and has been a Managing Director of Perry Corp. since 1994. Mr. Silberberg also
serves as a director of FTDI and FTD Corporation. He is also a director of
Uniplast Industries Co. Mr. Silberberg received an Sc.B. from Brown University
in 1982 and a J.D. from Yale Law School in 1985. Mr. Silberberg is married to
Ms. Ho.
Additional Directors
Prior to or immediately following the closing of this offering, we plan to
add to our board of directors two independent directors who are not affiliated
with ftd.com, FTDI or FTD Corporation. In addition, various parties have
contractual rights to designate members of our board of directors. See "Certain
Transactions--Rights to Designate Directors."
Board Committees
Prior to or immediately following the closing of this offering, our board of
directors will establish an audit committee and a compensation committee. The
audit committee will be responsible for reviewing our audited financial
statements and accounting practices, and considering and recommending the
employment of, and approving the fee arrangements with, independent accountants
for both audit functions and for advisory and other consulting services. The
compensation committee will review and approve the compensation and benefits
for our key executive officers, administer our employee benefit plans and make
recommendations to our board of directors regarding those matters.
Director Compensation
Directors who are not employees or affiliates of ftd.com, FTDI or FTD
Corporation are paid for each board or committee meeting attended and
are entitled to reimbursement for all reasonable out-of-pocket expenses
incurred in connection with their attendance at those meetings.
Compensation Committee Interlocks and Insider Participation
Historically, all compensation decisions relating to our executive officers
have been made by the full board of directors of FTDI. Following the closing of
this offering, the compensation committee will make all compensation decisions
regarding our executive officers. No interlocking relationship exists between
the compensation committee and the board of directors or compensation committee
of any other company, and no such relationship existed in the past.
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Executive Compensation
No officer or employee of ftd.com received total compensation, whether paid,
deferred or accrued, in excess of $100,000 in the year ended June 30, 1998 for
services rendered to ftd.com. During the year ended June 30, 1998, (1) our
President and Chief Executive Officer, Michael J. Soenen, received a salary of
$115,777, a bonus of $9,380 and options to purchase 10,000 shares of Class A
common stock of FTD Corporation from FTDI and FTD Corporation in his capacity
as Director of Sales and Promotion of FTDI and (2) our Chief Information
Officer, Frederick K. Johnson, received a salary of $172,384, a bonus of
$15,130, an award of restricted shares of FTD Corporation Class A common stock
with a value of $155,000, options to purchase 100,000 shares of Class A common
stock of FTD Corporation and $19,831 as compensation for moving expenses from
FTDI and FTD Corporation in his capacity as Vice President-Technology of FTDI.
Neither Mr. Soenen nor Mr. Johnson received any other compensation from FTDI or
FTD Corporation during those periods except for perquisites and other personal
benefits, securities or property that, in the aggregate did not exceed 10% of
his total annual salary and bonus for the year ended June 30, 1998.
Employment Agreement
Pursuant to an offer of employment, we agreed to pay Peter K. Poli an annual
salary of $150,000 to serve as our Vice President and Chief Financial Officer.
We also agreed to pay Mr. Poli a severance payment of one year's salary in the
event his employment is terminated. In accordance with the terms of his offer
of employment, Mr. Poli was granted options to purchase shares of our
Class A common stock at an exercise price of $ per share and shares
of our Class A common stock at an exercise price of $ per share.
Equity Incentive Plan
The following description of our 1999 Equity Incentive Plan is a summary and
is qualified in its entirety by reference to the text of the 1999 Equity
Incentive Plan, which will be filed as an exhibit to the registration statement
of which this prospectus is a part.
On , 1999, our board of directors unanimously approved and adopted the
ftd.com inc. 1999 Equity Incentive Plan, subject to the approval of FTDI, our
sole stockholder, which was obtained the same day. The plan affords our board
of directors the ability to design compensatory awards that are responsive to
our needs, and includes authorization for stock options, appreciation rights,
restricted shares, deferred shares, stock payments, performance shares and
performance units. The plan will supplement our current compensation programs
available to eligible employees.
Principal purposes of the plan. The principal purposes of the plan are to
attract and retain directors, officers, consultants and other employees of
ftd.com, FTDI and FTD Corporation and their subsidiaries and to provide to
those people incentives and rewards for superior performance.
Available shares of Class A common stock. Subject to adjustment as provided
in the plan, the number of shares of our Class A common stock that may be
issued or transferred under the plan will not in the aggregate exceed
shares of our Class A common stock, plus any shares relating to awards that
expire, are forfeited or are transferred, surrendered or relinquished upon the
payment of any option price or upon satisfaction of any withholding amount.
These shares may be shares of original issuance or treasury shares or a
combination thereof.
Notwithstanding anything else in the plan to the contrary and subject to
adjustment as provided under the plan, (1) the aggregate number of shares of
our Class A common stock actually issued or transferred by ftd.com upon the
exercise of incentive stock options, which meet the requirements of Section 422
of the Internal Revenue Code, will not exceed shares of our Class A common
stock; (2) no plan participant will be granted option rights and appreciation
rights for more than an aggregate of shares of our
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Class A common stock during any five-year period under the plan; and (3) the
number of shares of our Class A common stock issued as restricted shares will
not in the aggregate exceed shares of our Class A common stock. In no
event will any plan participant in any calendar year receive an award of
performance shares or performance units having an aggregate maximum value as of
their respective dates of grant in excess of $ .
Directors, officers, consultants and other employees of ftd.com, FTDI or FTD
Corporation and their subsidiaries may be selected by our board of directors to
receive awards under the plan.
Option rights. Option rights may be granted under the plan that will entitle
the plan participant to purchase shares of Class A common stock at a price that
may not be less than the market value per share on the date of grant. Each
grant of option rights will be evidenced by an agreement between ftd.com and
the plan participant containing terms and provisions that are consistent with
the plan and approved by our board of directors.
Each grant of option rights will specify whether the option price is payable
(1) in cash or by check acceptable to ftd.com; (2) by the tender to ftd.com of
shares of Class A common stock owned by the plan participant for at least six
months having a value at the time of exercise equal to the option price; (3) by
delivery of irrevocable instructions to a financial institution or broker to
deliver promptly to ftd.com sale or loan proceeds with respect to the shares
sufficient to pay the total option price; or (4) by any combination of those
payment methods.
On or after the date of grant of any option rights, our board of directors
may provide for the automatic grant of reload option rights to a plan
participant upon the exercise of option rights, including reload option rights,
using shares of Class A common stock or other consideration specified in the
plan. Reload option rights are additional option rights granted automatically
to a plan participant upon the exercise of option rights. Reload option rights
will cover up to the number of shares of our Class A common stock, deferred
shares, stock payments, option rights or performance shares or the number of
shares of our Class A common stock having a value equal to the value of any
performance units surrendered to ftd.com upon any such exercise in payment of
the option price or to meet any withholding obligations. Reload option rights
may have an option price that is less than the applicable market value per
share at the time the reload option right is granted and will be on the other
terms specified by our board of directors, which may be the same as or
different from those of the original option rights.
Option rights granted under the plan may be options that are intended to
qualify as incentive stock options, options that are not intended to so qualify
or combinations of these alternatives.
Our board of directors may, on or after the date of grant of any option
rights, other than the grant of an incentive stock option, provide for the
payment of dividend equivalents to the plan participant on a current, deferred
or contingent basis or may provide that any of those equivalents be credited
against the option price.
No option right will be exercisable more than ten years from the date of
grant. Each grant will specify the period of continuous service with ftd.com,
FTDI or FTD Corporation or any subsidiary or other conditions, including the
achievement of management objectives, that must be satisfied before the option
rights will become exercisable and may provide for the earlier exercise of
those option rights in the case of a change in the control of ftd.com or other
events. Successive grants may be made to the same plan participant whether or
not option rights previously granted to that plan participant remain
unexercised.
Appreciation rights. An appreciation right is a right to receive from
ftd.com an amount determined by our board of directors, which will be expressed
as a percentage of the amount, not to exceed 100 percent, at the time of
exercise. If an appreciation right is granted in tandem with an option right,
it is only exercisable if the option right has not been exercised or
terminated. Any grant may specify that the amount payable upon exercise of an
appreciation right may be paid by ftd.com in cash, in Class A common stock or
in any combination thereof, and may grant either to the plan participant or our
board of directors the right to elect among those alternatives.
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Any grant may specify that the amount payable upon exercise of an
appreciation right may not exceed a maximum specified by our board of directors
at the date of grant. Any grant may specify waiting periods before exercise and
permissible exercise dates or periods.
Any grant may specify that the appreciation right may be exercised only in
the event of, or earlier in the event of, a change in the control ftd.com or
other event. Any grant may provide for the payment to the plan participant of
dividend equivalents on the grant in cash or shares of our Class A common stock
on a current, deferred or contingent basis. Any grant of appreciation rights
may specify management objectives that must be achieved as a condition to
exercise those rights.
Any grant of tandem appreciation rights will provide that the tandem
appreciation rights may be exercised only at a time when the related option
rights are also exercisable and the spread is positive, and by surrender of the
related option rights for cancellation.
Each grant will specify in respect of each free-standing appreciation right
a base price, which will be equal to or greater or less than the market value
per share on the date of grant. Successive grants may be made to the same plan
participant regardless of whether any free-standing appreciation rights
previously granted to the plan participant remain unexercised. No free-standing
appreciation right granted under the plan may be exercised more than ten years
from the date of grant.
Each grant of appreciation rights will be evidenced by an agreement between
ftd.com and the plan participant containing terms and provisions that are
consistent with the plan and approved by our board of directors.
Restricted shares. A grant of restricted shares involves the immediate
transfer by ftd.com to a plan participant of ownership of a specific number of
shares of our Class A common stock in consideration of the performance of
services. The plan participant is immediately entitled to voting, dividend and
other ownership rights in those shares. The transfer may be made without
additional consideration or in consideration of a payment by the plan
participant that is at or less than the market value per share at the date of
grant. However, any grant of restricted shares made for consideration paid at
the time of grant, including the foregoing of compensation owed by ftd.com to a
plan participant, will not be counted for purposes of the limit on the
permitted number of restricted shares.
Restricted shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Internal Revenue Code for a period to
be determined by our board of directors at the date of grant. An example would
be a provision that the restricted shares would be forfeited if the plan
participant ceased to serve ftd.com as an officer or key employee during a
specified period of years. In order to enforce these forfeiture provisions, the
transferability of restricted shares will be prohibited or restricted in a
manner and to the extent prescribed by our board of directors at the date of
grant. Our board of directors may provide for a shorter period during which the
forfeiture provisions apply in the case of a change in the control of ftd.com
or other events.
Any grant of restricted shares may specify management objectives that, if
achieved, will result in termination or early termination of the restrictions
applicable to such shares. Each grant may specify in respect of those
management objectives a minimum acceptable level of achievement. The grant may
set forth a formula for determining the number of restricted shares on which
restrictions will terminate if performance is at or above the minimum level,
but below full achievement of the specified management objectives.
Any grant or sale of restricted shares may require that any or all dividends
or other distributions paid on the restricted shares during the period of a
risk of forfeiture and restrictions on transfer be automatically deferred and
reinvested in additional restricted shares, which may be subject to the same
restrictions as the underlying award.
Each grant of restricted shares will be evidenced by an agreement between
ftd.com and the plan participant containing terms and provisions that are
consistent with the plan and approved by our board of directors.
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Deferred shares. A grant of deferred shares constitutes an agreement by
ftd.com to deliver shares of our Class A common stock to the plan participant
in the future in consideration of the performance of services and subject to
the fulfillment of the conditions, if any, as our board of directors may
specify during the deferral period, which is a period equal to . Our
board of directors may provide for a shorter deferral period in the case of a
change in the control of ftd.com or other event. During the deferral period,
the plan participant has no rights of ownership in the deferred shares, no
right to vote those shares and, except as provided under the plan, no right to
transfer any rights under the award. However, our board of directors may, at or
after the date of grant, authorize the payment of dividend equivalents on those
shares on a current, deferred or contingent basis, in either cash or in
additional shares of Class A common stock. Awards of deferred shares may be
made without additional consideration or in consideration of a payment by the
plan participant that is at or less than the market value per share at the date
of grant. However, any grant of deferred shares made for consideration paid at
the time of grant, including the foregoing of compensation owed by ftd.com to a
plan participant, will not be counted for purposes of the limit on the
allowable number of deferred shares.
Each grant of deferred shares will be evidenced by an agreement between
ftd.com and the plan participant containing terms and provisions that are
consistent with the plan and approved by our board of directors.
Stock payments. A stock payment is an agreement by us to (1) deliver shares
of our Class A common stock to the plan participant as payment or (2) permit a
plan participant to exercise an election or other right to receive or purchase
shares of our Class A common stock instead of, or in addition to, all or any
portion of the compensation that would otherwise become payable to a plan
participant in the form of cash. A stock payment may consist of the transfer by
ftd.com to a plan participant of shares of our Class A common stock as
additional compensation for services to ftd.com, without other payment for the
stock payment. The number of shares to be issued pursuant to stock payments
will be determined by our board of directors, and may be based upon criteria
determined to be appropriate by our board of directors on the date that stock
payment is granted or on any later date.
Prior to the receipt of shares of Class A common stock in satisfaction of a
stock payment, a plan participant will not have any rights of ownership in
those shares, will not have any right to vote those shares and, except as
otherwise provided by the plan, will not have any right to transfer any rights
under his or her award. At or after the date of grant, our board of directors
may, however, authorize the payment of dividend equivalents with respect to the
stock payment on a current, deferred or contingent basis, in either cash or
shares of Class A common stock.
Each stock payment will be evidenced by an agreement executed between
ftd.com and the plan participant containing terms and provisions that are
consistent with the plan and approved by our board of directors.
Performance shares and performance units. A performance share is a
bookkeeping unit that records the equivalent of one share of our Class A common
stock and a performance unit is a bookkeeping unit that records the equivalent
of $ . Any grant of performance shares or performance units will specify
management objectives that, if achieved during a specified performance period,
will result in payment or early payment of the award. Each grant may specify in
respect of those specified management objectives a minimum acceptable level of
achievement and a formula for determining the number of performance shares or
performance units that will be earned if performance is at or above the minimum
level, but falls short of full achievement of the specified management
objectives. Each grant of performance shares or performance units must specify
that, before the performance shares or performance units are deemed earned and
paid, ftd.com or a committee of outside directors must certify that the
management objectives have been satisfied.
In addition, any grant of performance shares or performance units may
specify that the amount payable with respect thereto may not exceed a maximum
specified by our board of directors at the date of grant. To the extent earned,
the performance shares and performance units will be paid to the plan
participant at the time and in the manner determined by our board of directors
in cash, shares of our Class A common stock or any combination thereof. The
grant may provide for the payment of dividend equivalents thereon in cash or in
shares of our Class A common stock on a current, deferred or contingent basis.
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<PAGE>
Each grant of performance shares or performance units will be evidenced by
an agreement between ftd.com and the plan participant containing terms and
provisions that are consistent with the plan and approved by our board of
directors.
Management objectives. The plan requires that our board of directors
establish "management objectives" for purposes of performance shares and
performance units. When so determined by our board of directors, option
rights, appreciation rights, restricted shares and dividend credits may also
specify management objectives. Management objectives may be described in terms
of either company-wide objectives or objectives that are related to the
performance of the individual plan participant or the subsidiary, division,
department, region or function within the company in which the plan
participant is employed. Management objectives may be made relative to the
performance of other corporations. Management objectives applicable to any
award to a plan participant who is, or is determined by our board of directors
likely to become, a "covered employee" within the meaning of Section 162(m) of
the Internal Revenue Code will be limited to specified levels of, or growth
in, the following criteria: market value; book value; earnings per share;
market share; operating profit; net income; cash flow; return on capital;
return on assets; return on equity; margins; product volume growth; earnings,
including earnings before interest, taxes, depreciation and other non-cash
items; debt/capital ratio; costs or expenses; net assets; revenues; total
return to shareholders; and customer satisfaction.
Except where a modification would result in an award to a "covered
employee" no longer qualifying as performance-based compensation within the
meaning of Section 162(m) of the Internal Revenue Code, the plan administrator
may modify those management objectives or the related minimum acceptable level
of achievement, in whole or in part, as the plan administrator deems
appropriate and equitable in the light of various events and circumstances,
such as changes in ftd.com business, operations, corporate structure or
capital structure.
Transferability. Except as otherwise determined by our board of directors
but subject to the provisions of the plan, no option right, appreciation right
or other derivative security granted under the plan is transferable by a plan
participant other than by will or the laws of descent and distribution. Except
as otherwise determined by our board of directors, option rights and
appreciation rights are exercisable during the plan participant's lifetime
only by the plan participant or the plan participant's guardian or legal
representative. Notwithstanding the foregoing, but subject to prior board
authorization, option rights (other than incentive stock options),
appreciation rights and other awards granted under the plan may be transferred
by a plan participant, without payment of consideration therefor, to some
members of such plan participant's immediate family (or trusts for the benefit
of, or entities consisting solely of, members of such immediate family),
provided that no such transfer will be effective unless (1) the plan
participant has provided us with reasonable notice thereof, (2) the transfer
is thereafter effected in accordance with any terms and conditions that have
been made applicable by us or our board of directors and (3) the transferee
has agreed to be subject to the same terms and conditions under the plan as
the plan participant.
Our board of directors may specify at the date of grant that part or all of
the shares of Class A common stock that are to be issued or transferred by
ftd.com upon exercise of option rights or appreciation rights, upon
termination of the deferral period applicable to deferred shares or upon
payment under any grant of performance shares, performance units or stock
payments are no longer subject to the substantial risk of forfeiture and
restrictions on transfer referred to in the plan, will be subject to further
restrictions on transfer.
Adjustments. Our board of directors will make or provide for adjustments in
the numbers of shares of Class A common stock covered by outstanding option
rights, appreciation rights, deferred shares, stock payments and performance
shares, the prices per share applicable thereto, and the kind of shares or
other securities covered thereby, as our board of directors in its sole
discretion and in good faith determines is required to prevent dilution or
expansion of plan participants' rights that otherwise would result in the
event of stock dividends, stock splits, combinations of shares,
recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar events. In the
event of any of those transactions or events, our board of directors, at its
discretion, may provide in substitution for any or all
46
<PAGE>
outstanding awards under the plan alternative consideration as it, in good
faith, may determine to be equitable in the circumstances and may require the
surrender of all awards so replaced. Our board of directors will also make or
provide for those adjustments in the numbers of shares available for issuance
under the plan as it may determine appropriate to reflect any transaction or
event described above.
Administration. The plan is to be administered by our board of directors,
except that our board of directors has the authority under the plan to delegate
any or all of its powers under the plan to a committee of the board, or
subcommittee thereof, consisting of not less than two non-employee directors.
Notwithstanding the foregoing, the grant of any award intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code, and any administrative determinations made in connection therewith, must
be carried out only by a committee of the board, or subcommittee thereof,
consisting of not less than two "outside directors," as defined under Section
162(m), in a manner consistent with the rules governing performance-based
compensation under Section 162(m). Our board of directors is authorized to
interpret the plan and related agreements and other documents.
Amendments. Our board of directors may amend the plan from time to time in
whole or in part without further approval by our stockholders except where
stockholder approval is otherwise required by applicable law or the rules of
the principal exchange or automated quotation system on which the shares of
Class A common stock are then trading.
Federal income tax consequences. The following is a brief summary of some of
the federal income tax consequences of various transactions under the plan
based on federal income tax laws in effect on May , 1999. This summary is not
intended to be complete and does not describe state or local tax consequences.
Section 162(m) considerations. Section 162(m) of the Internal Revenue Code
disallows a publicly held corporation's deduction for compensation in excess of
$1.0 million per taxable year paid to the corporation's chief executive officer
and other four most highly compensated executives unless various exceptions are
satisfied. One of these exceptions allows for the deduction of performance-
based compensation in excess of $1.0 million where a number of criteria are
satisfied. These criteria include (1) payment only on satisfaction of one or
more pre-established, non-discretionary, objective performance goals; (2)
awards being granted at the discretion of a compensation committee comprised of
two or more "outside directors," as defined under Section 162(m); (3)
stockholder approval after disclosure of material terms; and (4) payment of
awards only after certification by the compensation committee that material
terms were satisfied.
Under the plan, awards of performance shares and performance units generally
are intended to qualify, and awards of option rights, appreciation rights and
restricted shares may be intended to qualify, as performance-based compensation
under Section 162(m).
Non-qualified stock options. In general, (1) no income will be recognized by
a plan participant at the time a non-qualified option right is granted; (2) at
the time of exercise of a non-qualified option right, ordinary income will be
recognized by the plan participant in an amount equal to the difference between
the option price paid for the shares and the fair market value of the shares,
if unrestricted, on the date of exercise; and (3) at the time of sale of shares
acquired pursuant to the exercise of a non-qualified option right, appreciation
(or depreciation) in value of the shares after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Incentive stock options. No income generally will be recognized by a plan
participant upon the grant or exercise of an incentive stock option. If shares
of Class A common stock are issued to the plan participant pursuant to the
exercise of an incentive stock option, and if no disqualifying disposition of
those shares is made by that plan participant within two years after the date
of grant or within one year after the transfer of those shares to the plan
participant, then upon sale of those shares, any amount realized in excess of
the option price generally will be taxed to the plan participant as a long-term
capital gain and any loss sustained will be a long-term capital loss.
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<PAGE>
If shares of Class A common stock acquired upon the exercise of an incentive
stock option are disposed of prior to the expiration of either holding period
described above, the plan participant generally will recognize ordinary income
in the year of disposition in an amount equal to the excess (if any) of the
fair market value of those shares at the time of exercise (or, if less, the
amount realized on the disposition of such shares if a sale or exchange) over
the option price paid for those shares. Any further gain (or loss) realized by
the plan participant generally will be taxed as short-term or long-term capital
gain (or loss) depending on the holding period.
Appreciation rights. No income will be recognized by a plan participant in
connection with the grant of a tandem appreciation right or a free-standing
appreciation right. When the appreciation right is exercised, the plan
participant normally will be required to include as taxable ordinary income in
the year of exercise an amount equal to the amount of cash received and the
fair market value of any unrestricted shares of Class A common stock received
on the exercise.
Restricted shares. A recipient of restricted shares generally will be
subject to tax at ordinary income rates on the fair market value of the
restricted shares (reduced by any amount paid by the plan participant for those
restricted shares) at the time that the shares are no longer subject to
forfeiture or restrictions on transfer for purposes of Section 83 of the
Internal Revenue Code. However, a recipient who elects under Section 83(b) of
the Internal Revenue Code within 30 days of the date of transfer of the shares
will have taxable ordinary income on the date of transfer of the shares equal
to the excess of the fair market value of those shares (determined without
regard to the restrictions mentioned above) over the purchase price, if any, of
those restricted shares. If a Section 83(b) election has not been made, any
dividends received with respect to restricted shares generally will be treated
as compensation that is taxable as ordinary income to the plan participant.
Deferred shares. No income generally will be recognized upon the award of
deferred shares. The recipient of a deferred share award generally will be
subject to tax at ordinary income rates on the fair market value of
unrestricted shares of Class A common stock on the date that those shares are
transferred to the plan participant under the award (reduced by any amount paid
by the plan participant for those deferred shares), and the capital gains/loss
holding period for such shares will also commence on such date.
Stock payments. The recipient of a stock payment generally will be subject
to tax at ordinary income rates on the fair market value of unrestricted shares
of Class A common stock on the date that those shares are transferred to the
plan participant (reduced by any amount paid by the plan participant for the
shares or previously taxable to the plan participant), and the capital
gains/loss holding period for those shares will also commence on such date.
Performance shares and performance units. No income generally will be
recognized upon the grant of performance shares or performance units. Upon
payment in respect of the earn-out of performance shares or performance units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any unrestricted shares of Class A common stock received.
Tax consequences to the company for which services are provided. To the
extent that a plan participant recognizes ordinary income in the circumstances
described above, ftd.com or the company for which the plan participant performs
services will be entitled to a corresponding deduction provided that, among
other things, the income meets the test of reasonableness, is an ordinary and
necessary business expense, is not an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code and is not disallowed by
the $1.0 million limitation on some executive compensation under Section 162(m)
of the Internal Revenue Code.
Plan benefits. The types of awards that may be granted in the future under
the plan are subject to the discretion of our board of directors and,
therefore, cannot be determined. It is not possible to determine all amounts
that may be awarded in the future under the plan.
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PRINCIPAL STOCKHOLDERS
FTDI beneficially owns all of the shares of our Class B common stock
outstanding as of the date of this prospectus. Following the closing of this
offering, FTDI will continue to beneficially own 100% of the Class B common
stock and, accordingly, will hold approximately % of the economic interest
in ftd.com and % of the combined voting power of ftd.com.
The following table sets forth information with respect to the beneficial
ownership of our common stock as of April 30, 1999 and as adjusted to reflect
the sale of the shares of Class A common stock offered under this prospectus
by: (1) each person who we know owns beneficially more than 5% of our common
stock, (2) each of our directors individually, (3) each of our named executive
officers individually and (4) all of our executive officers and directors as a
group. The information in the table assumes the underwriters' option to
purchase additional shares is not exercised.
Unless otherwise indicated, to our knowledge, all persons listed below have
sole voting and investment power with respect to their shares of common stock,
except to the extent the applicable law gives spouses shared authority. Shares
of common stock that an individual or group has the right to acquire within 60
days of April 30, 1999 pursuant to the exercise of options are deemed to be
outstanding for the purpose of computing the percentage ownership of such
person or group, but are not deemed outstanding for the purpose of calculating
the percentage owned by any other person listed.
<TABLE>
<CAPTION>
Shares of FTD Corporation
Shares of ftd.com Common Stock Common Stock Beneficially
Beneficially Owned Owned
----------------------------------- ---------------------------
Voting Power
-----------------
Percentage Before After Percentage Voting
Number Owned Offering Offering Number Owned Power
------ ---------- -------- -------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Stockholders:
Florists' Transworld 100.0% -- -- --
Delivery, Inc. (1).....
3113 Woodcreek Drive
Downers Grove, Illinois
60515
Perry Acquisition
Partners, L.P. (2)..... 100.0 7,458,862 48.6% 60.2%
Bain Capital, Inc. (3).. 0 0 2,679,616 17.5 21.6
Directors and Executive
Officers:
Richard C. Perry (2)(4). 100.0 7,508,862 49.0 60.6
Michael J. Soenen (5)... 0 0 19,166 * *
Peter K. Poli........... 0 0 0 0 0
Frederick K. Johnson
(6).................... 0 0 51,450 * *
Habib Y. Gorgi (7)...... 0 0 1,262,082 8.2 3.5
Veronica K. Ho.......... 0 0 0 0 0
Gary K. Silberberg...... 0 0 0 0 0
All Directors and
Executive Officers
as a Group (7 persons)
(8).................... 100.0 8,841,560 57.6 71.2
</TABLE>
- ----------
* Less than 1%.
(1) The shares of our Class B common stock owned by FTDI have been pledged as
security under FTDI's credit agreement.
(2) All shares of ftd.com common stock outstanding prior to this offering are
owned by FTDI. Perry Acquisition Partners, L.P. and Richard C. Perry may
each be deemed to have sole voting and investment power with respect to
60.1% of the voting power of FTD Corporation common stock. Because FTDI is
a wholly owned subsidiary of FTD Corporation, Perry Acquisition Partners
and Mr. Perry may each be deemed to share voting power with respect to all
the shares of ftd.com common stock outstanding prior to the offering. Perry
Acquisition Partners and Mr. Perry each expressly disclaim beneficial
ownership of
49
<PAGE>
these shares, except to the extent of their pecuniary interest therein. As
reported in a Schedule 13G on file with the Securities and Exchange
Commission, (A) Perry Acquisition Partners, L.P. has sole voting and
dispositive power with respect to 7,458,862 shares of Class A common stock
of FTD Corporation, which represents approximately 48.6% of the outstanding
common stock, and 60.1% of the outstanding voting stock, of FTD Corporation
and (B) Richard C. Perry, as Managing Member of Perry Investors, LLC, the
general partner of Perry Acquisition Partners, L.P., may be deemed to
beneficially own, and have sole voting and investment power with respect to,
the shares of Class A common stock of FTD Corporation that are beneficially
owned by Perry Acquisition Partners, L.P. Mr. Perry disclaims beneficial
ownership of those shares, other than the portion of the shares that relate
to his individual economic interest in Perry Acquisition Partners, L.P. The
share numbers reported in the 13G have been adjusted to reflect a 2-for-1
stock split of FTD Corporation's common stock, which was effective February
9, 1998. The address for each of Perry Acquisition Partners, L.P. and Mr.
Perry is 599 Lexington Avenue, New York, New York 10022.
(3) As reported in a Schedule 13G on file with the Securities and Exchange
Commission, (A) Bain Capital Fund IV, L.P. ("BCF-IV") has shared voting and
investment power with respect to 718,896 shares of Class A common stock of
FTD Corporation, representing 4.7% of the outstanding common stock, and
5.8% of the outstanding voting stock, of FTD Corporation; (B) Bain Capital
Fund IV-B, L.P. ("BCF-IV-B") has shared voting and investment power with
respect to 822,708 shares of Class A Common Stock of FTD Corporation,
representing 5.4% of the outstanding common stock, and 6.6% of the
outstanding voting stock, of FTD Corporation; (C) Bain Capital Partners IV,
L.P. ("BCP"), as the sole general partner of BCF-IV and BCF-IV-B, may be
deemed to have shared voting and investment power with respect to the
1,541,604 shares of Class A common stock of FTD Corporation held by BCF-IV
and BCF-IV-B; and, as one of five general partners of Information Partners
("IP"), may be deemed to have shared voting and investment power with
respect to the 885,226 shares of Class A common stock of FTD Corporation
held by Information Partners Capital Fund, L.P. ("IPCF"); these shares
represent 15.8% of the outstanding Class A common stock, and 19.6% of the
outstanding voting stock, of FTD Corporation; (D) Bain Capital Investors,
Inc. ("BCI"), as the sole general partner of BCP, may be deemed to have
shared voting and investment power with respect to the 1,541,604 shares of
Class A common stock of FTD Corporation held by BCF-IV; and BCF-IV-B, and,
as one of five general partners of Information Partners ("IP"), may be
deemed to have shared voting and investment power with respect to the
885,226 shares of Class A common stock of FTD Corporation held by
Information Partners Capital Fund, L.P. ("IPCF"); these shares represent
15.8% of the outstanding Class A common stock, and 19.6% of the outstanding
voting stock, of FTD Corporation; (E) W. Mitt Romney, the sole stockholder
of BCI, may be deemed to have shared voting and investment power with
respect to the 1,541,604 shares of Class A common stock of FTD Corporation
held by BCF-IV and BCF-IV-B; Mr. Romney also serves as a member of the
Management Committee of BCIP Associates ("BCIP") and BCIP Trust Associates,
L.P. ("BCIPT") and, in that capacity, may be deemed to have shared voting
and investment power with respect to the 252,786 shares of Class A common
stock of FTD Corporation held by BCIP and BCIPT; in addition, Mr. Romney is
one of seven individual general partners of Bain Venture Capital ("BVC")
and, in that capacity, may be deemed to have shared voting and investment
power with respect to the 885,226 shares of Class A common stock of FTD
Corporation held by IPCF; these shares represent 17.4% of the outstanding
common stock, and 21.6% of the outstanding voting stock, of FTD
Corporation; (F) Joshua Berkenstein, as a member of the Management
Committee of BCIP and BCIPT, may be deemed to have shared voting and
investment power with respect to the 252,786 shares of Class A common stock
of FTD Corporation held by BCIP and BCIPT; in addition, Mr. Berkenstein is
one of seven individual general partners of BVC and, in that capacity, may
be deemed to have shared voting and investment power with respect to the
885,226 shares of Class A common stock of FTD Corporation held by IPCF;
these shares represent 7.4% of the outstanding common stock, and 9.2% of
the outstanding voting stock, of FTD Corporation; (G) BCIP has shared
voting and investment power with respect to 160,836 shares of Class A
common stock of FTD Corporation, representing less than 1% of the
outstanding common stock, and 1.3% of the outstanding voting stock, of FTD
Corporation; (H) BCIPT has shared voting and investment power with
50
<PAGE>
respect to 91,950 shares of Class A common stock of FTD Corporation,
representing less than 1% of the outstanding common and voting stock of FTD
Corporation; (I) IPCF has shared voting and investment power with respect to
885,226 shares of Class A common stock of FTD Corporation, representing 5.8%
of the outstanding common stock, and 7.1% of the outstanding voting stock of
FTD Corporation; (J) IP, as the sole general partner of IPCF, may be deemed
to have shared voting and investment power with respect to the 885,226
shares of Class A common stock of FTD Corporation held by IPCF, representing
5.8% of the outstanding common stock, and 7.1% of the outstanding voting
stock, of FTD Corporation; (K) David Dominik, Mark Nunnelly, Stephen
Pagliuca and BVC are each general partners of IP and, in that capacity, may
each be deemed to have shared voting and investment power with respect to
the 885,226 shares of Class A common stock of FTD Corporation held by IPCF,
representing 5.8% of the outstanding common stock, and 7.1% of the
outstanding voting stock, of FTD Corporation; and (L) Paul Edgerley, Robert
Gay, Adam Kirsch, Geoffrey Rehnert and White are each individual general
partners of BVC and, in that capacity, may each be deemed to have shared
voting and investment power with respect to of the 885,226 shares of Class A
common stock of FTD Corporation held by IPCF, which represent 5.8% of the
outstanding common stock, and 7.1% of the outstanding voting stock, of FTD
Corporation. The share numbers reported in the 13G have been adjusted to
reflect a 2-for-1 stock split of FTD Corporation's common stock, which was
effective February 9, 1998. Each of the persons named in the 13G expressly
disclaims beneficial ownership of any shares of FTD Corporation common stock
owned by each other reporting person. The filing of the 13G is not an
admission that any of BCP, BCI, IP, BVC or Messrs. Romney, Berkenstein,
Dominik, Nunnelly, Pagliuca, Edgerley, Gay, Kirsch, Rehnert or White is the
beneficial owner of the shares attributed to them in this note. The address
for each of the persons named in the 13G is c/o Bain Capital, Inc., Two
Copley Place, Boston, Massachusetts 02116.
(4) Mr. Perry is the managing member of Perry Principals LLC. In that capacity,
he may be deemed to have shared voting and investment power with respect to
the 50,000 shares of Class A common stock of FTD Corporation held by Perry
Principals. Mr. Perry disclaims beneficial ownership of those shares,
except for his pecuniary interest therein.
(5) Shares of FTD Corporation common stock beneficially owned include 2,500
shares issuable upon the exercise of options and 10,000 restricted shares
that will vest in three equal annual installments beginning on September
30, 2001.
(6) Shares of FTD Corporation common stock beneficially owned include 25,000
shares issuable upon the exercise of options and 20,000 restricted shares
that will vest in three equal annual installments beginning on September
30, 2000.
(7) Represents shares of FTD Corporation common stock beneficially owned by
Fleet Growth Resources, Inc., Fleet Equity Partners VII, L.P. and Chisholm
Partners II, L.P. Mr. Gorgi is the President of Fleet Growth Resources,
Silverado V Corp. and Silverado II Corp. Fleet Growth Resources and
Silverado V are general partners of Fleet Equity Partners VII. Silverado II
Corp. is the general partner of Silverado II L.P., which is the general
partner of Chisholm Partners II. Mr. Gorgi is also a limited partner of
Fleet Equity Partners VII and Silverado II L.P. In his capacity as
President of Fleet Growth Resources, Silverado V and Silverado II Corp.,
Mr. Gorgi may be deemed to share voting and investment power with respect
to those shares with Robert M. Van Degna, Chairman and CEO of those
entities. Mr. Gorgi disclaims beneficial ownership of all shares that are
directly owned by Fleet Growth Resources and those shares that are directly
owned by Fleet Equity Partners VII and Chisholm Partners II, except for his
pecuniary interest therein.
(8) Shares of FTD Corporation common stock beneficially owned include 27,500
shares issuable upon the exercise of options.
51
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CERTAIN TRANSACTIONS
Income Taxes
FTD Corporation is a common parent of an affiliated group of companies
within the meaning of Section 1504(a) of the Internal Revenue Code, which
includes us. The Internal Revenue Code requires that FTD Corporation own at
least an 80% voting and economic ownership interest in ftd.com to continue to
include us in its U.S. consolidated income tax returns.
Following the closing of this offering, in accordance with the terms of the
amended Tax Sharing Agreement among FTDI, FTD Corporation and us, for so long
as we remain a member of FTD Corporation's affiliated group, (1) we will pay
our proportionate share of FTD Corporation's tax liability computed as if we
were filing a separate return and (2) any tax loss benefits attributable to us
will be refunded to us by FTD Corporation.
Historical Relationships
As a subsidiary of FTDI, we receive various services from FTDI, including
technical, human resources, accounting, administrative, legal and other
services. Prior to the closing of this offering, our financial statements have
reflected allocations for these services rendered by FTDI to us. We believe
such allocations have been made on a reasonable and consistent basis; however,
they are not necessarily indicative of, nor is it practicable for us to
estimate, the level of expenses that would have otherwise been incurred had we
operated as a separate, stand-alone company.
In addition, we have also relied on FTDI to provide us with financing for
our cash flows. Our cash flows to date therefore are not necessarily indicative
of the cash flows that would have resulted had we been operating as an
independent company. We currently are indebted to FTDI under a $5.0 million
revolving loan, borrowings under which were used to fund a portion of our
liquidity since our formation in May 1999. Amounts outstanding under this loan
will be repaid contemporaneously with the closing of this offering.
Intercompany Agreements
We intend to enter into several agreements with FTDI prior to the closing of
this offering. We have summarized the anticipated material terms of these
agreements. These agreements will not have been negotiated on an arm's-length
basis; however, we believe the terms of these agreements are no less favorable
to us than those that could have been obtained from an unaffiliated third
party. So long as (1) FTD Corporation beneficially owns 25% or more of the
voting power of the common stock of ftd.com, and no other person owns a greater
percentage, or (2) directors, officers or affiliates of FTD Corporation or its
subsidiaries constitute a majority of our board of directors, any amendments to
the Intercompany Agreements must be approved by a majority of our board of
directors, which majority must include at least one-half of our independent
directors. For example, if we have only two independent directors, the majority
must include at least one of those independent directors.
Trademark License Agreement. We have the non-exclusive right to use FTDI's
trademarks in connection with the sale of flowers and specialty gifts to
consumers on the Internet and telephone. We pay FTDI a royalty equal to one
percent of our order revenues and service fees, net of discounts. The agreement
has a 99-year term, however, FTDI may terminate the agreement if, among other
things, any person (other than an affiliate of FTDI or a strategic partner)
acquires 20% or more of the voting control of ftd.com, or upon various defaults
by us. ftd.com's rights to use FTDI's trademarks will generally cease
after termination of the Trademark License Agreement.
FTDI agrees, on behalf of itself and its affiliates other than us, not to
enter into a business that directly markets flowers and specialty gifts to
consumers. In addition, if FTDI makes an acquisition that includes this type of
prohibited business, it must offer to sell that business, or component thereof,
to us. Within 90 days of our receipt of FTDI's offer, we may deliver to FTDI an
offer to acquire or license the prohibited business on
52
<PAGE>
the terms and conditions we decide. If we do not deliver to FTDI an offer to
acquire the prohibited business, FTDI may enter into the prohibited business.
If we do deliver to FTDI an offer to acquire the prohibited business, then
FTDI, within 90 days of receipt of our offer, must accept our offer or provide
us with the terms of the best bona fide third party offer it has received to
acquire or license the prohibited business. Within 30 days following receipt of
the terms of the third party offer, we must either offer to acquire the
prohibited business on the terms described in the third party offer, or permit
FTDI to proceed with the sale of the prohibited business to the third party
offeror. These obligations will terminate (1) six months after the trademark
license terminates if FTDI terminates the license after the acquisition by a
third party of 35% or more of the voting control of ftd.com with no other
person owning a greater percentage, (2) one year after the trademark license
terminates if FTDI terminates the license as a result of an acquisition of 20%
or more of the voting control of ftd.com after a tax-free spin-off or other
public sale or distribution of our voting securities, (3) two years after the
trademark license terminates if FTDI terminates the license after the
acquisition by a third party of less than 35% but more than 20% of the voting
control of ftd.com or (4) when the trademark license terminates for any other
reason.
We agree not to enter into any business currently being conducted by FTDI.
In addition, if we make an acquisition that includes a business that FTDI is
engaged in, we must offer to sell that business, or component thereof, to FTDI.
Within 90 days of our receipt of our offer, FTDI may deliver to us an offer to
acquire or license the prohibited business on the terms and conditions it
decides. If FTDI does not deliver to us an offer to acquire the prohibited
business, we may enter into the prohibited business. If FTDI does deliver to us
an offer to acquire the prohibited business, then we, within 90 days of receipt
of FTDI's offer, must accept FTDI's offer or provide FTDI with the terms of the
best bona fide third party offer we have received to acquire or license the
prohibited business. Within 30 days following receipt of the terms of the third
party offer, FTDI must either offer to acquire the prohibited business on the
terms described in the third party offer, or permit us to proceed with the sale
of the prohibited business to the third party offeror. These obligations will
terminate two years after termination of the trademark license if FTDI
terminates the trademark license due to our material breach, and otherwise will
terminate upon the termination of the trademark license.
Intercompany Services Agreement. Following the closing of this offering,
FTDI will continue to provide various services to us, including corporate
services and space-sharing.
FTDI will continue to provide all of the corporate services it currently
provides to us such as technical, human resources, accounting, administrative,
legal and other services, as well as those services we require by virtue of our
status as a reporting company with the Securities and Exchange Commission. FTDI
provides these services to us at 105% of the cost allocable to ftd.com's use of
those services. FTDI also provides us with access to the Mercury Network, the
FTD Clearinghouse, FTDI's Retrans(R) service, which is its international sale
processing system, and the FTD credit card processing program, for which we pay
an amount comparable to the fee that FTDI charges FTD florists for these
services.
FTDI permits us to use a portion of its offices. Our cost for this space
represents an estimate of the prevailing market rate for similar space,
includes a charge for our proportionate share of building expenses, such as
insurance and maintenance costs and includes an administration fee equal to 5%
of the space sharing costs allocable to ftd.com.
Intercompany Indemnification Agreement. We agree to indemnify FTDI and FTD
Corporation for liabilities in respect of our businesses and FTDI and FTD
Corporation agree to indemnify us for liabilities in respect of FTDI's
businesses, and various tax and pension-related liabilities of FTDI and FTD
Corporation, resulting from our participation in FTD Corporation's consolidated
tax group. See "Risk Factors--Contingent liability for FTDI's obligations may
adversely affect our financial condition."
Florists' Online Hosting Agreement. We provide FTDI with hosting services
for its Florists' Online program pursuant to a Florists' Online Hosting
Agreement with FTDI. Our services include hosting Web sites for participating
FTD florists within our Web site. During the term of this Agreement, FTDI is
obligated to pay
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us a monthly service fee of $50.00 for each florist Web site hosted on our Web
site. This agreement expires on , 2000.
Commission Agreement. We receive at least a $5.00 commission on every order
that we clear through the FTD Clearinghouse pursuant to a Commission Agreement
with FTDI. If FTDI agrees to pay a similarly situated third party a more
economically advantageous commission fee, FTDI must adjust our commission to
reflect the more favorable terms. This type of commission structure has been
adopted by the market over the past several years, and we believe this
arrangement is structured similarly to commission structures currently being
offered to other flower direct marketers. The Commission Agreement expires in
May 2002.
Rights to Designate Directors
Under an FTD Corporation stockholders' agreement among Perry Acquisition
Partners, L.P., a group of investment funds and related persons affiliated with
Bain Capital, Inc. and various other investors in FTD Corporation, for so long
as Perry Acquisition Partners and the Bain Capital entities own the FTD
Corporation stock that they acquired in connection with FTD Corporation's
December 1994 acquisition of the old Florists' Transworld Delivery Association,
Perry Acquisition Partners has the contractual right to designate six members
of the board of directors of each subsidiary of FTDI, including us, and Bain
Capital has the contractual right to designate two members of the board of
directors of each subsidiary of FTDI, including us. Under this Stockholders'
Agreement, the Bain Capital entities' consent is needed to approve various
actions submitted to FTD Corporation's board of directors or its stockholders
or any of its subsidiaries, including us, and their stockholders. In addition,
under the Mutual Support Agreement, as long as we are a controlled affiliate of
FTDI, FTD Association has the contractual right to designate up to 20% of the
members of our board of directors but in no event less than two members.
FTDI Registration Rights Agreement
We entered into a Registration Rights Agreement with FTDI pursuant to which,
at any time after 180 days following the date of this prospectus, FTDI may
demand that we file a registration statement under the Securities Act covering
all or a portion of our securities held by FTDI, its affiliates and their
permitted transferees. However, the securities to be registered must have a
reasonably anticipated aggregate public offering price of at least $ million.
FTDI can effect no more than one demand registration per year.
If and when we become eligible to utilize Form S-3 to register an offering
of our securities, FTDI may request that we file a Registration Statement on
Form S-3, covering all or a portion of our securities held by FTDI, its
affiliates and their permitted transferees, provided that the aggregate public
offering price is at least $ million. FTDI can request one registration on
Form S-3 per year.
These registration rights will be subject to our right to delay the filing
of a registration statement in certain circumstances, not more than once in any
12-month period, for not more than days.
In addition, FTDI will have some "piggyback" registration rights. If we
propose to register any Class A common stock under the Securities Act (other
than pursuant to the registration rights noted above) FTDI may require us to
include all or a portion of our securities that it owns in that registration.
However, the managing underwriter, if any, of any such offering will have the
right to limit the number of registrable securities proposed to be included in
such registration. We will bear all registration expenses incurred in
connection with these registrations. FTDI would pay all underwriting discounts,
selling commissions and stock transfer taxes applicable to the sale of its
securities. The registration rights of FTDI under the Registration Rights
Agreement will terminate when FTDI may sell all of its shares in a three-month
period under Rule 144 under the Securities Act.
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DBV Investments
In May 1999, we issued and sold 30,000 shares of our Series A 8% Cumulative
Redeemable Preferred Stock to DBV Investments, L.P., a private investment
partnership controlled by Michael S. Dell, for consideration of $3.0 million.
Each of these shares of Series A preferred stock automatically converts into
one share of our Class A common stock after the closing of this offering.
In connection with the sale of shares of our Series A preferred stock to DBV
Investments, we granted registration rights in respect of the shares of
Class A common stock issuable upon the conversion of the Series A preferred
stock. A copy of this registration rights agreement has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
According to the registration rights agreement, at any time, on or after the
180th day after the closing of this offering, DBV Investments may require us to
register under the Securities Act all or any portion of those shares of
Class A common stock so long as those shares are offered at an aggregate
offering price in excess of $5.0 million.
These registration rights are subject to our right to delay the filing of a
registration statement in certain circumstances for up to 120 days.
In addition, the DBV Investments will have some "piggyback" registration
rights. If we propose to register any Class A common stock under the Securities
Act (other than in connection with the registration of securities issued under
an employee benefit plan or in consideration for an acquisition), DBV
Investments may require us to include all or any portion of its shares
of Class A common stock in that registration; provided, however, that the
managing underwriter, if any, of our proposed offering has the right to limit
the number of those shares proposed to be included in that registration.
We would bear all registration expenses incurred in connection with these
registrations. DBV Investments would bear its proportionate share of all
underwriting discounts and selling commissions.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 250,000,000 shares of Class A
common stock, par value $.01 per share, 100,000,000 shares of Class B common
stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par
value $.01 per share.
The following descriptions of our capital stock and various provisions of
our Certificate of Incorporation and Bylaws are summaries and are qualified by
reference to the form of our Certificate of Incorporation and Bylaws, copies of
which have been filed with the Securities and Exchange Commission as exhibits
to the Registration Statement of which this prospectus is a part.
Common Stock
There are shares of Class A common stock being offered through this
prospectus ( if the underwriters' option to purchase additional shares is
exercised) and shares are reserved for issuance upon conversion of Class B
common stock into Class A common stock. There are shares of Class B common
stock outstanding, and all of those shares are held by FTDI.
Voting rights. The holders of Class A common stock and Class B common stock
generally have identical voting rights, except that holders of our Class A
common stock are entitled to one vote per share, while holders of our Class B
common stock are entitled to ten votes per share on all matters to be voted on
by stockholders except in the case of conversion upon a tax-free spin-off.
Shares of Class B common stock also have conversion rights, which are described
below. Cumulative voting for the election of directors is not provided for in
our Certificate of Incorporation, which means that the holders of a majority of
the shares voted can elect all of the directors then outstanding for election.
Amendments to our Certificate of Incorporation that would alter or change the
powers, preferences or special rights of the Class A common stock or Class B
common stock so as to affect them adversely must be approved by a majority of
the votes entitled to be cast by the holders of the shares affected by the
amendment, voting as a separate class. For purposes of these provisions, any
provision for the voluntary, mandatory or other conversion or exchange of the
Class B common stock into or for Class A common stock will not be deemed to
adversely affect the rights of holders of the Class A common stock. Any
amendment to our Certificate of Incorporation to increase or decrease the
authorized shares of any class must be approved by the affirmative vote of the
holders of the majority of the voting power of the stock of ftd.com, voting
separately as a class.
Dividends. Holders of Class A common stock and Class B common stock will
share equally on a per-share basis in any dividend declared by our Board of
Directors, subject to the preferential rights of any outstanding shares of
preferred stock. Dividends consisting of shares of Class A common stock or
Class B common stock may be paid only as follows: (1) dividend shares of Class
A common stock may be paid only to holders of Class A common stock, and
dividend shares of Class B common stock may be paid only to holders of Class B
common stock; and (2) shares will be paid proportionally with respect to each
outstanding share of Class A common stock and Class B common stock. We may not
subdivide or combine shares of Class A common stock or Class B common stock
without at the same time proportionally subdividing or combining shares of the
other class.
Conversion. Each share of Class B common stock is convertible, at the option
of the holder, into one share of Class A common stock at any time prior to a
tax-free spin-off of ftd.com to the stockholders of FTD Corporation, any entity
that owns 100% of FTD Corporation's common stock or any successor to FTD
Corporation by merger or consolidation. Following a tax-free spin-off, if any
occurs, shares of Class B common stock will no longer be convertible into
shares of Class A common stock at the option of the holder.
Any shares of Class B common stock transferred to a person other than FTD
Corporation, FTDI, any of their subsidiaries or successors or a strategic
partner prior to a tax-free spin-off automatically will be converted into
shares of Class A common stock (on a one-for-one basis) upon any such transfer.
A "strategic partner"
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means any entity or group of affiliated entities that acquires Class B common
stock constituting, in the aggregate, at least 10% of the number of shares of
all classes of common stock outstanding and that, in the good faith
determination of a majority of our disinterested directors, as determined prior
to the acquisition of the Class B common stock by that entity or group, is
considered to be a strategic alliance in the best interests of our business and
our stockholders. Shares of Class B common stock distributed to the
stockholders of FTD Corporation pursuant to a transaction intended to qualify
as a tax-free spin-off will not convert into shares of Class A common stock in
connection with that transaction. Following a tax-free spin-off, shares of
Class B common stock will be transferable as Class B common stock, subject to
applicable laws. Shares of Class B common stock automatically will convert into
shares of Class A common stock on the fifth anniversary of the tax-free spin-
off, unless prior to the tax-free spin-off, FTD Corporation or FTDI delivers to
us an opinion of counsel reasonably satisfactory to us to the effect that the
automatic conversion could preclude FTD Corporation or FTDI from obtaining a
favorable ruling from the Internal Revenue Service that the distribution of
FTDI's Class B common stock to the stockholders of FTD Corporation would be a
tax-free spin-off. If we receive that opinion, we will submit approval of such
conversion to a vote of the holders of the common stock as soon as practicable
after the fifth anniversary of the tax-free spin-off, unless FTD Corporation or
FTDI delivers to us an opinion of counsel reasonably satisfactory to us prior
to the fifth anniversary that the vote could adversely affect the tax-free
status of the spin-off. Approval of the conversion will require the affirmative
vote of the holders of a majority of the shares of both the Class A common
stock and Class B common stock present and voting, voting together as a single
class, with each share of Class B common stock entitled to only one vote for
that purpose. We cannot assure you that the conversion will in fact be
consummated. The requirement to submit the conversion to a vote of the holders
of common stock is intended to ensure that the desired tax treatment of the
tax-free spin-off is preserved if the Internal Revenue Service were to
challenge the automatic conversion as violating the requirement that FTDI own
80% of the voting power of ftd.com's common stock immediately before the spin-
off distribution. We believe that FTDI has no current plans with respect to a
tax-free spin-off of ftd.com.
All shares of the Class B common stock automatically will convert into Class
A common stock if a tax-free spin-off has not occurred and the number of
outstanding shares of Class B common stock beneficially owned by FTDI falls
below 20% of the aggregate number of outstanding shares of all classes of
common stock. This mechanism will prevent FTDI from decreasing its economic
interest in ftd.com to less than 20% while still retaining control of more than
50% of the voting power of our common stock. All conversions will be effected
on a share-for-share basis.
Other rights. In the event of any merger or consolidation of ftd.com with or
into another company in connection with which our shares of common stock are
converted into or exchangeable for shares of stock, other securities or
property (including cash) of the other company, all holders of Class A common
stock and Class B common stock will be entitled to receive the same kind and
amount of shares of stock and other securities and property (including cash) of
the other company.
On liquidation, dissolution or winding up of ftd.com, after payment in full
of the amounts required to be paid to holders of our preferred stock, if any,
all holders of Class A common stock and Class B common stock are entitled to
share ratably in any of our assets available for distribution to holders of
shares of common stock.
No shares of Class A common stock or Class B common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock.
Upon the closing of this offering, all the outstanding shares of Class A
common stock and Class B common stock will be validly issued, fully paid and
nonassessable.
Preferred Stock
Our Board of Directors has the authority, within the limitations and
restrictions stated in our Certificate of Incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one or more
classes or
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series, and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series of the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock, impeding or
delaying a possible takeover and adversely affecting the voting and other
rights of the holders of common stock.
Stock Options
As of , 1999, (1) options to purchase a total of shares of
common stock were outstanding, of which options had vested on such date;
and (2) up to additional shares of common stock may be subject to options
granted in the future. All of the options contain standard anti-dilution
provisions. See "Management--Executive Compensation."
Anti-Takeover Effects of Various Provisions of Delaware Law and Our Certificate
of Incorporation and Bylaws
Upon the closing of this offering, ftd.com will be subject to the provisions
of Section 203 of the Delaware General Corporation Law. Subject to specific
exceptions, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
. the transaction in which such stockholder became an "interested
stockholder" is approved by the Board of Directors prior to the date the
"interested stockholder" attained that status;
. upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding those shares owned by persons
who are directors and also officers); or
. on or subsequent to the date, the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
"Business combinations" include mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." Subject to
various exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or within three years did own, 15%
or more of the corporation's voting stock. The restrictions in this statute
would not apply to a "business combination" with FTDI or any of its
subsidiaries; however, they could prohibit or delay the accomplishment of
mergers or other takeover or change-in-control attempts with respect to ftd.com
and, therefore, may discourage attempts to acquire ftd.com.
In addition, various provisions of our Certificate of Incorporation and
Bylaws, which are summarized in the following paragraphs, may be deemed to have
an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
Cumulative voting. Our Certificate of Incorporation expressly denies
stockholders the right to cumulate votes in the election of directors.
Stockholder action; special meeting of stockholders. Our Certificate of
Incorporation eliminates the ability of stockholders to act by written consent.
It further provides that special meetings of our stockholders may be called
only by the Chairman of the Board of Directors or a majority of the Board of
Directors.
Advance notice requirements for stockholder proposals and director
nominations. Our Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate
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candidates for election as directors at an annual meeting of stockholders, must
provide timely notice of that proposal or nomination in writing. To be timely,
a stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 60 days nor more than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders. However, in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice
by the stockholder in order to be timely must be received not later than the
close of business on the tenth day following the date on which notice of the
date of the annual meeting was mailed to stockholders or made public, whichever
first occurs. In the case of a special meeting of stockholders called for the
purpose of electing directors, notice by the stockholder in order to be timely
must be received not later than the close of business on the tenth day
following the day on which notice of the date of the special meeting was mailed
or public disclosure of the date of the special meeting was made, whichever
first occurs. Our Bylaws also specify certain requirements as to the form and
content of a stockholder's notice. These provisions may impede stockholders'
ability to bring matters before an annual meeting of stockholders or make
nominations for directors at an annual meeting of stockholders.
Limitations on liability and indemnification of officers and directors. The
Delaware General Corporation Law authorizes corporations to limit or eliminate
the personal liability of directors to corporations and their stockholders for
monetary damages for breaches of directors' applicable duties. Our Certificate
of Incorporation includes a provision that eliminates the personal liability of
ftd.com's directors for monetary damages for actions taken as a director,
except for liability:
. for any breach of the director's duty of loyalty to ftd.com or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
. for any transaction from which the director derived an improper personal
benefit.
Our Bylaws provide that:
. we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, subject to very limited exceptions;
. we may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our Certificate of Incorporation, our Bylaws or other agreements;
and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with legal proceedings to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
Prior to the closing of this offering, we intend to obtain directors' and
officers' insurance providing indemnification for our directors, officers and
certain employees for certain liabilities. We believe that these
indemnification provisions and insurance are necessary to attract and retain
qualified directors and executive officers.
The limitation of liability and indemnification provisions in our
Certificate of Incorporation and Bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers pursuant
to these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought. We
are unaware of any threatened litigation that may result in claims for
indemnification.
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Authorized but unissued shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval. We may use these additional shares for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of ftd.com by means of a
proxy contest, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority in interest of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage. Following the offering, FTDI, on its own, as
the beneficial owner of approximately % of the voting power of the
outstanding common stock, will be able to cause ftd.com to amend its
Certificate of Incorporation and Bylaws.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Harris Trust and
Savings Bank. Its address is 311 West Monroe Street, Chicago, IL 60606, and its
telephone number at that location is (312) 461-2121.
Listing
We intend to apply to have our Class A common stock quoted on the Nasdaq
National Market under the trading symbol "EFTD."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our Class A common
stock. We cannot predict the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price of our Class A
common stock prevailing from time to time. Sales of substantial amounts of our
Class A common stock in the public market, or the perception that such sales
may occur, could adversely affect prevailing market prices of our Class A
common stock. Furthermore, since no shares (other than the shares sold in this
offering) will be available for sale shortly after this offering because of
various contractual and legal restrictions on resale described below, sales of
substantial amounts of Class A common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise capital in the future.
Upon the closing of this offering, there will be outstanding shares of
our Class A common stock, assuming no exercise of the underwriters' option to
purchase additional shares and no exercise of outstanding options. All of the
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act, unless such shares are purchased
by "affiliates" as that term is defined in Rule 144 under the Securities Act.
Shares purchased by affiliates may be sold in the public market only if
registered or if they qualify for an exemption from registration, such as the
exemption from registration provided by Rule 144 that is described below.
As a result of the contractual lock-up restrictions described below and the
provisions of Rule 144, the shares of Class A common stock that are owned by
affiliates (including shares of Class A common stock issuable upon conversion
of Class B common stock) will be available for sale in the public market on the
date that is 180 days from the date of the closing of this offering, subject to
the volume limitations, manner-of-sale provisions and other conditions of Rule
144.
Lock-Up Agreements
We have agreed, and our directors and officers and FTD Corporation have
agreed, that for a period of 180 days from the date of this prospectus, without
the prior written consent of Bear, Stearns & Co. Inc., that they will not, and
FTD Corporation will cause FTDI not to, directly or indirectly, issue, sell,
offer or agree to sell, grant an option for the sale of, pledge, make any short
sale, establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act or otherwise dispose of any shares of Class A
common stock (or any securities convertible into, exercisable for Class A
common stock of ftd.com, including, without limitation, shares of Class B
common stock of ftd.com). The shares could be available for resale immediately
upon the expiration of the 180-day period in the event the shares are available
for resale under Rule 144. Transfers or dispositions can be made sooner with
the prior written consent of Bear, Stearns & Co. Inc.
Rule 144
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned shares of our Class A
common stock (including beneficial ownership of shares of Class B common stock,
which is convertible into Class A common stock) for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the Class A common stock on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. A person
who is not our affiliate at any time during the 90 days preceding a sale and
who has beneficially owned shares for at least two years, including the holding
period of any prior owner other than an affiliate, would be entitled to sell
shares immediately following this offering under Rule 144(k) without regard to
the volume limitations, manner-of-sale provisions or notice requirements of
Rule 144.
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Registration Rights
Prior to the closing of this offering, we will enter into an agreement with
FTDI providing FTDI with various registration rights. We have also entered into
a registration rights agreement in connection with the May 1999 issuance and
sale of our Series A 8% Cumulative Redeemable Convertible Preferred Stock. See
"Certain Transactions--FTDI Registration Rights Agreement" and "--DBV
Investments."
Stock Options
Following the completion of this offering, we intend to file a Form S-8
registration statement under the Securities Act covering shares of Class A
common stock reserved for issuance under the Equity Incentive Plan. The
registration statement will become effective automatically upon filing. As of
, 1999, options to purchase shares of Class A common stock were
outstanding. Upon the expiration of the lock-up agreements described above, at
least shares of Class A common stock will be subject to vested options
(based on options outstanding as of , 1999).
Accordingly, shares registered under the Form S-8 will, subject to vesting
provisions and Rule 144 volume limitations and manner-of-sale provisions
applicable to our affiliates, be available for sale in the open market
immediately after the 180-day lock-up agreements expire.
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UNDERWRITING
Subject to the terms and conditions set forth in an agreement between the
underwriters and us, each of the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., Volpe Brown Whelan & Company, LLC and
Thomas Weisel Partners LLC, has severally agreed to purchase from us the
aggregate number of shares of Class A common stock set forth opposite its name
below:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Volpe Brown Whelan & Company, LLC...........................
Thomas Weisel Partners LLC..................................
------
Total...................................................
======
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions. Under the underwriting agreement, the
underwriters are obliged to purchase and pay for all of the above shares of
Class A common stock if any are purchased.
The underwriters propose to offer the shares of Class A common stock
directly to the public at the offering price set forth on the cover page of
this prospectus and at that price less a concession not in excess of $ per
share of Class A common stock to other dealers who are members of the National
Association of Securities Dealers, Inc. The underwriters may allow, and those
dealers may reallow, concessions not in excess of $ per share of Class A
common stock to other dealers. After the offering, the offering price,
concessions and other selling terms may be changed by the underwriters. Our
Class A common stock is offered subject to receipt and acceptance by the
underwriters and subject to other conditions, including the right to reject
orders in whole or in part. The underwriters have informed us that the
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have granted a 30-day over-allotment option to the underwriters to
purchase an amount, up to an aggregate of 15% of the aggregate number of shares
appearing above, of additional shares of our Class A common stock exercisable
at the offering price less the underwriting discounts and commissions, each as
set forth on the cover page of this prospectus. If the underwriters exercise
this option in whole or in part then each of the underwriters will become
obligated, subject to various conditions, to purchase approximately the same
percentage of such additional shares as is approximately the percentage of
shares of Class A common stock that it is obligated to purchase of the total
number of shares under the underwriting agreement as shown in the table set
forth above.
The underwriting agreement provides that we must indemnify the underwriters
against various liabilities under the Securities Act or will contribute to
payments that the underwriters may be required to make in respect thereof.
We have agreed, and our directors and officers and FTD Corporation have
agreed, that for a period of 180 days from the date of this prospectus, without
the prior written consent of Bear, Stearns & Co. Inc., that they will not, and
FTD Corporation will cause FTDI not to, directly or indirectly, issue, sell,
offer or agree to sell, grant an option for the sale of, pledge, make any short
sale, establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act or otherwise dispose of any shares of Class A
common stock (or any securities convertible into, exercisable for Class A
common stock of ftd.com, including, without limitation, shares of Class B
common stock of ftd.com).
Prior to the offering, there has been no public market for our Class A
common stock. Consequently, the initial offering price for the Class A common
stock will be determined by negotiations between us and the representatives of
the underwriters. Among the factors to be considered in those negotiations will
be our results of operations in recent periods, estimates of our prospects and
the industry in which we compete, an assessment
63
<PAGE>
of our management, the general state of the securities markets at the time of
the offering and the prices of similar securities of generally comparable
companies. We intend to apply for approval of the quotation of our Class A
common stock on the Nasdaq National Market under the symbol "EFTD." We cannot
assure you, however, that an active or orderly trading market will develop for
the Class A common stock or that our Class A common stock will trade in the
public market subsequent to the offering at or above the initial offering
price.
In order to facilitate the offering, persons participating in the offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Class A common stock during and after the offering. Specifically,
the underwriters may over-allot or otherwise create a short position in the
Class A common stock for their own account by selling more shares of Class A
common stock than we have actually sold to them. The underwriters may elect to
cover any short position by purchasing shares of Class A common stock in the
open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the Class A common stock by bidding for or purchasing shares of Class A
common stock in the open market and may impose penalty bids, under which
selling concessions allowed to syndicate members or other broker-dealers
participating in the offering are reclaimed if shares of Class A common stock
previously distributed in the offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may
be to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Class A common stock to the extent that it discourages
resales of the Class A common stock. No representation is made as to the
magnitude or effect of any of these activities.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of Class A common stock for employees, directors and
other persons associated with us (including FTD florists) who express an
interest in purchasing shares of Class A common stock in the offering. The
number of shares available for sale to the general public in the offering will
be reduced to the extent those persons purchase these reserved shares. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares offered in this offering.
From time to time, Bear, Stearns & Co. Inc. provides financial advisory
services to ftd.com, FTDI, FTD Corporation and our and their affiliates and
receives customary fees for those services. James C. Cayne, the President and
Chief Executive Officer of Bear, Stearns & Co. Inc., is an investor in Perry
Acquisition Partners, L.P., which beneficially owns 7,458,862 shares of common
stock of FTD Corporation, representing 48.6% of the outstanding common stock,
and 60.2% of the voting power, of FTD Corporation. Mr. Cayne does not have the
power to vote or dispose of these shares. Richard C. Perry, Chairman of the
Board of FTD Corporation, FTDI and ftd.com and Managing Member of Perry
Investors, LLC, the general partner of Perry Acquisition Partners, L.P., is Mr.
Cayne's nephew.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager on
20 filed public offerings of equity securities, of which six have been
completed, and has acted as a syndicate member in an additional eight public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with ftd.com or any of its officers, directors or
controlling persons, except with respect to its contractual relationship with
ftd.com pursuant to the underwriting agreement entered into in connection with
this offering.
LEGAL MATTERS
The validity of the shares of Class A common stock offered by this
prospectus will be passed upon for us by Jones, Day, Reavis & Pogue, Chicago,
Illinois. Various legal matters in connection with this offering will be passed
upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. Some partners of Skadden, Arps, Slate, Meagher & Flom LLP have
investments in Bain Capital Fund IV, L.P. which has shared investment and
voting power with respect to 718,896 shares of Class A common stock of FTD
64
<PAGE>
Corporation. Those partners do not have the power to vote or dispose of those
shares. In addition, Skadden, Arps, Slate, Meagher & Flom LLP represented Perry
Capital Corp. in connection with the acquisition of Florists' Transworld
Delivery Association by FTD Corporation.
EXPERTS
The financial statements of ftd.com as of June 30, 1997 and 1998, and for
each of the years in the three-year period ended June 30, 1998, have been
included herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits, schedules and amendments to that
registration statement, under the Securities Act with respect to the shares of
Class A common stock to be sold in this offering. This prospectus does not
contain all the information included in our Registration Statement. For further
information with respect to us and the shares of Class A common stock to be
sold in this offering, we refer you to the Registration Statement. Statements
contained in this prospectus as to the contents of any contract, agreement or
other document referred to are not necessarily complete, and in each instance
we refer you to the copy of that contract, agreement or other document to the
extent filed as an exhibit to the Registration Statement.
You may read and copy all or any portion of the Registration Statement or
any other information we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You
can request copies of these documents, upon payment of a duplicating fee, by
writing to the Securities and Exchange Commission. Please call the Securities
and Exchange Commission at 1-800-SEC-0330 for further information on the
operation of the public reference room. Our Securities and Exchange Commission
filings, including the Registration Statement, are also available to you on the
Securities and Exchange Commission's Web site (http://www.sec.gov). As a result
of this offering, we will become subject to the information and reporting
requirements of the Exchange Act and, in accordance with the Exchange Act, we
will file periodic reports, proxy statements and other information with the
Securities and Exchange Commission. Upon approval of the Class A common stock
for quotation on the Nasdaq National Market, those reports, proxy statements
and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006. We intend to furnish
our stockholders with annual reports containing audited financial statements
and with quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ftd.com inc.
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of June 30, 1997 and 1998 and March 31, 1999
(unaudited).............................................................. F-3
Statements of Operations for the years ended June 30, 1996, 1997 and 1998
and for the nine months ended March 31, 1998 and 1999 (unaudited)........ F-4
Statements of Stockholder's Deficit for the years ended June 30, 1996,
1997 and 1998 and for the nine months ended March 31, 1999 (unaudited)... F-5
Statements of Cash Flows for the years ended June 30, 1996, 1997 and 1998
and for the nine months ended March 31, 1998 and 1999 (unaudited)........ F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
ftd.com inc.:
We have audited the accompanying balance sheets of ftd.com inc. (a wholly-
owned subsidiary of Florists' Transworld Delivery, Inc.), as of June 30, 1997
and 1998, and the related statements of operations, stockholder's deficit, and
cash flows for each of the years in the three-year period ended June 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ftd.com inc. as of June 30,
1997 and 1998, and the results of its operations and its cash flows for each of
the years in the three-year period ended June 30, 1998 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
May 14, 1999, except as to note 6,which is as of May 20, 1999
Chicago, Illinois
F-2
<PAGE>
ftd.com inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
---------------------- -----------
ASSETS 1997 1998 1999
------ ----------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Accounts receivable....................... $ 217,898 213,725 48,477
Prepaid expenses.......................... 29,224 19,351 127,178
----------- --------- ----------
Total current assets.................. 247,122 233,076 175,655
Distribution agreements, net of
accumulated amortization of $520,833 at
June 30, 1998 and $1,653,333 at March 31,
1999..................................... -- 1,979,167 1,535,417
----------- --------- ----------
Total assets.......................... $ 247,122 2,212,243 1,711,072
=========== ========= ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
Current liabilities:
Accounts payable.......................... $ 2,066,592 1,871,720 2,501,798
Unearned revenue.......................... -- -- 135,870
Accrued liabilities, including amounts due
to FTDI of $112,000, $289,000, and
$160,000 at June 30, 1997, June 30, 1998,
and March 31, 1999, respectively......... 198,267 491,139 442,172
----------- --------- ----------
Total current liabilities............. 2,264,859 2,362,859 3,079,840
----------- --------- ----------
Stockholder's deficit..................... (2,017,737) (150,616) (1,368,768)
----------- --------- ----------
Total liabilities and stockholder's
deficit.............................. $ 247,122 2,212,243 1,711,072
=========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ftd.com inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended
Years ended June 30, March 31,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
------------ ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Order revenues and
service fees, net of
discounts............ $ 18,489,940 26,230,331 30,423,315 19,072,070 28,519,688
Commissions from FTDI. -- -- -- -- 2,595,710
Other revenues........ 51,191 25,104 239,940 9,924 67,312
------------ ---------- ---------- ---------- ----------
Total revenues...... 18,541,131 26,255,435 30,663,255 19,081,994 31,182,710
Fulfillment and
processing services,
including expenses
from FTDI of
$1,517,027,
$2,150,481 and
$2,520,176 for the
years ended June 30,
1996, 1997, and 1998,
respectively, and
$1,417,012 and
$2,146,604 for the
nine months ended
March 31, 1998 and
1999, respectively... 15,431,163 22,283,726 26,324,568 16,800,747 24,518,905
------------ ---------- ---------- ---------- ----------
Gross profit............ 3,109,968 3,971,709 4,338,687 2,281,247 6,663,805
Operating expenses:
Marketing and
promotion, including
expenses from FTDI of
$1,542,990,
$1,622,056, and
$1,853,945 for the
years ended June 30,
1996, 1997, and 1998,
respectively, and
$1,111,797 and
$2,561,256 for the
nine months ended
March 31, 1998 and
1999, respectively... 4,187,929 4,863,708 5,994,464 3,614,471 7,797,304
General and
administrative,
including expenses
from FTDI of
$1,287,974,
$1,508,808, and
$1,707,252 for the
years ended June 30,
1996, 1997, and 1998,
respectively, and
$1,113,555 and
$1,594,843 for the
nine months ended
March 31, 1998 and
1999, respectively... 2,955,222 3,267,496 3,239,296 2,102,029 3,179,941
------------ ---------- ---------- ---------- ----------
Total operating
expenses............... 8,393,870 9,677,256 10,654,035 6,735,046 12,419,021
------------ ---------- ---------- ---------- ----------
Technology
development,
including expenses
from FTDI of
$1,171,987,
$1,292,546, and
$1,153,469 for the
years ended June 30,
1996, 1997, and 1998,
respectively, and
$837,074 and $983,375
for the nine months
ended March 31, 1998
and 1999,
respectively......... 1,250,719 1,546,052 1,420,275 1,018,546 1,441,776
Interest expense........ 225,577 266,633 176,287 169,811 131,046
------------ ---------- ---------- ---------- ----------
Income tax benefit...... 2,203,792 2,388,872 2,596,654 1,849,444 2,354,505
------------ ---------- ---------- ---------- ----------
Net loss................ $ (3,305,687) (3,583,308) (3,894,981) (2,774,166) (3,531,757)
============ ========== ========== ========== ==========
Loss from operations.... (5,283,902) (5,705,547) (6,315,348) (4,453,799) (5,755,216)
Loss before income
taxes.................. (5,509,479) (5,972,180) (6,491,635) (4,623,610) (5,886,262)
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ftd.com inc.
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<S> <C>
Balance at June 30, 1995.......................................... $(1,628,381)
Contributions from FTDI........................................... 3,363,199
Loss before income taxes.......................................... (5,509,479)
Tax benefit utilized by FTDI...................................... 2,203,792
-----------
Balance at June 30, 1996.......................................... (1,570,869)
Contributions from FTDI........................................... 3,136,440
Loss before income taxes.......................................... (5,972,180)
Tax benefit utilized by FTDI...................................... 2,388,872
-----------
Balance at June 30, 1997.......................................... (2,017,737)
Contributions from FTDI........................................... 5,762,102
Loss before income taxes.......................................... (6,491,635)
Tax benefit utilized by FTDI...................................... 2,596,654
-----------
Balance at June 30, 1998.......................................... (150,616)
Contributions from FTDI (unaudited)............................... 2,313,605
Loss before income taxes (unaudited).............................. (5,886,262)
Tax benefit utilized by FTDI (unaudited).......................... 2,354,505
-----------
Balance at March 31, 1999 (unaudited)............................. $(1,368,768)
===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ftd.com inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
Years ended June 30, March 31,
----------------------------------- ----------------------
1996 1997 1998 1998 1999
----------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss................ $(3,305,687) (3,583,308) (3,894,981) (2,774,166) (3,531,757)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Amortization of
distribution
agreements........... -- -- 520,833 208,333 1,132,500
Changes in assets and
liabilities:
Accounts receivable. (9,399) (96,406) 4,173 139,683 165,248
Prepaid expenses.... 1,511 (2,351) 9,873 (40,076) (107,827)
Accounts payable.... (79,060) 662,167 (194,872) (801,893) 630,078
Unearned revenue.... -- -- -- -- 135,870
Accrued liabilities. 29,436 (116,542) 292,872 84,952 (48,967)
----------- ---------- ---------- ---------- ----------
Net cash used in
operating activities... (3,363,199) (3,136,440) (3,262,102) (3,183,167) (1,624,855)
Net cash used in
investing activities--
purchases of
distribution
agreements............. -- -- (2,500,000) (2,500,000) (688,750)
Net cash provided by
financing activities--
contributions from
FTDI................... 3,363,199 3,136,440 5,762,102 5,683,167 2,313,605
----------- ---------- ---------- ---------- ----------
Cash at beginning and
end of period.......... $ -- -- -- -- --
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS
(1) Description of Business
ftd.com inc. (the "Company") operates the www.ftd.com Web site and the 1-
800-SEND-FTD toll-free telephone number, both of which provide consumers with
the ability to order floral and other specialty gift products.
The Company is wholly-owned by Florists' Transworld Delivery, Inc. ("FTDI"),
which is a wholly-owned subsidiary of FTD Corporation ("FTD"). The Company was
incorporated as a Delaware corporation in May of 1999 in connection with the
filing of the Registration Statement described in note 6. The Company was
formed by FTDI's predecessor, Florists' Transworld Delivery Association
("FTDA"), a not-for-profit association, as a wholly owned subsidiary in 1993
and was subsequently merged into FTDI in 1995.
(2) Summary of Significant Accounting Policies
Basis of Presentation
Since the Company's inception, FTDI or its predecessor has provided funding
for working capital. The Company participates in FTDI's cash management system.
As a part of FTDI's central cash management system, all cash generated from and
cash required to support the Company's operations are deposited and received
through FTDI's corporate operating cash accounts. As a result, there are no
separate bank accounts or records for these transactions. Accordingly, the
amounts represented by the caption "Contributions from FTDI" in the Company's
statements of cash flows represent the net effect of all cash transactions
between the Company and FTDI.
For all periods presented, certain expenses reflected in the financial
statements include allocations of expenses from FTDI. These allocations take
into consideration personnel, business volume, or other appropriate bases and
generally include administrative expenses related to general management,
insurance, information management, and other services provided to the Company
by FTDI . Interest expense shown in the financial statements reflects interest
expense associated with the Company's share of the aggregate borrowings of FTDI
for each of the periods presented. Allocations of expenses are estimates based
on management's best assessment of actual expenses incurred by the Company. It
is management's opinion that the expenses charged to the Company are
reasonable.
The financial statements have been prepared as if the Company operated as a
stand-alone entity since Inception. The financial information included herein
may not necessarily reflect the financial position, results of operations, or
cash flows of the Company in the future or what the balance sheets, results of
operations, or cash flows of the Company would have been if it had been a
separate, stand-alone publicly-held corporation during the periods presented.
Accounts Receivable
Accounts receivable includes amounts owed from corporate customers for
purchases of floral, specialty gift products, and gift certificates through the
Company's toll free number. The credit risk associated with collection of
accounts receivable is minimal due to the nature of the quality of the customer
base.
Distribution Agreements
FTDI, on behalf of the Company, has entered into distribution agreements
with various vendors, principally related to Internet advertising. The costs of
these agreements are being amortized over their
F-7
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
respective useful lives, which range from one to two years, using the straight-
line method. The Company periodically evaluates whether events and
circumstances that have occurred indicate that the remaining balances of
intangibles may not be recoverable or that the remaining estimated useful lives
may warrant revision. When such factors indicate that intangibles should be
evaluated for possible impairment, the Company uses an estimate of undiscounted
future cash flows to measure whether the intangibles are recoverable, and over
what period. The Company has determined that as of June 30, 1998 there has been
no impairment in the carrying value of the distribution agreements.
Income Taxes
ftd.com inc. is included in the consolidated U.S. income tax return of FTD.
Pursuant to a tax sharing agreement, as amended, effective as of the
consummation of the transaction described in note (6), the provision for income
taxes of ftd.com inc. has been calculated as if the Company were a stand-alone
corporation filing separate tax returns.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Cumulative taxes have been settled through stockholder's deficit.
Revenue and Cost Recognition
Order Revenues and Service Fees
The Company records revenues and costs for fulfillment and processing
services when an order is fulfilled. Generally, when a customer makes a
purchase that will be fulfilled by an FTD florist, the Company receives the
order, charges the customer's credit card, and transmits the order to FTDI.
FTDI then transmits the order to the fulfilling florist. The Company recognizes
100% of the order value as revenue and recognizes associated costs for
fulfillment and processing services. Orders that are not fulfilled by an FTD
florist, such as holiday gift baskets, are fulfilled by a manufacturer or third
party distributor. In addition, the Company receives service fees for
processing all orders. The service fees for orders placed over the Internet
have ranged from $4.95 to $7.99, and the service fees for orders placed over
the telephone have ranged from $8.95 to $9.99. From time to time, discounts are
offered in connection with product promotions or holiday promotions to selected
customer groups. Order revenues and service fees are reported net of discounts.
Commissions
Commissions revenue represents a fee paid to the Company by FTDI for orders
that are cleared through the FTD Clearinghouse. Consistent with industry
practice, commissions revenue is earned pursuant to an arrangement with FTDI
effective as of July 1, 1998 and is recognized when the order is fulfilled.
Unearned Revenue
Unearned revenue relates to gift certificates sold by the Company that the
Company is required to repurchase if the gift certificates are not redeemed by
July 31, 1999. Revenue is only recognized in respect of these certificates upon
redemption.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities in connection with the preparation of
F-8
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires that public companies report certain information about operating
segments in their annual financial statements and in subsequent condensed
financial statements of interim periods issued to shareholders. This statement
also requires that public companies report certain information about their
products and services, the geographic areas in which they operate and their
major customers. The Company has determined that the adoption of this new
standard did not have an effect on the Company's disclosure for all periods
presented because the Company currently operates as one segment.
Marketing and Promotion Costs
Marketing and promotion costs, which principally consist of advertising, are
charged to expense as incurred and include allocations from FTDI of $1,542,990,
$1,622,056, and $1,853,945 in fiscal 1996, 1997, and 1998, respectively.
Effective as of the consummation of the transaction described in note (6), it
is anticipated that FTDI will no longer allocate these marketing and promotion
costs to the Company.
Concentration of Customer and Credit Risks
The Company's customers are comprised of consumers that utilize the Web site
or toll-free number and purchase products. Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist
principally of accounts receivable. As of June 30, 1997 and 1998, there were no
significant concentrations of accounts receivable nor related credit risks.
Concentration of Suppliers
The Company is dependent upon certain significant vendors to supply
products, the floral fulfillment capability and gift product delivery
capability necessary for the successful fulfillment of customer orders. In
addition, the Company utilizes the communication network of FTDI as an
important component of its operation. Although there are a limited number of
suppliers of this type of system, management believes that other suppliers
could provide a similar network on comparable terms. A change in suppliers,
however, could cause a delay in order processing and fulfillment and a possible
reduction in the quality of service, which could affect operating results
adversely.
The Company currently utilizes hardware, software, and services that support
its web site, an important component of its operation, from a third party
vendor under an operating service agreement. Although there are a limited
number of web site service companies, management believes that other companies
could provide acceptable service. The terms of the agreement provides for
variable payments, which are based on the number of completed orders, and an
annual term with renewal options. The cost to the Company for these services is
therefore derived from the volume of order transactions. A change in service
companies, however, could cause a possible reduction in the quality of service,
which could affect operating results adversely.
Fair Value of Financial Instruments
Financial instruments, including accounts receivable, accounts payable, and
accrued liabilities are reflected in the financial statements at carrying or
contract value. Those values were not materially different from their fair
values.
F-9
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Interim Financial Information
The financial statements as of March 31, 1999 and for the nine months ended
March 31, 1998 and 1999, respectively are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been included. The results of operations for the nine months ended
March 31, 1999 are not necessarily indicative of the results to be achieved for
the full fiscal year.
(3) Liquidity
Operations for the current and prior years did not generate sufficient cash
flow to satisfy current obligations. FTDI has funded such obligations and has
made a commitment to continue to provide financing to the Company until the
transaction described in note (6) is consummated.
(4) Related Party Transactions
The Company engages in transactions with FTDI in the normal course of its
business. These transactions include purchases of management and administrative
services, network services, facility rental, and intellectual property license
fees, among various other transactions as follows:
FTDI pays the Company commissions for orders that are cleared through the
FTD Clearinghouse. For these orders, FTDI also charges the Company customary
clearing fees. The Company also utilizes FTDI's credit card processing
services. FTDI charges the Company a percentage of the order value to utilize
these credit card processing services. Costs for clearing services and credit
card processing expenses are included in fulfillment and processing services,
and amounted to $1,517,027 in fiscal 1996, $2,150,481 in fiscal 1997,
$2,520,176 in fiscal 1998, and $1,417,012 and $2,146,604 in the nine months
ended March 31, 1998 and 1999, respectively.
The Company uses FTDI's trademarks in connection with the sale of goods and
services through its Web site and toll-free telephone number. The Company
expects to enter into an agreement, effective as of the consummation of the
transaction described in note (6), with FTDI that includes provisions for
royalty payments of 1% of order revenues and service fees, net of discounts, a
99-year term, and termination at FTDI's option in the event that 20% or more of
the Company's ownership is obtained by an organization not affiliated with
FTDI. Consistent with management's decision to allocate various historical
costs and expenses between the Company and FTDI, this royalty expense has been
included in general and administrative expenses. This royalty expense amounted
to $184,899, $262,303, $304,233 in fiscal 1996, 1997 and 1998 respectively, and
$190,721 and $285,197 in the nine months ended March 31, 1998 and 1999,
respectively.
Administration costs for services provided by FTDI to the Company were
determined by identifying all of FTDI's personnel who supported the Company.
Their pay, based on the estimated number of hours of service provided, plus
benefits, was used to calculate these costs.
The Company does not maintain separate physical facilities. It uses space of
FTDI and is charged a market rate estimate. The Company is also charged a pro-
rata share, based on square footage, of the utilities, property taxes, and
other occupancy costs. Internet/telecom usage costs include an allocation of
monthly depreciation for all hardware and software based on usage by the
Company, as well as monthly rates for telecommunications expenses consumed by
the Company.
F-10
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
FTDI also provides the Company with various services, including technical,
human resources, accounting, administrative, legal and other. In consideration
for these services, FTDI has allocated a portion of its overhead costs related
to such services to the Company. The allocations were estimated using
proportional cost allocation methods.
Operating expenses include $3,818,052, $4,161,107 and $4,410,433 in fiscal
1996, 1997 and 1998, respectively, and $2,871,705 and $4,854,277 in the nine
months ended March 31, 1998 and 1999, respectively, in allocated expenses
related to above described administration costs, facilities, occupancy,
internet/telecom usage and overhead costs related to the various services
provided by FTDI. In management's opinion, the methods to identify and allocate
costs to the Company for these services provided by FTDI are reasonable.
Employees of the Company are eligible for various benefits under programs
maintained by FTDI. Any related assets or liabilities are not included in the
Company's financial statements, but rather, are reported as part of
stockholder's deficit.
(5) Income Taxes
Income tax benefit for the years ended June 30, 1996, 1997, and 1998
consists of:
<TABLE>
<CAPTION>
Current Deferred Total
---------- -------- ----------
<S> <C> <C> <C>
Year ended June 30, 1996:
U.S. Federal................................... $1,780,113 $ 0 $1,780,113
State and local................................ 423,679 0 423,679
---------- -------- ----------
$2,203,792 $ 0 $2,203,792
========== ======== ==========
Year ended June 30, 1997:
U.S. Federal................................... 1,929,611 0 1,929,611
State and local................................ 459,261 0 459,261
---------- -------- ----------
$2,388,872 $ 0 $2,388,872
========== ======== ==========
Year ended June 30, 1998:
U.S. Federal................................... 1,951,603 145,844 2,097,447
State and local................................ 464,495 34,712 499,207
---------- -------- ----------
$2,416,098 $180,556 $2,596,654
========== ======== ==========
</TABLE>
Income tax benefit differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to losses before income tax expense as a result
of the net-of-tax effect of state and local income taxes.
Deferred income tax expense for the year ended June 30, 1998 is derived from
the excess amortization of the distribution agreement for financial reporting
purposes over tax reporting in the amount of $451,389.
At June 30, 1998, cumulative taxes since the acquisition of the old
Florists' Transworld Delivery Association by FTD Corporation of $7,645,818,
representing $7,465,262 of tax loss benefits and $180,556 of deferred taxes
associated with the distribution agreement, have been settled through
stockholder's deficit.
(6) Subsequent Events
On May 19, 1999, the Company was incorporated and was capitalized through
the authorization of 250,000,000 shares of Class A common stock and 100,000,000
shares of Class B common stock and the issuance of 3,410,000 Class B common
stock to FTDI. The Company intends to file a registration statement with the
Securities and Exchange Commission to offer shares of Class A common stock to
the public. In addition, in connection with the Company's incorporation,
5,000,000 shares of preferred stock were authorized.
F-11
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Concluded)
On May 19, 1999, the Company designated 90,000 shares of preferred stock as
Series A 8% Cumulative Redeemable Convertible Preferred Stock (the "Series A
Preferred Stock"). On May 20, 1999, 30,000 shares of the Series A Preferred
Stock were issued and sold to an investor for consideration of $3,000,000. Each
share of Series A Preferred Stock automatically converts into one share of
Class A common stock after the closing of the public offering contemplated by
the registration statement. In the event the public offering is not consummated
prior to February 20, 2000, the Series A Preferred Stock will be redeemable at
the option of the Company or the holders thereof, in an amount equal to 100% of
the liquidation preference plus accrued and unpaid dividends. In addition, if
the Company fails to make the payments required in connection with the holders'
exercise of their optional redemption rights, the holders of the Series A
Preferred Stock have the right to designate one director of the Company.
Upon closing of the sale of Class A common stock to the public, the Company
and its Parent expect to enter into certain agreements governing various
interim and ongoing relationships, including an intercompany services
agreement, commission agreement, indemnification agreement and trademark
license agreement, and an amendment to an existing tax sharing agreement. The
terms of such agreements generally provide for services to be rendered by FTDI
similar to those described in note (4). The costs of general corporate services
will be charged based on FTDI cost plus five percent. The costs of space
sharing will be charged based on prevailing market prices with respect to usage
and FTDI cost plus five percent with respect to attributable operating
expenses. FTDI will provide access to the Mercury Network, the FTD
Clearinghouse, FTDI's Retrans service and the FTD credit card processing
program. The rates or amounts to be paid by the Company under these agreements
are not expected to be materially different than the rates or amounts currently
being charged by FTDI.
The Company also plans to enter into an amendment to FTDI's and FTD's tax
sharing agreement pursuant to which the Company's operating results will be
included in the consolidated tax returns of FTD and the Company will pay its
proportionate share of FTD's tax liability computed as if it were filing a
separate return or it will be refunded any tax loss benefit attributable to us.
The amendment to the tax sharing agreement is effective upon the closing of the
sale of Class A common stock to the public.
The Company and FTDI also intend to enter into a service agreement under
which FTDI will obtain online hosting services from the Company, which will
provide FTDI member florists with listings in an Internet directory and
opportunities to operate Web sites within a directory for a fee. The agreement
will have a one-year term subject to adjustment annually.
FTDI is a party to a credit agreement that imposes various restrictions on
FTDI and its subsidiaries, including restrictions that limit the incurrence of
additional debt, pay dividends or make other payments or investments,
consummate asset sales, incur liens, merge, consolidate, or dispose of
substantial assets, among other restrictions. In addition, substantially all of
the assets of FTDI and its subsidiaries are pledged as security under the
credit agreement. In connection with the capitalization of the Company, the
credit agreement has been amended to exclude the Company from these terms and
restrictions in exchange for FTDI's pledge of its shares in the Company and
other monetary consideration.
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this
prospectus. Neither ftd.com nor any underwriter has authorized anyone to
provide prospective investors with different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this prospectus or any
sale of these securities.
No action is being taken in any jurisdiction outside the U.S. to permit a
public offering of the common stock or possession or distribution of this
prospectus in any of these jurisdictions. Persons who come into possession of
this prospectus in jurisdictions outside the U.S. and Canada are required to
inform themselves about and to observe the restrictions of that jurisdiction
related to this offering and the distribution of this prospectus.
-----------------------
TABLE OF CONTENTS
-----------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Organization and Background of FTD........................................ 6
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 33
Management................................................................ 40
Principal Stockholders.................................................... 49
Certain Transactions...................................................... 52
Description of Capital Stock.............................................. 56
Shares Eligible for Future Sale........................................... 61
Underwriting.............................................................. 63
Legal Matters............................................................. 64
Experts................................................................... 65
Where You Can Find More Information....................................... 65
Index to Financial Statements............................................. F-1
</TABLE>
-----------------
Dealer Prospectus Delivery Obligation:
Until , 1999 (25 days after the date of this prospectus), all dealers that
buy, sell or trade these shares of Class A common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ftd.com inc.
[LOGO]
Shares
Class A Common Stock
------------
PROSPECTUS
------------
Bear, Stearns & Co. Inc.
Volpe Brown Whelan
& Company
Thomas Weisel
Partners LLC
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with
the offering described in this Registration Statement, all of which will be
paid by the Company. All amounts are estimates, other than the Securities and
Exchange Commission registration fee, the NASD fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities Exchange Commission Registration fee.................. $25,020
National Association of Securities Dealers, Inc. fee............. 9,500
Nasdaq listing fee............................................... *
Accounting fees and expenses..................................... *
Legal fees and expenses.......................................... *
Director and officer insurance expenses.......................... *
Printing and engraving........................................... *
Transfer agent fees and expenses................................. *
Miscellaneous expenses........................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- ----------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Section 102 of the Delaware General Corporation Law, as amended ("DGCL"),
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of the DGCL or obtained an improper personal
benefit.
Section 145 of the DGCL provides, among other things, that the Company may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the Company) by reason of the fact that the
person is or was a director, officer, agent or employee of the Company or is or
was serving at the Company's request as a director, officer, agent, or employee
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he or
she reasonably believed to be in the best interest, or not opposed to the best
interest, of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense expenses (including
attorneys' fees but excluding amounts paid in settlement) actually and
reasonably incurred and not to any satisfaction of judgment or settlement of
the claim itself, and with the further limitation that in such actions no
indemnification shall be made in the event of any adjudication of negligence or
misconduct in the performance of his or her duties to the Company, unless the
court believes that in the light of all the circumstances indemnification
should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time may avoid liability by causing his or her dissent to such
actions to be entered in the books containing the minutes of the meetings of
the board of directors at the time such action occurred or immediately after
such absent director receives notice of the unlawful acts.
II-1
<PAGE>
Our Certificate of Incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of
fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to ftd.com or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under the section 174 of the DGCL regarding unlawful dividends and stock
purchases; or
. for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our Bylaws provide that:
. we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
. we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined by
our Board of Directors; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law.
The indemnification provisions contained in ftd.com's Certificate of
Incorporation and Bylaws are not exclusive of any other rights to which a
person may be entitled by law, agreement, vote of stockholders or disinterested
directors or otherwise. In addition, ftd.com maintains insurance on behalf of
its directors and executive officers insuring them against any liability
asserted against them in their capacities as directors or officers or arising
out of such status.
Item 15. Recent Sales of Unregistered Securities.
Prior to the completion of the offering described herein, ftd.com issued
3,410,000 shares of Class B common stock to Florists' Transworld Delivery, Inc.
in connection with the formation of ftd.com. This transaction is exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
In May 1999, we sold 30,000 shares of our Series A 8% Cumulative Redeemable
Convertible Preferred Stock to DBV Investments, L.P., a private investment
partnership controlled by Michael S. Dell, for consideration of $3.0 million in
a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<C> <S>
1.1* Underwriting Agreement
3.1 Certificate of Incorporation of ftd.com
3.2* Certificate of Designation relating to Series A 8% Cumulative
Redeemable Convertible Preferred Stock
3.3 Bylaws of ftd.com
4.1* Specimen certificate for ftd.com's Class A common stock
4.2 Stockholders' Agreement, dated as of December 19, 1994, among
Perry Acquisition Partners, L.P. and the Co-Investors named
therein
4.3* Registration Rights Agreement, dated as of May 20, 1999, among
ftd.com and DBV Investments, L.P.
4.4* Registration Rights Agreement between FTDI and ftd.com
5.1* Opinion of Jones, Day, Reavis & Pogue
10.1 Formation Agreement, dated as of May 19, 1999, between FTDI and
ftd.com
10.2* Intercompany Services Agreement between FTDI and ftd.com
10.3* Trademark License Agreement between FTDI and ftd.com
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<C> <S>
10.4* Intercompany Indemnification Agreement among FTD Corporation,
FTDI and ftd.com
10.5 Tax Sharing Agreement, dated as of December 19, 1994, between
Perry Capital Corp. and FTDI.
10.6* First Amendment to Tax Sharing Agreement among FTD Corporation,
FTDI and ftd.com
10.7* Florists' Online Hosting Agreement between FTDI and ftd.com
10.8* Commission Agreement between FTDI and ftd.com
10.9 Agreement and Plan of Merger, dated as of August 2, 1994, among
Florists' Transworld Delivery Association, Perry Capital Corp.
and IRIS Acquisition Corp.
10.10 Mutual Support Agreement, dated as of December 18, 1994,
between Florists' Transworld Delivery Association and FTD
Association
10.11 Supplemental Mutual Support Agreement, dated as of January 11,
1996, between Florists' Transworld Delivery Association and FTD
Association
10.12 Trademark License Agreement, dated as of December 18, 1994,
between Florists' Transworld Delivery Association and FTD
Association
10.13 Letter Agreement regarding employment of Peter K. Poli
10.14* ftd.com inc. 1999 Equity Incentive Plan
23.1 Consent of KPMG LLP
23.2* Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1 Power of Attorney (contained on the signature page of this
Registration Statement)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment.
(b) Financial Statement Schedules:
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) 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 provisions described in Item 14, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is therefore unenforceable. In the event that
a claim for indemnification by the registrant 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.
(c) 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 of 1933 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>
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 Downers Grove, State of
Illinois, on May 19, 1999.
ftd.com inc.
/s/ Michael J. Soenen
By __________________________________
Michael J. Soenen
President and Chief Executive
Officer
Each person whose signature appears below hereby constitutes and appoints
Michael J. Soenen and Peter K. Poli, and each of them, his or her true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all (i) amendments (including post-
effective amendments) and additions to this Registration Statement and (ii)
Registration Statements, and any and all amendments thereto (including post-
effective amendments), relating to the offering contemplated pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby grants to such attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or his substitutes may lawfully do or
cause to be done by virtue hereof.
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 date indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard C. Perry Chairman of the Board May 19, 1999
____________________________________
Richard C. Perry
/s/ Michael J. Soenen President, Chief Executive May 19, 1999
____________________________________ Officer and Director
Michael J. Soenen (Principal Executive
Officer)
/s/ Peter K. Poli Vice President and Chief May 19, 1999
____________________________________ Financial Officer
Peter K. Poli (Principal Financial and
Accounting Officer)
/s/ Habib Y. Gorgi Director May 19, 1999
____________________________________
Habib Y. Gorgi
/s/ Veronica K. Ho Director May 19, 1999
____________________________________
Veronica K. Ho
/s/ Gary K. Silberberg Director May 19, 1999
____________________________________
Gary K. Silberberg
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<C> <S>
1.1* Underwriting Agreement
3.1 Certificate of Incorporation of ftd.com
3.2* Certificate of Designation relating to Series A 8% Cumulative
Redeemable Convertible Preferred Stock of ftd.com
3.3 Bylaws of ftd.com
4.1* Specimen certificate for ftd.com's Class A common stock
4.2 Stockholders' Agreement, dated as of December 19, 1994, among Perry
Acquisition Partners, L.P. and the Co-Investors named therein
4.3* Registration Rights Agreement, dated as of May 20, 1999, between
ftd.com and DBV Investments, L.P.
4.4* Registration Rights Agreement between FTDI and ftd.com
5.1* Opinion of Jones, Day, Reavis & Pogue
10.1 Formation Agreement, dated as of May 19, 1999, between FTDI and
ftd.com
10.2* Intercompany Services Agreement between FTDI and ftd.com
10.3* Trademark License Agreement between FTDI and ftd.com
10.4* Intercompany Indemnification Agreement among FTD Corporation, FTDI and
ftd.com
10.5 Tax Sharing Agreement, dated as of December 19, 1994, between Perry
Capital Corp. and FTDI.
10.6* First Amendment to Tax Sharing Agreement among FTD Corporation, FTDI
and ftd.com
10.7* Florists' Online Hosting Agreement between FTDI and ftd.com
10.8* Commission Agreement between FTDI and ftd.com
10.9 Agreement and Plan of Merger, dated as of August 2, 1994, among
Florists' Transworld Delivery Association, Perry Capital Corp. and
IRIS Acquisition Corp.
10.10 Mutual Support Agreement, dated as of December 18, 1994, between
Florists' Transworld Delivery Association and FTD Association
10.11 Supplemental Mutual Support Agreement, dated as of January 11, 1996,
between Florists' Transworld Delivery Association and FTD Association
10.12 Trademark License Agreement, dated as of December 18, 1994, between
Florists' Transworld Delivery Association and FTD Association
10.13 Letter Agreement regarding employment of Peter K. Poli
10.14* ftd.com inc. 1999 Equity Incentive Plan
23.1 Consent of KPMG LLP
23.2* Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1 Power of Attorney (contained on the signature page of this
Registration Statement)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ftd.com inc.
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, as
amended (the "GCL"), do hereby certify as follows:
FIRST: The name of the corporation is ftd.com inc. (the "Corporation").
SECOND: The registered office of the Corporation is to be located at 1013
Centre Road, City of Wilmington, County of New Castle, Delaware 19805. The name
of its registered agent at such address is the Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the GCL.
FOURTH: (a) Authorized Capital Stock. The total number of shares of stock
that the Corporation will have the authority to issue is 355,000,000 shares,
consisting of: (i) 250,000,000 shares of Class A Common Stock, par value $.01
per share (the "Class A Common Stock"); (ii) 100,000,000 shares of Class B
Common Stock, par value $.01 per share (the "Class B Common Stock"); and (iii)
5,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), issuable in one or more series as hereinafter provided. The Class A
Common Stock and the Class B Common Stock shall hereinafter collectively be
called the "Common Stock." The number of authorized shares of any class or
classes of capital stock of the Corporation may be increased or decreased (but
not below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the voting power of the stock of the Corporation
entitled to vote generally in the election of directors ("Voting Stock"), voting
separately as a class, irrespective of the provisions of Section 242(b)(2) of
the GCL or any corresponding provision hereinafter enacted.
(b) Terms of Common Stock; Voting.
(i) Rights and Privileges; Voting Rights.
(A) All shares of Common Stock will be identical in all respects
and will entitle the holders thereof to the same rights and privileges, except
as otherwise required by law or provided in this Certificate of Incorporation.
(B) The holders of shares of Common Stock will have the
following voting rights:
(1) Subject to the rights of the holders of any series of
Preferred Stock, the holders of Class A Common Stock will be entitled to one
vote on each matter submitted to a vote at a meeting of stockholders for each
share of Class A Common Stock held of record by such holder as of the record
date for such meeting.
<PAGE>
(2) Subject to the rights of the holders of any series of
Preferred Stock and to the provisions of Clause (b)(iii)(B) of this Article
FOURTH, the holders of Class B Common Stock will be entitled to ten votes on
each matter submitted to a vote at a meeting of stockholders for each share of
Class B Common Stock held of record by such holder as of the record date for
such meeting.
(3) Except as otherwise required in this Certificate of
Incorporation or the Bylaws or by applicable law, the holders of shares of
Common Stock will vote together as one class on all matters submitted to a vote
of stockholders of the Corporation (or if any holders of shares of Preferred
Stock are entitled to vote together with the holders of Common Stock, as a
single class with such holders of shares of Preferred Stock).
(ii) Dividends and Distributions.
(A) Subject to the preferences applicable to Preferred Stock, if
any, outstanding at any time, the holders of shares of Common Stock will be
entitled to receive such dividends and other distributions in cash, property or
shares of stock of the Corporation as may be declared thereon by the
Corporation's Board of Directors (the "Board") from time to time out of assets
or funds of the Corporation legally available therefor; provided, that, subject
to the provisions of this Section, the Corporation will not pay dividends or
make distributions to any holders of any class of Common Stock unless
simultaneously with such dividend or distribution, as the case may be, the
Corporation makes the same dividend or distribution with respect to each
outstanding share of Common Stock regardless of class.
(B) In the case of dividends or other distributions payable in
Class A Common Stock or Class B Common Stock including distributions pursuant to
stock splits or divisions of Class A Common Stock or Class B Common Stock that
occur after the first date upon which the Corporation has issued shares of any
of Class A Common Stock or Class B Common Stock, only shares of Class A Common
Stock shall be distributed with respect to Class A Common Stock and only shares
of Class B Common Stock shall be distributed with respect to Class B Common
Stock. In the case of any such dividend or distribution payable in shares of
Class A Common Stock or Class B Common Stock, the number of shares of each class
of Common Stock payable per share of such class of Common Stock shall be equal
in number. Neither the shares of Class A Common Stock nor the shares of Class B
Common Stock may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and in the
same proportion for each class of Common Stock.
(C) In the case of dividends or other distributions consisting
of other voting securities of the Corporation or of voting securities of any
corporation that is a wholly owned subsidiary of the Corporation, the
Corporation will declare and pay such dividends in two separate classes of such
voting securities, identical in all respects, except that: (1) the voting rights
of each such security paid to the holders of Class B Common Stock, when compared
to the voting rights of each such security paid to the holders of Class A Common
Stock, will have voting rights determined pursuant to the same formula as
provided in Clause (b)(i)(B)(2) of this Article FOURTH; (2) such security paid
to the holders of Class B Common Stock will convert into the security paid to
the holders of Class A Common Stock upon the same terms and conditions
applicable to the conversion of Class B Common Stock into Class A Common Stock
as provided in Clause (b)(iii) and will have the same restrictions on transfer
and ownership
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applicable to the transfer and ownership of Class B Common Stock; and (3) with
respect only to dividends or other distributions of voting securities of any
corporation which is a wholly owned subsidiary of the Corporation, the
respective voting rights of each such security paid to holders of Class A Common
Stock and Class B Common Stock with respect to the election of directors will
otherwise be as comparable as is practicable to those of the Class A Common
Stock and Class B Common Stock, respectively.
(D) In the case of dividends or other distributions consisting
of rights, options, warrants or other securities convertible into, or
exchangeable for, voting securities of the Corporation or voting securities of
another corporation that is a wholly owned subsidiary of the Corporation, the
Corporation will provide that such rights, options, warrants or other
convertible or exchangeable securities and the underlying securities be
identical in all respects (including, without limitation, the conversion or
exchange rate), except that: (1) the voting rights of each security underlying
the right, option, warrant or other convertible or exchangeable security paid to
the holders of Class B Common Stock, when compared to the voting rights of each
security underlying the right, option, warrant or other convertible or
exchangeable security paid to the holders of the Class A Common Stock, will have
voting rights determined pursuant to the same formula as provided in Clause
(b)(i)(B)(2) of this Article FOURTH and (2) such underlying securities paid to
the holders of the Class B Common Stock will convert into the underlying
securities paid to the holders of Class A Common Stock upon the same terms and
conditions applicable to the conversion of Class B Common Stock into Class A
Common Stock and will have the same restrictions on transfer and ownership
applicable to the transfer and ownership of the Class B Common Stock.
(iii) Conversion of Class B Common Stock.
(A) Prior to a transfer of Class B Common Stock to
stockholders of FTD Corporation, any corporation that owns 100% of the
outstanding common stock of FTD Corporation or any successor by merger or
consolidation to FTD Corporation (collectively, "FTD Corporation") as a dividend
intended to be on a tax-free basis under the Internal Revenue Code of 1986, as
amended from time to time (the "Code") (a "Tax-Free Spin-Off"), each holder of
Class B Common Stock will be entitled to convert, at any time and from time to
time, any or all of the shares of such holder's Class B Common Stock on a one-
for-one basis, into the same number of fully paid and non-assessable shares of
Class A Common Stock. Such right will be exercised by the surrender to the
Corporation of the certificate or certificates representing the shares of Class
B Common Stock to be converted at any time during normal business hours at the
principal executive offices of the Corporation or at the office of the
Corporation's transfer agent (the "Transfer Agent"), accompanied by a written
notice of the holder of such shares stating that such holder desires to convert
such shares, or a stated number of the shares represented by such certificate or
certificates, into an equal number of shares of Class A Common Stock, and (if so
required by the Corporation or the Transfer Agent) by instruments of transfer,
in form satisfactory to the Corporation and to the Transfer Agent, duly executed
by such holder or such holder's duly authorized attorney, and transfer tax
stamps or funds therefor, if required pursuant to Article FOURTH, Clause
(b)(iii)(C) below. Following a Tax Free Spin-Off, if any occurs, shares of Class
B Common Stock will no longer be convertible into shares of Class A Common Stock
at the option of the holder.
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(B) Prior to a Tax Free Spin-Off, each share of Class B Common
Stock will automatically convert into one share of Class A Common Stock upon the
transfer of such share unless the transferee demonstrates to the reasonable
satisfaction of the Corporation that such transferred shares, after such
transfer, will be beneficially owned by FTD Corporation, Florists' Transworld
Delivery, Inc., ("FTDI") or any of their respective subsidiaries or successors
or a "Strategic Partner," as defined below. For purposes of this Article FOURTH,
Clause (b)(iii)(B), (i) the term "beneficially owned" with respect to shares of
Class B Common Stock means ownership by a person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise
controls the voting power (which includes the power to vote or to direct the
voting) of such Class B Common Stock (except where such power results solely
from a revocable proxy or consent given in response to a proxy or consent
solicitation), and (ii) the term "Strategic Partner" means any entity, or group
of affiliated entities, acquiring Class B Common Stock constituting, in the
aggregate, at least 10% of the outstanding Common Stock and that, in the good
faith determination prior to such acquisition of the Board of Directors of the
Corporation by the affirmative vote of a majority of directors who are not
directors, officers or the beneficial owners of five percent or more of the
outstanding voting securities of FTDI, is considered to constitute a strategic
alliance in the best interests of the Corporation and its stockholders. In the
event of a Tax-Free Spin-Off, shares of Class B Common Stock distributed to the
stockholders of FTD Corporation will not convert into shares of Class A Common
Stock in connection with that transaction. Following a Tax-Free Spin-Off, shares
of Class B Common Stock will be transferrable as Class B Common Stock, subject
to applicable laws. On the fifth anniversary of the date on which shares of
Class B Common Stock are first transferred to stockholders of FTD Corporation in
a Tax-Free Spin-Off, shares of Class B Common Stock will automatically convert
into shares of Class A Common Stock unless, prior to such Tax-Free Spin-Off, FTD
Corporation delivers to the Corporation an opinion of counsel (which counsel
shall be reasonably satisfactory to the Corporation) to the effect that such
automatic conversion could preclude FTD Corporation or FTDI from obtaining a
favorable ruling from the Internal Revenue Service that the distribution of
FTDI's Class B Common Stock to the stockholders of FTD Corporation, would be a
Tax-Free Spin-Off under the Code. If such an opinion is received, approval of
such conversion shall be submitted to a vote of the holders of the Common Stock
as soon as practicable after the fifth anniversary of the Tax-Free Spin-Off
unless FTD Corporation or FTDI delivers to the Corporation an opinion of counsel
(which counsel shall be reasonably satisfactory to the Corporation), prior to
such anniversary, to the effect that such vote could adversely affect the status
of the Tax-Free Spin-Off. At the meeting of stockholders called for such
purpose, every holder of Common Stock, including holders of Class B Common
Stock, will be entitled to one vote in person or by proxy for each share of
Common Stock standing in his or her name on the transfer books of the
Corporation. Approval of such conversion shall require the approval of a
majority of the votes entitled to be cast by the holders of the Class A Common
Stock and Class B Common Stock present and voting, voting together as a single
class, and the holders of the Class B Common Stock will not be entitled to a
separate class vote. Such conversion shall be effective on the date on which
such approval is given at a meeting of stockholders called for such purpose.
Each share of Class B Common Stock beneficially owned by any person will
automatically convert into one share of Class A Common Stock if a Tax-Free Spin-
Off has not occurred and the number of shares of Class B Common Stock
beneficially owned by FTDI falls below 20% of the aggregate number of shares of
Class A Common Stock and Class B Common Stock then outstanding.
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The Corporation will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Stock and its issued Common Stock held in its treasury for the purpose of
effecting any conversion of the Class B Common Stock pursuant to this Article
FOURTH, Clause (b)(iii)(B), the full number of shares of Class A Common Stock
then deliverable upon any such conversion of all outstanding shares of Class B
Common Stock.
The Corporation will provide notice of any automatic conversion of shares
of Class B Common Stock to holders of record of the Common Stock not less than
30 nor more than 60 days prior to the date fixed for such conversion; provided,
however, that if the timing or nature of the effectiveness of an automatic
conversion makes it impracticable to provide at least 30 days' notice, the
Corporation will provide such notice as soon as practicable. Such notice shall
be provided by mailing notice of such conversion first class postage prepaid, to
each holder of record of the Common Stock, at such holder's address as it
appears on the transfer books of the Corporation; provided, however, that no
failure to give such notice nor any defect therein shall affect the validity of
the automatic conversion of any shares of Class B Common Stock. Each such notice
shall state, as appropriate, the following:
(i) the automatic conversion date;
(ii) the number of outstanding shares of Class B Common Stock that are to
be converted automatically;
(iii) the place or places where certificates for such shares are to be
surrendered for conversion; and
(iv) that no dividends will be declared on the shares of Class B Common
Stock converted after such conversion date.
Immediately upon such conversion, the rights of the holders of shares of Class B
Common Stock as such will cease and such holders shall be treated for all
purposes as having become the record owners of the shares of Class A Common
Stock issuable upon such conversion; provided, however, that such persons will
be entitled to receive when paid any dividends declared on the Class B Common
Stock as of a record date preceding the time of such conversion and unpaid as of
the time of such conversion.
As promptly as practicable after the time of conversion, upon the delivery
to the Corporation of certificates formerly representing shares of Class B
Common Stock, the Corporation will deliver or cause to be delivered, to or upon
the written order of the record holder of the surrendered certificates formerly
representing shares of Class B Common Stock, a certificate or certificates
representing the number of fully paid and nonassessable shares of Class A Common
Stock into which the shares of Class B Common Stock formerly represented by such
certificates have been converted in accordance with the provisions of this
Article FOURTH, Clause (b)(iii)(B).
(C) The Corporation will pay any and all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of one class of Common Stock on the conversion of shares of the other
class of Common Stock pursuant to
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Article FOURTH, Clause (b)(iii)(B); provided, however, that the Corporation will
not be required to pay any tax that may be payable in respect of any
registration of transfer involved in the issue or delivery of shares of one
class of Common Stock in a name other than that of the registered holder of the
other class of Common Stock converted, and no such issue or delivery shall be
made unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(D) Concurrently with any conversion of Class B Common Stock
into Class A Common Stock effected pursuant to Article FOURTH, Clause
(b)(iii)(B) above, each share of Class B Common Stock that is converted (i)
shall be retired and canceled and shall not be reissued and (ii) shall
proportionally decrease the number of shares of Class B Common Stock designated
hereby. The Secretary of the Corporation will be, and hereby is, authorized and
directed to file with the Secretary of State of the State of Delaware one or
more Certificates of Decrease of Designated Shares to record any such decrease
in designated shares of Common Stock. No undesignated shares of Common Stock
shall be designated shares of Class B Common Stock following an automatic
conversion of shares of Class B Common Stock pursuant to Clause (b)(iii)(B)
above.
(iv) Options, Rights or Warrants.
(A) Except as otherwise provided by Article FOURTH, Clause
(b)(ii)(B), the Corporation will not be entitled to issue additional shares of
Class B Common Stock or issue options, rights or warrants to subscribe for
shares of Class B Common Stock. If the Corporation makes an offering of options,
rights or warrants to subscribe for shares of any class or classes of capital
stock, other than Class B Common Stock, to all holders of a class of Common
Stock, then the Corporation will simultaneously make an identical offering to
all holders of the other classes of Common Stock other than to any class of
Common Stock the holders of which, voting as a separate class, determine that
such offering need not be made to such class. All such options, rights or
warrants offerings shall offer the respective holders of Class A Common Stock
and Class B Common Stock the right to subscribe at the same rate per share.
(B) Subject to Article FOURTH, Clause(b)(iv)(A) above, the
Corporation will have the power to create and issue, whether or not in
connection with the issue and sale of any shares of stock or other securities of
the Corporation, rights or options entitling the holders thereof to purchase
from the Corporation any shares of its capital stock of any class or classes at
the time authorized (other than Class B Common Stock), such rights or options to
have such terms and conditions, and to be evidenced by or in such instrument or
instruments, as shall be approved by the Board.
(v) Mergers, Consolidation, Etc. In the event that the Corporation
will enter into any consolidation, merger, combination or other transaction in
which shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property of the other company, then, and in
such event, the shares of each class of Common Stock shall be exchanged for or
changed into the same kind and amount of stock, securities, cash and/or any
other property, as the case may be, of the other company.
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(vi) Liquidation Rights. In the event of any dissolution, liquidation
or winding-up of the affairs of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation and after making provision for the holders of
each series of Preferred Stock, if any, the remaining assets and funds of the
Corporation, if any, shall be divided among and paid ratably to the holders of
the shares of the Class A Common Stock and the Class B Common Stock treated as a
single class. For the purposes of this paragraph (vi), the voluntary sale,
conveyance, lease, exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all of the assets of the
Corporation or a consolidation or merger of the Corporation with one or more
other corporations (whether or not the Corporation is the corporation surviving
such consolidation or merger) shall not be deemed to be a liquidation,
dissolution or winding up.
(viii) No Preemptive Rights. Except as provided in Article FOURTH,
Clause (b)(iv) above, the holders of shares of Common Stock are not entitled to
any preemptive right to subscribe for, purchase or receive any part of any new
or additional issue of stock of any class, whether now or hereafter authorized,
or of bonds, debentures or other securities convertible into or exchangeable for
stock.
(c) Preferred Stock.
(i) Authorization. The Preferred Stock may be issued in one or more
series. The Board is hereby authorized to issue the shares of Preferred Stock in
such series and to fix from time to time before issuance the number of shares to
be included in any such series and the designation, powers, preferences, rights
and qualifications, limitations or restrictions of such series. The authority of
the Board with respect to each such series will include, without limiting the
generality of the foregoing, the determination of any or all of the following:
(A) the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other series;
(B) the voting powers, if any, and whether such voting powers
are full or limited in such series;
(C) the redemption provisions, if any, applicable to such
series, including the redemption price or prices to be paid;
(D) whether dividends, if any, will be cumulative or
noncumulative, the dividend rate of such series and the dates and preferences of
dividends on such series;
(E) the rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Corporation;
(F) the provisions, if any, pursuant to which the shares of such
series are convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
stock, or any other security, of the Corporation or any other corporation or
other entity and the rates or other determinants of conversion or exchange
applicable thereto;
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(G) the right, if any, to subscribe for or to purchase any
securities of the Corporation or any other corporation or other entity;
(H) the provisions, if any, of a sinking fund for such series;
and
(I) any other relative, participating, optional or other special
powers, preferences or rights and qualifications, limitations or restrictions
thereof;
all as may be determined from time to time by the Board and stated or expressed
in the resolution or resolutions providing for the issuance of such Preferred
Stock.
All shares of any one series of Preferred Stock shall be identical in all
respects with the other shares of such series, except that shares of any one
series of Preferred Stock issued at different times may differ as to the dates
from which dividends thereon shall be cumulative. The Board may change the
powers, designation, preferences, rights, qualifications, limitations and
restrictions of, and number of shares in, any series of Preferred Stock as to
which no shares are issued and outstanding.
(ii) Dividends. Dividends on outstanding shares of Preferred Stock
shall be paid or declared and set apart for payment before any dividends shall
be paid or declared and set apart for payment on the Common Stock with respect
to the same dividend period.
(iii) Liquidation Rights. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the assets available
for distribution to holders of shares of Preferred Stock of all series shall be
insufficient to pay such holders the full preferential amount to which they are
entitled, then such assets shall be distributed in accordance with the
respective priorities and preferential amounts (including unpaid cumulative
dividends, if any, and interest thereon, if any) payable with respect thereto,
and among shares of any series of Preferred Stock, ratably among the shares of
such series.
FIFTH: The duration of this Corporation is to be perpetual.
SIXTH: Except as otherwise provided herein, the affirmative vote of the
holders of at least 66 2/3% of the issued and outstanding Voting Stock, voting
as one class, shall be required to amend or repeal this Certificate of
Incorporation; provided, that no such amendment shall adversely affect the
rights of the holders of Class A Common Stock or Class B Common Stock,
respectively, unless the holders of such Class A Common Stock or Class B Common
Stock, as the case may be, voting separately as a class, shall by majority vote
approve such amendment. For the purpose of this Article SIXTH, any provision for
the voluntary, mandatory or other conversion or exchange of the Class B Common
Stock into Class A Common Stock will not be deemed to adversely affect the
rights of holders of the Class A Common Stock. The affirmative vote of the
holders of a majority of the voting power of the stock of the Corporation
entitled to vote generally in the election of directors ("Voting Stock"), voting
separately as a class, irrespective of the provisions of Section 242(b)(2) of
the GCL or any corresponding provision hereinafter enacted, will be required to
amend this Certificate of Incorporation to increase or decrease the authorized
shares of any class. The Board may from time to time make, amend, supplement or
repeal the Bylaws by vote of a majority of the Board; provided, however, that
the
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stockholders may change or amend or repeal any provision of the Bylaws by the
affirmative vote of the holders of a majority of the Voting Stock, voting as one
class.
SEVENTH: Unless and except to the extent that the Bylaws of the Corporation
so require, the election of directors of the Corporation need not be by written
ballot.
EIGHTH: Subject to the rights of the holders of any series of Preferred
Stock:
(a) from and after an initial public offering of all or a portion of the
Corporation's Common Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected
otherwise by any consent in writing of such stockholders;
(b) special meetings of stockholders of the Corporation may be called only
by (i) a resolution of the Board, (ii) the Chairman of the Board (the
"Chairman") or (iii) a Secretary or Assistant Secretary of the Corporation upon
receipt of the written request of a majority of the Directors then in office
(the "Whole Board"); and
(c) stockholders will not be entitled to cumulative votes in the election
of Directors.
At any annual meeting or special meeting of stockholders of the Corporation,
only such business will be conducted or considered as has been brought before
such meeting in the manner provided in the Bylaws of the Corporation.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 66 2/3 of the voting
power of the outstanding Voting Stock, voting together as a single class, will
be required to amend or repeal, or adopt any provision inconsistent with, this
Article EIGHTH.
NINTH: A director of the Corporation will not be personally liable to the
Corporation or its 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) under Section 174 of the GCL regarding unlawful
dividends and stock purchases; and (iv) for any transaction from which the
director derived an improper personal benefit. If the GCL is amended after the
filing of this Certificate of Incorporation to authorize corporate action
further eliminating or limiting the personal liability of Directors, then the
liability of a director of the Corporation will be eliminated or limited to the
fullest extent permitted by the GCL, as so amended. Any repeal or modification
of this provision shall be prospective only and shall not adversely affect any
right or protection of any Director of the Corporation existing at the time of
such repeal or modification or create any liability or adversely affect any such
right or protection for any acts or omissions of such Director occurring prior
to such repeal or modification.
TENTH: Each person who is or was or had agreed to become a Director or
officer of the Corporation and each such person who is or was serving or who had
agreed to serve at the request of the Board or an officer of the Corporation as
an employee or agent of the Corporation or as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other entity,
whether for profit or not for profit (including the heirs, executors,
administrators or estate of such person), will be indemnified by the Corporation
to the full extent permitted by
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the GCL or any other applicable law as currently or hereafter in effect. The
right of indemnification provided in this Article TENTH will not be exclusive of
any other rights to which any person seeking indemnification may otherwise be
entitled, including without limitation pursuant to any contract approved by a
majority of the Whole Board (whether or not the Directors approving such
contract are or are to be parties to such contract or similar contracts).
Without limiting the generality or the effect of the foregoing, the Corporation
may adopt Bylaws, or enter into one or more agreements with any person, that
provide for indemnification greater or different than that provided in this
Article TENTH or the GCL. Any amendment or repeal of, or adoption of any
provision inconsistent with, this Article TENTH will not adversely affect any
right or protection existing hereunder, or arising out of facts occurring, prior
to such amendment, repeal or adoption and no such amendment, repeal or adoption
will affect the legality, validity or enforceability of any contract entered
into or right granted prior to the effective date of such amendment, repeal or
adoption.
ELEVENTH: (a) In anticipation that the Corporation will cease to be a
wholly owned subsidiary of FTDI or FTD Corporation, as the case may be, but that
FTDI or FTD Corporation, as the may be, will remain a stockholder of the
Corporation, and in anticipation that the Corporation and FTDI, FTD Corporation
and their respective successors and subsidiaries (collectively, "FTD Affiliated
Entities") may engage in the same or similar activities or lines of business and
have an interest in the same areas of corporate opportunities, and in
recognition of (i) the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with FTD Affiliated
Entities (including service of officers and directors of FTD Affiliated Entities
as officers and directors of the Corporation) and (ii) the difficulties
attendant to any director, who desires and endeavors fully to satisfy such
director's fiduciary duties, in determining the full scope of such duties in any
particular situation, the provisions of this Article ELEVENTH are set forth to
regulate, define and guide the conduct of certain affairs of the Corporation as
they may involve FTD Affiliated Entities and their respective officers and
directors, and the powers, rights, duties and liabilities of the Corporation and
its officers, directors and stockholders in connection therewith.
(b) The Corporation and the FTD Affiliated Entities may agree upon a
method for allocating business opportunities between them. Subject to and except
as provided in any such agreement:
(i) unless otherwise agreed, FTD Affiliated Entities will not have a
duty to refrain from engaging directly or indirectly in the same or similar
business activities or lines of business as the Corporation;
(ii) none of the FTD Affiliated Entities nor any of their respective
officers or directors will be liable to the Corporation or its stockholders for
breach of any fiduciary duty by reason of any such activities of any FTD
Affiliated Entity or of such person's participation therein;
(iii) in the event that any FTD Affiliated Entity acquires knowledge
of a potential transaction or matter that may be a corporate opportunity for
both an FTD Affiliated Entity and the Corporation, such FTD Affiliated Entity
will have no duty to communicate or offer such corporate opportunity to the
Corporation and will not be liable to the Corporation or its stockholders for
breach of any fiduciary duty as a stockholder of the Corporation or
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controlling person of a stockholder by reason of the fact that such FTD
Affiliated Entity pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person or entity, or does not
communicate information regarding, or offer, such corporate opportunity to the
Corporation.
(c) Subject to any agreement pursuant to Section (b) of this Article
ELEVENTH, in the event that a director, officer or employee of the Corporation
who is also a director, officer or employee of an FTD Affiliated Entity acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for the Corporation and any FTD Affiliated Entity (whether such
potential transaction or matter is proposed by a third party or is conceived of
by such director, officer or employee of the Corporation), such director,
officer or employee will be entitled to offer such corporate opportunity to the
Corporation or such FTD Affiliated Entity as such director, officer or employee
deems appropriate under the circumstances in his or her sole discretion, and no
such director, officer or employee will be liable to the Corporation or its
stockholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Corporation or the
derivation of any improper personal benefit by reason of the fact that (i) such
director, officer or employee offered such corporate opportunity to an FTD
Affiliated Entity (rather than the Corporation) or did not communicate
information regarding such corporate opportunity to the Corporation or (ii) such
FTD Affiliated Entity pursues or acquires such corporate opportunity for itself
or directs such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Corporation.
(d) Any person or entity purchasing or otherwise acquiring any interest in
any shares of capital stock of the Corporation will be deemed to have notice of
and to have consented to the provisions of this Article ELEVENTH and the
contractual provisions provided for in this Article ELEVENTH.
(e) For purposes of this Article ELEVENTH only, (i) the term "Corporation"
means the Corporation and all corporations, partnerships, joint ventures,
associations and other entities in which the Corporation beneficially owns
(directly or indirectly) fifty percent (50%) or more of the outstanding voting
stock, voting power or similar voting interests, and (ii) the term "FTD
Affiliated Entities" means FTDI, FTD Corporation, any successors thereto, all
corporations, partnerships, joint ventures, associations and other entities
(other than the Corporation, defined in accordance with clause (i) of this
Section (e)) in which such entity beneficially owns (directly or indirectly)
fifty percent (50%) or more of the outstanding voting stock, voting power or
similar voting interests and Interflora, Inc., an Ohio corporation.
(f) Notwithstanding anything in this Certificate of Incorporation to the
contrary, the foregoing provisions of this Article ELEVENTH shall expire on the
date that an FTD Affiliated Entity eases to own beneficially Common Stock
representing at least thirty-three and one-third percent (33 1/3%) of the
aggregate number of outstanding shares of Voting Stock of the Corporation and no
person who is a director or officer of the Corporation is also a director or
officer of an FTD Affiliated Entity. Neither the alteration, amendment, change
or repeal of any provision of this Article ELEVENTH nor the adoption of any
provision of this Certificate of Incorporation inconsistent with any provision
of this Article ELEVENTH shall eliminate or reduce the effect of this Article
ELEVENTH in respect of any matter occurring, or any cause of
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action, suit or claim that, but for this Article ELEVENTH, would accrue or
arise, prior to such alteration, amendment, repeal or adoption.
(g) The provisions of this Article ELEVENTH are in addition to the
provisions of Article TENTH.
TWELFTH: The name and address of the sole incorporator is as follows:
Michael Soenen
c/o ftd.com inc.
3113 Woodcreek Drive
Downers Grove, Illinois 60515
(630) 724-6200
THIRTEENTH: The following individuals shall serve as the initial directors
of the Corporation and shall hold office until the first annual meeting of
stockholders and until their successors are elected and qualified.
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Richard C. Perry c/o Perry Strategic Capital Inc.
599 Lexington Ave. 36th Floor
New York, New York 10022
(212) 583-4000
Habib Y. Gorgi c/o Fleet Equity Partners
50 Kennedy Plaza
Providence, Rhode Island 02903
(401) 278-5721
Veronica K. Ho c/o Perry Strategic Capital Inc.
599 Lexington Ave. 36th Floor
New York, New York 10022
(212) 583-4000
Gary K. Silberberg c/o Perry Strategic Capital Inc.
599 Lexington Ave. 36th Floor
New York, New York 10022
(212) 583-4000
Michael Soenen c/o ftd.com inc.
3113 Woodcreek Drive
Downers Grove, Illinois 60515
(630) 724-6200
</TABLE>
12
<PAGE>
IN WITNESS WHEREOF, I the undersigned, being the incorporator hereinabove
named, do hereby execute this Certificate of Incorporation this 18th day of May,
1999.
/s/ Michael Soenen
------------------------------------
Michael Soenen
<PAGE>
Exhibit 3.3
Adopted as of May 19, 1999
BYLAWS
OF
ftd.com inc.
ARTICLE I.
OFFICES
SECTION 1.1 Delaware Office. The office of ftd.com inc. (the "Corporation")
within the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 1.2 Other Offices. The Corporation may also have an office or
offices and keep the books and records of the Corporation, except as otherwise
may be required by law, in such other place or places, either within or without
the State of Delaware, as the Board of Directors of the Corporation (the
"Board") may from time to time determine or the business of the Corporation may
require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 2.1 Place of Meetings. All meetings of holders of shares of capital
stock of the Corporation will be held at the office of the Corporation in the
State of Delaware or at such other place, within or without the State of
Delaware, as may from time to time be fixed by the Board or specified or fixed
in the respective notices or waivers of notice thereof.
SECTION 2.2 Annual Meetings. An annual meeting of stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting (an "Annual Meeting") shall be
held at such place, on such date, and at such time as the Board shall each year
fix, which date shall be within thirteen (13) months of the last annual meeting
of stockholders or, if no such meeting has been held, the date of incorporation.
SECTION 2.3 Special Meetings. Except as required by law and subject to the
rights of holders of any series of Preferred Stock (as defined below), special
meetings of stockholders may be called at any time only by a resolution of the
Board, the Chairman of the Board or a the Secretary or Assistant Secretary upon
the written request (stating the purpose or purposes of the meeting) of a
majority of the directors then in office. Any such call must specify the matter
or matters to be acted upon at the meeting and only such matter or matters shall
be acted upon thereat.
SECTION 2.4 Notice of Meetings. Except as otherwise may be required by law,
notice of each meeting of stockholders, whether an Annual Meeting or a special
meeting, shall be in writing, shall state the purpose or purposes of the
meeting, the place, date and hour of the
<PAGE>
meeting and, unless it is an Annual Meeting, shall indicate that the notice is
being issued by or at the direction of the person or persons calling the
meeting, and a copy thereof shall be delivered or sent by mail, not less than
ten (10) or more than sixty (60) calendar days before the date of said meeting,
to each stockholder entitled to vote at such meeting. If mailed, such notice
shall be directed to such stockholder at such stockholder's address as it
appears on the stock records of the Corporation, unless he or she shall have
filed with the Secretary of the Corporation a written request that notices to
him or her be mailed to some other address in which case it shall be directed to
him or her at such other address. Notice of an adjourned meeting need not be
given if the time and place to which the meeting is to be adjourned was
announced at the meeting at which the adjournment was taken, unless (i) the
adjournment is for more than thirty (30) calendar days, or (ii) the Board shall
fix a new record date for such adjourned meeting after the adjournment. It shall
not be necessary to give notice to any stockholder who submits a signed waiver
of notice before of after the meeting.
SECTION 2.5 Record Date. (a) In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment of any dividend or other distribution or
allotment of any rights or 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 may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) calendar days before
the date of any meeting of stockholders. If no record date is fixed by the
Board, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. 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 may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting in accordance with
and subject to Section 2.11 hereof and the Corporation's Certificate of
Incorporation, the Board may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted by the Board, and
which record date shall be not more than ten (10) calendar days after the date
upon which the resolution fixing the record date is adopted. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary of the Corporation,
request the Board to fix a record date. The Board shall promptly, but in all
events within 10 (ten) calendar days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board and no prior action by the Board is required by the Delaware
General Corporation Law, the record date shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation in the manner prescribed by Section 2.11 hereof. If
no record date has been fixed by the Board and prior action by the Board is
required by the Delaware General Corporation Law with respect to the proposed
action by written consent of the stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board adopts
the resolution taking such prior action.
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<PAGE>
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders 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 a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty (60) calendar days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 2.6 Quorum. At each meeting of stockholders of the Corporation, the
holders of shares having a majority of the voting power of the capital stock of
the Corporation issued and outstanding and entitled to vote thereat shall be
present or represented by proxy to constitute a quorum for the transaction of
business, except as otherwise provided by law. Where a separate vote by a class
or classes is required, a majority of the shares of such class or classes in
person or represented by proxy shall constitute a quorum entitled to take action
with respect to that vote on that matter.
SECTION 2.7 Adjournments. In the absence of a quorum at any meeting of
stockholders or any adjournment or adjournments thereof, the Chairman of the
Board or holders of shares having a majority of the voting power of the capital
stock present or represented by proxy at the meeting may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented by proxy. At any rescheduled adjourned
meeting at which a quorum shall be present or represented by proxy, any business
may be transacted which might have been transacted at the meeting as originally
called if a quorum had been present or represented by proxy thereat.
SECTION 2.8 Notice of Stockholder Proposals of Business. (a) No business
may be transacted at an Annual Meeting of stockholders, other than business that
is either (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board (or any duly authorized committee
thereof), (ii) otherwise properly brought before the Annual Meeting by or at the
direction of the Board (or any duly authorized committee thereof), or (iii)
otherwise properly brought before the Annual Meeting by any stockholder of the
Corporation (A) who is a stockholder of record on the date of the giving of the
notice provided for in this Bylaw and on the record date for the determination
of stockholders entitled to vote at such Annual Meeting and (B) who complies
with the notice procedures set forth in this Bylaw. In addition to any other
applicable requirements, for business to be properly brought before an Annual
Meeting by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation. To be timely, a
stockholder's notice to the Secretary must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than 60
nor more than 90 calendar days prior to the date on which the Corporation first
mailed its proxy materials for the prior year's Annual Meeting of stockholders;
provided, however, that in the event that the Annual Meeting is called for a
date that is not within 30 calendar days before or after the anniversary of the
prior year's Annual Meeting, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth calendar
day following the day on which public disclosure of the date of the Annual
Meeting was made. In no event will the public disclosure of an adjournment of an
Annual Meeting commence a new time period for the giving of a stockholder's
notice as described above.
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<PAGE>
For purposes of the foregoing, the date on which the Corporation first mailed
its proxy materials to stockholders will be the date so described in such proxy
materials.
(b) To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
Annual Meeting (i) a brief description of the business desired to be brought
before the Annual Meeting and the reasons for conducting such business at the
Annual Meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business, and (v) a representation that such stockholder intends to appear
in person or by proxy at the Annual Meeting to bring such business before the
meeting.
(c) If the chairman of an Annual Meeting determines that business was not
properly brought before the Annual Meeting in accordance with the foregoing
procedures, the chairman will declare to the meeting that the business was not
properly brought before the meeting and such business will not be transacted.
SECTION 2.9 Proxies and Voting. Except as otherwise provided in a
resolution of the Board adopted pursuant to the Certificate of Incorporation of
the Corporation (the "Certificate of Incorporation") and these Bylaws
establishing a series of Preferred Stock of the Corporation ("Preferred Stock"),
at each meeting of stockholders, each holder of shares of the Corporation's
Class A Common Stock, par value $.01 per share ("Class A Common Stock"), shall
be entitled to one (1) vote for each such share, and each holder of the
Corporation's Class B Common Stock, par value $.01 per share ("Class B Common
Stock") shall be entitled to the respective number of votes as set forth in the
Certificate of Incorporation, in each case determined with reference to the
number of shares of Common Stock standing in such holder's name on the stock
records of the Corporation maintained in accordance with Section 7.2 hereof (i)
at the time fixed pursuant to Section 2.5 of these Bylaws as the record date for
the determination of stockholders entitled to vote at such meeting, or (ii) if
no such record date shall have been fixed, then at the close of business on the
day next preceding the day on which notice thereof shall be given. At each
meeting of stockholders, all matters (except as otherwise provided in Section
3.3 of these Bylaws and except in cases where a larger vote is required by law
or by the Certificate of Incorporation or these Bylaws) shall be decided by a
majority of the votes cast at such meeting by the holders of shares of capital
stock present or represented by proxy and entitled to vote thereon, a quorum
being present. At any meeting of the stockholders, every stockholder entitled to
vote may vote in person or by proxy authorized by an instrument in writing or by
a transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
Section 2.9 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission. All voting, including on the election of directors but
excepting where otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefore by a stockholder entitled to vote or by such
stockholder's proxy, a stock vote shall be taken. Every stock vote shall be
taken by ballots, each of which shall state the
4
<PAGE>
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting.
SECTION 2.10 Inspectors. For each election of directors by the stockholders
and in any other case in which it shall be advisable, in the opinion of the
Board, that the voting upon any matter shall be conducted by inspectors of
election, the Board shall appoint an inspector or inspectors of election. If,
for any such election of directors or the voting upon any such other matter, any
inspector appointed by the Board shall be unwilling or unable to serve, or if
the Board shall fail to appoint inspectors, the chairman of the meeting shall
appoint the necessary inspector or inspectors. The inspector(s) so appointed,
before entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of inspectors with strict impartiality, and according to the
best of their ability, and the oath so taken shall be subscribed by them. Such
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each of the shares represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting or any stockholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as an inspector of election of directors. Inspectors need not be
stockholders.
SECTION 2.11 Consent of Stockholders in Lieu of Meeting. Prior to an
initial public offering of all or a portion of any class of the Corporation's
common stock (an "IPO"), any action required to be taken at any Annual Meeting
or special meeting of stockholders of the Corporation, or any action which may
be taken at any Annual Meeting or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be made by
hand or by certified or registered mail, return receipt requested. Upon and
after the occurrence of an IPO, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called Annual
Meeting or special meeting of stockholders of the Corporation and may not be
effect otherwise by any consent in writing of such stockholders.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) calendar days of
the date the earliest dated consent is delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in the first paragraph of
this Section.
5
<PAGE>
ARTICLE III.
DIRECTORS
SECTION 3.1 Powers. The powers of the Corporation shall be exercised, its
business and affairs conducted, and its property controlled by the Board, except
as otherwise provided by the law of the State of Delaware or in the Certificate
of Incorporation and including, without limiting the generality of the
foregoing, the unqualified power:
(i) to declare dividends from time to time in accordance with
law;
(ii) to purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(iii) to authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable
or non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(iv) to remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(v) to confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(vi) to adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(vii) to adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(viii) to adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and
affairs.
SECTION 3.2 Number of Directors and Terms. The initial number of directors
that shall constitute the whole Board (exclusive of directors to be elected by
the holders of any one or more series of Preferred Stock voting separately as a
class or classes) shall be a number between four and 14, as established from
time to time by the Board; provided, however, that the Board, by resolution
adopted by vote of a majority of the then authorized number of directors, or the
stockholders, may increase or decrease the number of directors, but no decrease
may shorten the term of any incumbent director. Each director shall serve for a
term ending on the date of the first Annual Meeting following the Annual Meeting
at which the director was elected; provided, however, that the directors first
elected shall serve for a term ending on the date of the Annual Meeting next
following the end of the calendar year 1999.
SECTION 3.3 Vacancies and Newly Created Directorships. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional directors under circumstances specified in a preferred stock
designation, newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board resulting from death,
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resignation, disqualification, removal or other cause will be filled solely by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board, or by a sole remaining director.
Any director elected in accordance with the preceding sentence will hold office
for the remainder of the full term in which the new directorship was created or
the vacancy occurred and until the director's successor is elected and
qualified. No decrease in the number of directors constituting the Board will
shorten the term of an incumbent director.
SECTION 3.4 Nominations; Elections. (a) Only persons who are nominated in
accordance with the following procedures will be eligible for election as
Directors of the Corporation. Nominations of persons for election to the Board
may be made at any Annual Meeting of stockholders (i) by or at the direction of
the Board (or any duly authorized Committee thereof) or (ii) by any stockholder
of the Corporation (A) who is a stockholder of record on the date of the giving
of the notice provided for in this Bylaw and on the record date for the
determination of stockholders entitled to vote at such Annual Meeting and (B)
who complies with the notice procedures set forth in this Bylaw. Directors shall
be at least 21 years of age. Directors need not be stockholders. At each meeting
of stockholders for the election of directors at which a quorum is present, the
persons receiving a plurality of the votes cast shall be elected directors. In
addition to any other applicable requirements, for a nomination to be made by a
stockholder, such stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a stockholder's
notice to the Secretary must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 nor more than 90
calendar days prior to the date on which the Corporation first mailed its proxy
materials for the prior year's Annual Meeting of stockholders; provided,
however, that in the event that the Annual Meeting is called for a date that is
not within 30 calendar days before or after the anniversary of the prior year's
Annual Meeting, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth calendar day
following the day on which public disclosure of the date of the Annual Meeting
was made; provided, further, in the case of a Special Meeting of stockholders
called for the purpose of electing directors, notice by the stockholder in order
to be timely must be received no later than the close of business on the tenth
calendar day following the date on which notice of the date of the Special
Meeting was mailed to stockholders or public disclosure of the date of the
Special Meeting was made, whichever occurs first. In no event will the public
disclosure of an adjournment of an Annual Meeting or a Special Meeting commence
a new time period for the giving of a stockholder's notice as described above.
For purposes of the foregoing, the date on which the Corporation first mailed
its proxy materials to stockholders will the Date so described in such proxy
materials.
(b) To be in proper written form, a stockholder's notice to the Secretary
must set forth (i) as to each person whom the stockholder proposes to nominate
for election as a director (A) the name, age, business address and residence
address of the person, (B) the principal occupation or employment of the person,
(C) the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person, and (D) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934 and the rules and regulations thereunder (the
"Exchange Act"), or any successor or replacement provision with respect thereto,
including, without limitation, such person's written consent to being a nominee
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and to serve as a director if elected; and (ii) as to the stockholder giving the
notice (A) the name and record address of such stockholder, (B) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (C) a description of all
arrangements or understandings between or among such stockholder and each
proposed nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by such stockholder, (D) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice, and (E) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to the Exchange Act.
Such notice must be accompanied by a written consent of each proposed nominee to
being named as a nominee and to serve as a director if elected.
(c) If the chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the chairman will declare to
the meeting that the nomination was defective and such defective nomination will
be disregarded.
SECTION 3.5 Place of Meetings. Meetings of the Board shall be held at the
Corporation's office in the State of Delaware or at such other places, within or
without such State, as the Board may from time to time determine or as shall be
specified or fixed in the notice or waiver of notice of any such meeting.
SECTION 3.6 Regular Meetings. Regular meetings of the Board shall be held
in accordance with a yearly meeting schedule as determined by the Board; or such
meetings may be held on such other days and at such other times as the Board may
from time to time determine. Regular meetings of the Board shall be held not
less frequently than quarterly.
SECTION 3.7 Special Meetings. Special meetings of the Board may be called
by a majority of the directors then in office (rounded up to the nearest whole
number) or by the Chairman of the Board and shall be held at such place, on such
date, and at such time as he or she shall fix.
SECTION 3.8 Notice of Meetings. Notice of each special meeting of the Board
stating the time, place and purposes thereof, shall be (i) mailed to each
director not less than five (5) calendar days prior to the meeting, addressed to
such director at his or her residence or usual place of business, or (ii) shall
be sent to him or her by facsimile, telex, cable or telegram so addressed, or
shall be given personally or by telephone, on twenty four (24) hours' notice.
SECTION 3.9 Quorum and Manner of Acting. The presence of at least a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board. If a quorum shall not be present at any meeting of the Board, a majority
of 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. Except where a different vote is required or permitted by law, the
Certificate of Incorporation or these Bylaws or otherwise, the act of a majority
of the directors present at any meeting at which a quorum shall be present shall
be the act of the Board. Any action required or permitted to be taken by the
Board may be taken without a meeting if all the directors consent in writing to
the adoption of a resolution authorizing the action. The resolution and the
written
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consents thereto by the directors shall be filed with the minutes of the
proceedings of the Board. Any one or more directors may participate in any
meeting of the Board by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall be deemed to
constitute presence in person at a meeting of the Board.
SECTION 3.10 Resignation. Any director may resign at any time by giving
written notice to the Corporation; provided, however, that written notice to the
Board, the Chairman of the Board, the Chief Executive Officer of the Corporation
or the Secretary of the Corporation shall be deemed to constitute notice to the
Corporation. Such resignation shall take effect upon receipt of such notice or
at any later time specified therein and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.11 Removal of Directors. Subject to the rights of holders of
Preferred Stock to elect directors under circumstances specified in a resolution
of the Board, adopted pursuant to the provisions of the Certificate of
Incorporation or these Bylaws establishing such series, any director may be
removed at any time, either with or without cause, by the holders of a majority
of the shares entitled at the time to vote at an election of directors.
SECTION 3.12 Compensation of Directors. The Board may provide for the
payment to any of the directors, other than officers or employees of the
Corporation, of a specified amount for services as director or member of a
committee of the Board, or of a specified amount for attendance at each regular
or special Board meeting or committee meeting, or of both, and all directors
shall be reimbursed for expenses of attendance at any such meeting; provided,
however, that nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV.
COMMITTEES OF THE BOARD
SECTION 4.1 Powers. The Board may, by resolution adopted by a majority of
the entire Board, designate one or more committees, each committee to consist of
one or more directors of the Corporation; provided that persons who are not
directors of the Corporation may also be members of the committees to the extent
provided in the resolution of the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board and permitted
by law, shall have and may exercise all of the powers and authority of the Board
in the management of the business, property and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Each committee of the Board may fix its own rules and procedures.
Notice of meetings of committees, other than of regular meetings provided for by
the rules, shall be given to committee members. All action taken by committees
shall be recorded in minutes of the meetings.
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SECTION 4.2 Appointment and Powers of Audit Committee. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate an Audit Committee of the Board, which shall
consist of such number of members as the Board shall determine. The Audit
Committee shall: (i) make recommendations to the Board as to the independent
accountants to be appointed by the Board; (ii) review with the independent
accountants the scope of their examinations; (iii) receive the reports of the
independent accountants and meet with representatives of such accountants for
the purpose of reviewing and considering questions relating to their examination
and such reports; (iv) review, either directly or through the independent
accountants, the internal accounting and auditing procedures of the Corporation;
(v) review related party transactions; and (vi) perform such other functions as
may be assigned to it from time to time by the Board. The Audit Committee may
determine its manner of acting and fix the time and place of its meetings,
unless the Board shall otherwise provide. A majority of the members of the Audit
Committee shall constitute a quorum for the transaction of business by the
committee and the act of a majority of the members of the committee present at a
meeting at which a quorum shall be present shall be the act of the committee.
SECTION 4.3 Compensation Committee; Other Committees. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate members of the Board to constitute a Compensation
Committee and such other committees of the Board as the Board may determine.
Such committees shall in each case consist of such number of directors as the
Board may determine, and shall have and may exercise, to the extent permitted by
law, such powers as the Board may delegate to them in the respective resolutions
appointing them. Each such committee may determine its manner of acting and fix
the time and place of its meetings, unless the Board shall otherwise provide. A
majority of the members of any such committee shall constitute a quorum for the
transaction of business by the committee and the act of a majority of the
members of such committee present at a meeting at which a quorum shall be
present shall be the act of the committee.
SECTION 4.4 Action by Consent; Participation by Telephone or Similar
Equipment. Unless the Board shall otherwise provide, any action required or
permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation by
such means shall constitute presence in person at a meeting of the committee.
SECTION 4.5 Resignations; Removals. Any member of any committee may resign
at any time by giving notice to the Corporation; provided, however, that notice
to the Board, the Chairman of the Board, the Chief Executive Officer of the
Corporation, the chairman of such committee or the Secretary of the Corporation
shall be deemed to constitute notice to the Corporation. Such resignation shall
take effect upon receipt of such notice or at any later time specified therein;
and, unless otherwise specified therein, acceptance of such resignation shall
not be necessary to make it effective. Any member of any such committee may be
removed at any time, either with or without cause, by the affirmative vote of a
majority of the authorized number
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of directors at any meeting of the Board called for that purpose. Any vacancies
on any committee of the Board shall be filled in the manner set forth above in
respect of the appointment of such committee.
ARTICLE V.
OFFICERS
SECTION 5.1 Number and Qualification. The Corporation shall have such
officers as may be necessary or desirable for the business of the Corporation.
The officers of the Corporation shall consist of a Chairman of the Board,
President, Chief Executive Officer, Chief Financial Officer, Chief Information
Officer, one or more Vice Presidents, Secretary, Assistant Secretary and such
other officers as may from time to time be appointed by the Board. Officers
shall be elected by the Board, which shall consider that subject at its first
meeting after every Annual Meeting of stockholders. Each officer shall hold
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any number of offices may be held by the same
person. The failure to elect a Chairman of the Board, President, Chief Executive
Officer, Chief Financial Officer, Chief Information Officer, Vice President,
Secretary or Assistant Secretary shall not affect the existence of the
Corporation.
SECTION 5.2 Chairman of the Board. The Chairman of the Board shall have
general and active responsibility for the management of the business of the
Corporation and shall be responsible for implementing all orders and resolutions
of the Board. The Chairman of the Board shall also be a director and shall
preside at all meetings of the stockholders and directors. The President and
Chief Executive Officer shall report to the Chairman of the Board. The Chairman
of the Board shall perform the duties and exercise the powers of the President
in the event of the President's absence or disability.
SECTION 5.3 President and Chief Executive Officer. The President and Chief
Executive Officer shall supervise the daily operations of the business of the
Corporation, and shall report to the Chairman of the Board. Subject to the
provisions of these Bylaws and to the direction of the Chairman of the Board or
the Board, he or she shall perform all duties and have all powers which are
commonly incident to the office of President and Chief Executive Officer or
which are delegated to him or her by the Chairman of the Board or the Board. He
or she shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation.
SECTION 5.4 Chief Financial Officer. The Chief Financial Officer shall be
the principal accounting and financial officer of the Corporation. The Chief
Financial Officer shall perform all the duties commonly incident to the office
of Chief Financial Officer and such other duties as from time to time may be
assigned to him or her by the Chief Executive Officer or the Board. He or she
shall have charge of and be responsible for the maintenance of adequate books of
account for the Corporation and shall have charge and custody of all funds and
securities of the Corporation and for the receipt and disbursement thereof.
SECTION 5.5 Chief Information Officer. The Chief Information Officer shall
perform the duties assigned to him or her by the Chief Executive Officer or the
Board.
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SECTION 5.6 Vice President. Each Vice President shall have such powers and
duties as may be delegated to him or her by the Chairman of the Board or the
Board.
SECTION 5.7 Secretary. The Secretary shall issue all authorized notices
for, and shall keep minutes of, all meetings of the stockholders and the Board.
He or she shall have charge of the corporate books and shall perform such other
duties as the Chairman of the Board or the Board may from time to time
prescribe.
SECTION 5.8 Assistant Secretary. The Assistant Secretary shall perform the
duties assigned to him or her by the Secretary.
SECTION 5.9 Delegation of Authority. The Chairman of the Board or the Board
may from time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
SECTION 5.10 Execution of Documents and Action with Respect to Securities
of Other Corporations. The President shall have and is hereby given, full power
and authority, except as otherwise required by law or directed by the Board, (a)
to execute, on behalf of the Corporation, all duly authorized contracts,
agreements, deeds, conveyances or other obligations of the Corporation,
applications, consents, proxies and other powers of attorney, and other
documents and instruments, and (b) to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of stockholders (or with
respect to any action of such stockholders) of any other corporation in which
the Corporation may hold securities and otherwise to exercise any and all rights
and powers which the Corporation may possess by reason of its ownership of
securities of such other corporation. In addition, the President may delegate to
other officers, employees and agents of the Corporation the power and authority
to take any action which the President is authorized to take under this Section
5.8, with such limitations as the President may specify; such authority so
delegated by the President shall not be re-delegated by the person to whom such
execution authority has been delegated.
SECTION 5.11 Removal. Any officer of the Corporation may be removed at any
time, with or without cause, by the Chairman of the Board or the Board.
SECTION 5.12 Resignations. Any officer may resign at any time by giving
written notice to the Corporation; provided, however, that notice to the Board,
Chairman of the Board, the Chief Executive Officer, the Secretary or the
Assistant Secretary shall be deemed to constitute notice to the Corporation.
Such resignation shall take effect upon receipt of such notice or at any later
time specified therein; and, unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 5.13 Vacancies. Any vacancy among the officers, whether caused by
death, resignation, removal or any other cause, shall be filled in the manner
prescribed for election or appointment to such office.
SECTION 5.14 Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board, the Chairman of the Board or any officer
of the Corporation authorized by the Chairman of the Board shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any
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action of stockholders of any other corporation in which this Corporation may
hold securities and otherwise to exercise any and all rights and powers which
this Corporation may possess by reason of its ownership of securities in such
other corporation.
SECTION 5.15 Compensation. The salaries of the officers shall be fixed from
time to time by the Board, unless and until the Board appoints a Compensation
Committee.
SECTION 5.16 Officers of Divisions. The Chairman of the Board shall have
the power to appoint, remove and prescribe the terms of office,
responsibilities, duties and salaries of, the officers of divisions of the
Corporation, other than those who are officers of the Corporation.
ARTICLE VI.
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
SECTION 6.1 Contracts. The Board may authorize any officer or officers,
agent or agents, in the name and on behalf of the Corporation, to enter into any
contract or to execute and deliver any instrument, which authorization may be
general or confined to specific instances; and, unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or for any amount.
SECTION 6.2 Checks, etc. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board, which authorization may be general or confined
to specific instances.
SECTION 6.3 Loans. No loan shall be contracted on behalf of the
Corporation, and no negotiable paper shall be issued in its name, unless
authorized by the Board, which authorization may be general or confined to
specific instances, and bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board shall authorize.
SECTION 6.4 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositors as may be selected by or in the
manner designated by the Board. The Board or its designees may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of the Certificate of Incorporation or these
Bylaws, as they may deem advisable.
ARTICLE VII.
CAPITAL STOCK
SECTION 7.1 Certificates of Stock. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the Chairman of the
Board, Chief Executive Officer or a Vice President, and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the
number of shares owned by him or her. Any or all of the signatures on the
certificate may be by facsimile.
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SECTION 7.2 Stock List. A complete list of stockholders entitled to vote at
any meeting of stockholders, which shows the address of each such stockholder
and the number of shares of the Corporation that are registered in such
stockholder's name, shall be maintained by the Corporation and open to the
examination of any such stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten (10) calendar 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 stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
SECTION 7.3 Transfers of Stock. Transfers of stock shall be made only upon
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 7.5 of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
SECTION 7.4 Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board may establish concerning
proof of such loss, theft or destruction and concerning the giving of
satisfactory bond or bonds of indemnity.
SECTION 7.5 Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board may establish.
ARTICLE VII.
NOTICES
SECTION 8.1 Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or with a recognized overnight delivery
service or by sending such notice by prepaid telegram, mailgram or by facsimile
transmission. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at such person's last known address as the same
appears on the books of the Corporation. The time when such notice is received,
if hand delivered, or dispatched, if delivered through the mails or by overnight
delivery service, or by telegram, mailgram or facsimile, shall be the time of
the giving of the notice.
SECTION 8.2 Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
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ARTICLE IX.
MISCELLANEOUS
SECTION 9.1 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board or a committee thereof.
SECTION 9.2 Corporate Seal. The Board may provide a suitable seal,
containing the name of the Corporation, which seal shall be in the charge of the
Secretary of the Corporation. If and when so directed by the Board or a
committee thereof, duplicates of the seal may be kept and used by the
Corporation's Secretary or Assistant Secretary.
SECTION 9.3 Reliance Upon Books, Reports and Records. Each director, each
member of any committee designated by the Board, and each officer of the
Corporation shall, in the performance of his or her duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation and upon such information, opinions, reports or statements presented
to the Corporation by any of its officers or employees, or committees of the
Board so designated, or by any other person as to matters which such director or
committee member reasonably believes are within such other person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Corporation.
SECTION 9.4 Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board. Until changed by the Board, the last day of the
Corporation's fiscal year shall be June 30.
SECTION 9.5 Time Periods. In applying any provision of these Bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE X.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 10.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter, a "proceeding"), by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
entity, whether for profit or not for profit (including the heirs, executors,
administrators or estate of such person) and including service with respect to
an employee benefit plan (hereinafter, an "indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), or any other applicable law as
currently or hereafter in effect against all expense,
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liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section 10.3 hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board.
SECTION 10.2 Right to Advancement of Expenses. The right to indemnification
conferred in Section 10.1 hereof shall include the right to be paid by the
Corporation the expenses (including attorneys' fees) incurred in defending any
such proceeding in advance of its final disposition (hereinafter, an
"advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter, an "undertaking"),
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter, a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 10.2 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections 10.1 and 10.2 hereof shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
SECTION 10.3 Right of Indemnitee to Bring Suit. If a claim under Section
10.1 or 10.2 hereof is not paid in full by the Corporation within sixty (60)
calendar days after a written claim has been received by the Corporation, except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) calendar days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) any suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the
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burden of proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article X or otherwise shall be on the
Corporation.
SECTION 10.4 Non-Exclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred in this Article X shall not be
exclusive of any other right which any person may have or hereafter acquire by
any statute, the Corporation's Certificate of Incorporation or Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
SECTION 10.5 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
SECTION 10.6 Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the Board,
grant rights to indemnification and to the advancement of expenses to any
employee or agent of the Corporation to the fullest extent of the provisions of
this Article X with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
ARTICLE XI.
AMENDMENTS
The Board may from time to time make, amend, supplement or repeal these
Bylaws by vote of a majority of the Board; provided, however, that the
stockholders may change or amend or repeal any provision of these Bylaws by the
affirmative vote of the holders of a majority of the Voting Stock, voting as one
class. In addition to and not in limitation of the foregoing, these Bylaws or
any of them may be amended or supplemented in any respect at any time, either:
(i) at any meeting of stockholders, provided that any amendment or supplement
proposed to be acted upon at any such meeting shall have been described or
referred to in the notice of such meeting; or (ii) at any meeting of the Board,
provided that any amendment or supplement proposed to be acted upon at any such
meeting shall have been described or referred to in the notice of such meeting
or an announcement with respect thereto shall have been made at the last
previous Board meeting, and provided further that no amendment or supplement
adopted by the Board shall vary or conflict with any amendment or supplement
adopted by the stockholders.
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EXHIBIT 4.2
STOCKHOLDERS' AGREEMENT, dated as of December 19, 1994, among Perry
Acquisition Partners, L.P. ("Perry"), Randolph Street Partners ("Randolph"),
----- --------
Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., Information Partners
Capital Fund, L.P., BCIP Associates and BCIP Trust Associates, L.P.
(collectively "Bain"), Fleet Growth Resources, Inc., Chisholm Partners II L.P.
----
and Turnberry Partners, L.P. (collectively "Fleet" and, together with Randolph
-----
and Bain, the "Co-Investors") and Perry Capital Corp. (the "Company").
------------ -------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, as of the Closing Date, Perry and the Co-Investors are the
holders of substantially all of the issued and outstanding Common Stock of the
Company; and
WHEREAS, the parties hereto wish to enter into certain agreements with
respect to the holdings by Perry and the Co-Investors and their Permitted
Transferees and their respective successors of Common Stock of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, terms defined in the
-------------
heading shall have their respective assigned meanings, and the following
capitalized terms shall have the meanings ascribed to them below:
"Affiliate" shall mean, with respect to any Person, (i) any Person
---------
that directly or indirectly controls, is controlled by or is under common
control with, such Person, or (ii) any director, officer, partner or employee of
such Person or any Person specified in clause (i) above, or (iii) any Immediate
Family Member of any Person specified in clause (ii) above.
"Agreement" shall mean this Stockholders' Agreement, as the same may,
---------
in accordance with the terms hereof, be amended, supplemented or otherwise
modified from time to time.
"Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
----------------
Exchange Act.
"Board of Directors" shall mean, unless otherwise specified hereunder,
------------------
the Board of Directors of the Company.
"Business Day" shall mean a day other than a Saturday, Sunday, Federal
------------
or New York State holiday or other day on which commercial banks in New York
City are authorized or required by law to close.
"By-Laws" shall mean the By-Laws of the Company as in effect on the
-------
date hereof, as the same may be amended from time to time in accordance with the
terms thereof and hereof.
<PAGE>
"Cause" shall mean (i) wilful malfeasance or wilful misconduct by a
-----
director in connection with the performance of his duties as such, (ii) the
commission by a director of (a) any felony or (b) a misdemeanor involving moral
turpitude or (iii) a determination by a court of competent jurisdiction in the
United States that such director, as such or in any other capacity (whether or
not relating to the Company), breached a fiduciary duty owed by him or her to
another Person.
"Certificate of Incorporation" shall mean the Certificate of
----------------------------
Incorporation of the Company as in effect on the date hereof, as the same may be
amended from time to time in accordance with the terms thereof and hereof.
"Closing Date" shall mean the date of the sale of Common Stock to the
------------
Initial Investors pursuant to their respective Stock Subscription Agreements
which date shall be the date on which the transactions contemplated by the
Merger Agreement are consummated.
"Common Stock" shall mean the Company's Class A Common Stock, par
------------
value $.01 per share, and Class B Common Stock, par value $.01 per share and any
Common Stock issued or issuable with respect to any Class A Common Stock or
Class B Common Stock by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Designated Perry Director" shall mean a Perry Director (as defined in
-------------------------
Section 2.1(a)) who is Richard C. Perry, Veronica K. Ho, Gary K. Silberberg or
any other Perry Director who is designated by Perry in writing as a Designated
Perry Director in any case until such time as Perry shall in writing revoke such
designation.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
"FTD Association" shall mean FTD Association, a Michigan nonprofit
---------------
corporation organized on a membership basis in accordance with the Merger
Agreement.
"FTD Member Offering" shall mean an offering made to FTD Association
-------------------
members pursuant to Article IV of the Mutual Support Agreement.
"FTDI" shall mean Florists' Transworld Delivery, Inc., a Michigan
----
corporation.
"Governmental Authority" shall mean any nation or government, any
----------------------
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Group" means any group of Persons acquiring, holding, voting or
-----
disposing of voting securities of the Company which would be required under
Section 13(d) of the Exchange Act to file a statement on Schedule 13D or
Schedule 13G with the SEC as a "person" within the meaning of Section 13(d)(3)
of the Exchange Act if such group beneficially owned voting securities
representing more than 5% of any class of then-outstanding voting securities of
the Company.
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"Immediate Family Member" shall mean, with respect to any natural
-----------------------
Person, a spouse, parent or child of such Person.
"Indenture" shall mean, that certain Indenture dated as of December 1,
---------
1994 between FTD Acquisition Corporation and First Trust of New York, National
Association.
"Initial Investors" shall mean Perry and the Co-Investors.
-----------------
"Merger Agreement" shall mean that certain Agreement and Plan of
----------------
Merger, dated August 2, 1994, among the Company, FTD Acquisition Corporation
(formerly named IRIS Acquisition Corp.), a Delaware corporation ("Sub"), and
Florists' Transworld Delivery Association, a Michigan nonprofit corporation.
"Mutual Support Agreement" shall mean that certain Mutual Support
------------------------
Agreement attached to the Merger Agreement as Exhibit A and to be entered into
between FTDI and FTD Association prior to the Closing Date.
"Permitted Holders" shall have the meaning ascribed to it in the
-----------------
Indenture.
"Permitted Transferee" shall mean any Person to whom an Initial
--------------------
Investor (or any direct or indirect Permitted Transferee thereof) transfers
Common Stock in accordance with the terms of this Agreement and the Stock
Subscription Agreement by which such transferor is bound (other than pursuant to
a Public Offering or, following a Public Offering, pursuant to Rule 144 or Rule
144A under the Securities Act) and who becomes a party to, and is bound to the
same extent as its transferor by the terms of, this Agreement.
"Person" shall mean any individual, corporation, partnership, trust,
------
joint stock company, business trust, unincorporated association, joint venture
or other entity of any nature whatsoever.
"Public Offering" shall mean the sale of Class A Common Stock (or
---------------
Class A Common Stock equivalents) to the public in an offering pursuant to an
effective registration statement filed with the SEC under the Securities Act,
which results in an active trading market in the Class A Common Stock (or such
Class A Common Stock Equivalents) (it being understood that such an active
trading market shall be deemed to exist if, among other things, the Class A
Common Stock (or such Class A Common Stock equivalents) is listed on a national
securities exchange or on the Nasdaq Stock Market-National System); provided
that a Public Offering shall not include (i) an offering made in connection with
a business acquisition or combination or an employee benefit plan; (ii) an FTD
Member Offering; or (iii) an offering of securities by the Company solely to
members of FTD Association.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities" shall mean shares of (i) any Class A Common Stock of the
----------
Company issued to Stockholders pursuant to the Stock Subscription Agreements,
(ii) any Class A Common Stock of the Company issued or issuable upon conversion
of any Class B Common Stock of the Company issued to Stockholders pursuant to
the Stock Subscription Agreements and (iii) any Class A Common Stock of the
Company issued or issuable with respect to any of the securities
3
<PAGE>
referred to in clauses (i) and (ii) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. As to any particular
Securities, once issued such Securities shall cease to be Securities when (a) a
registration statement with respect to the sale of such Securities shall have
become effective under the Securities Act and such Securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act after a Public Offering, (c) they shall have been
transferred pursuant to Rule 144A (or any successor provision) under the
Securities Act after a Public Offering, (d) they shall have been otherwise
transferred in accordance with this Agreement, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, or (e) they shall have ceased to be outstanding.
For purposes of this Agreement, Securities shall include Class B
Common Stock; provided that the Company shall have no obligation to register
Class B Common Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"Significant Subsidiary" shall mean any Subsidiary within the meaning
----------------------
of Section 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission.
"Stock Subscription Agreements" shall mean, collectively, the Common
-----------------------------
Stock Subscription Agreement dated as of December 19, 1994 between Perry and the
Company, and the Common Stock Subscription Agreements dated as of December 19,
1994 between each Co-Investor and the Company.
"Stockholders" shall mean Perry and the Co-Investors and their
------------
respective Permitted Transferees.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, association or other business entity of which fifty percent (50%)
or more of the total voting power of shares of capital stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof, or fifty percent (50%) or more of the
equity interest therein, is at the time owned or controlled, directly or
indirectly, by any Person or one or more of the other Subsidiaries of such
Person or a combination thereof.
"Third Party" shall mean any Person other than the Stockholders and
-----------
their Affiliates.
"Trademark License Agreement" means that certain Trademark License
---------------------------
Agreement attached to the Mutual Support Agreement as Exhibit A.
"Transfer" or "Transferred" shall mean any transfer, sale, assignment,
-------- -----------
exchange, mortgage, pledge, hypothecation or other disposition of any Common
Stock issued to Stockholders pursuant to the Stock Subscription Agreements or
any interest, whether legal or beneficial, therein.
4
<PAGE>
1.2 Other Definitional Provisions: Interpretation.
----------------------------------------------
(a) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(b) The headings in this Agreement are included for convenience
of reference only and shall not limit or otherwise affect the meaning or
interpretation of this Agreement.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(d) For purposes of comparing the beneficial ownership of any
Person on the date of execution and delivery of this Agreement to the level of
such ownership at any later time, the level of ownership on such later date
shall be adjusted to eliminate the effect of any subdivision of the Common
Stock, any combination of the Common Stock, any issuance of Common Stock by
reason of any reclassification (including, without limitation, any
reclassification in connection with a merger or consolidation), or any dividend
payable in Common Stock.
SECTION 2. VOTING AGREEMENTS
2.1 Election of Directors.
---------------------
(a) Each Stockholder hereby agrees that so long as this Agreement
shall remain in effect, such Stockholder shall take all actions, including but
not limited to voting all of the Class A Common Stock owned or held of record by
such Stockholder, so as to elect and, during such period, to continue in office
a Board of Directors of the Company and each Subsidiary of the Company
consisting solely of the following:
(i) with respect to the Boards of Directors of the Company,
Renaissance Greeting Cards, Inc. and each other direct or indirect
Subsidiary of the Company other than FTDI and Subsidiaries of FTDI (other
than Renaissance Greeting Cards, Inc.):
(A) 6 designees of Perry (each such designee of Perry a
"Perry Director");and
--------------
(B) 3 designees of Bain (each such designee of Bain a
"Co-Investor Director")
--------------------
(ii) with respect to the Boards of Directors of FTDI and
each Subsidiary of FTDI other than Renaissance Greeting Cards, Inc.:
(A) 6 designees of Perry (each such designee of Perry a
"Perry Director");
---------------
5
<PAGE>
(B) 2 designees of Bain (each such designee of Bain a
"Co-Investor Director"); and
--------------------
(C) 2 designees of FTD Association (each such designee of
FTD Association an "FTDA Director").
-------------
(b) If at any time during the period specified in paragraph (a)
above, the Company or any Subsidiary of the Company is required by applicable
law or the terms of any security issued by the Company to increase the size of
its Board of Directors, each Stockholder shall take all actions, including but
not limited to voting all of the Class A Common Stock owned or held of record by
such Stockholder, so as to insure that upon the election of such additional
director or directors, such Board of Directors shall consist of a majority of
directors designated by Perry.
(c) If at any time during the period specified in paragraph (a)
above, Perry or Bain (in either case, based on the action of holders of a
majority of the shares of Common Stock beneficially owned by it) or FTD
Association shall notify in writing the others of its desire to remove, with or
without Cause, any director of the Company or any Subsidiary of the Company
previously designated by it, each Stockholder shall vote all of the Class A
Common Stock owned or held of record by it so as to remove such director. The
Stockholder delivering such notice of removal shall indemnify and hold harmless
each other Stockholder and its directors, officers, partners, stockholders,
agents and employees against any losses, claims, damages, liabilities and
expenses incurred in connection with such removal.
(d) If at any time during the period specified in paragraph (a)
above, any director previously designated by Perry, Bain or FTD Association
ceases to serve on the Board of Directors of the Company or any Subsidiary of
the Company (whether by reason of death, resignation, removal or otherwise),
such party or FTD Association who designated such director shall be entitled to
designate a successor director to fill the vacancy created thereby.
(e) The parties hereto hereby agree that any individual designated as
a director of the Company may be removed for Cause with or without the consent
of the party or FTD Association which designated such individual. No such
removal of an individual designated pursuant to this Section 2.1 shall affect
any of the rights to designate a different individual pursuant to this Section
2.1.
(f) Each duly designated committee of the Board of Directors of the
Company or any Subsidiary shall consist of at least one Perry Director and at
least one Co-Investor Director. Such committees may make recommendations to
their respective Boards of Directors but shall not have the authority to act in
lieu of their respective Boards of Directors.
(g) For so long as Fleet shall own at least thirty-five percent of
the Common Stock owned by Fleet on the Closing Date, Fleet shall have the right
to have one individual who is an employee of Fleet attend meetings of the Board
of Directors (the "Observer"). The Observer shall not have any right to vote on
or participate in any matter presented to the Board. The Company shall give
notice of each meeting of the Board to the Observer in the same manner as was
given to the directors. The Observer shall keep confidential
6
<PAGE>
any information or materials observed at any such meeting. The Observer may at
the election of a majority of Members of the Board of Directors be excluded from
any deliberations or discussions of the Board if and to the extent that the
presence of such Observer would reasonably be expected to result in the waiver
of attorney client privilege. The Observer, if any, shall be entitled to the
reimbursement of expenses for attendance at Board meetings, in the same manner
as are Directors.
2.2 Certain Actions.
---------------
(a) Supermajority Vote. The affirmative vote of at least a
------------------
majority of the members of the Board of Directors of the Company or a Subsidiary
of the Company, as the case may be, which majority shall include at least two
Designated Perry Directors and at least two Co-Investor Directors, shall be
required with respect to any of the following transactions, except as otherwise
provided in this Agreement or required by applicable law:
(i) amendment of the Certificate of Incorporation or
By-Laws of the Company or any Significant Subsidiary of the Company;
(ii) any increase or decrease in the number of
directors of the Company or any Significant Subsidiary of the Company;
(iii) (A) any recapitalization of the Company or any
issuance or sale by the Company or any Significant Subsidiary of the
Company of any of its equity or debt securities (whether by public
offering, private placement or otherwise), provided that this provision
shall not apply to (1) any issuance of shares of Common Stock in connection
with an employee benefit plan or employment agreement (so long as the
aggregate number of shares of Common Stock issued or issuable in connection
with all such plans and agreements does not exceed 15% of the then
outstanding shares of Common Stock), (2) any FTD Member Offering, (3) any
issuance of securities in connection with warrants issued in connection
with the Indenture or (4) any exchange of Class B Common Stock for Class A
Common Stock in connection with a Tag-Along Sale or (B) any incurrence of
any long-term indebtedness (including guarantees of such indebtedness) by
the Company or any Significant Subsidiary (other than debt incurred under
or pursuant to the Credit Agreement (defined below) or the Indenture
(defined below)) which is not reflected in the annual operating budget and
which exceeds $10,000,000 in the aggregate at any one time outstanding;
(iv) the registration by the Company or any Subsidiary
of the Company of any of its securities pursuant to the Securities Act in
connection with any public offering of such securities, except for any such
registration made (A) pursuant to Section 4 hereof, (B) in connection with
the issuance of securities which are subject to the proviso in clause
2.2(a) (iii) above, (C) pursuant to the Registration Rights Agreement,
dated as of the Closing Date, among the Company, FTD Acquisition
Corporation, BT Securities Corporation and Montgomery Securities or (D) the
Securityholders' and Registration Rights Agreement, dated as of the Closing
Date (the "Security holders' and Registration Rights Agreement"), among the
---------------------------------------------------
Company, the Co-Investors, BT Securities Corporation and Montgomery
Securities;
7
<PAGE>
(v) except for (A) assets acquired in the ordinary
course of business and (B) capital assets acquired in accordance with the
Company's or any of its Significant Subsidiary's annual budget for capital
expenditures as reflected in the Company's or the Significant Subsidiary's
Board approved annual operating budget, the acquisition by the Company or
any Significant Subsidiary of the Company, by merger, consolidation or
otherwise, of assets or stock of any other Person exceeding an aggregate of
$4,000,000 in any fiscal year;
(vi) except for transactions between the Company and
any Significant Subsidiary or between Significant Subsidiaries, any merger,
consolidation or sale of the Company or any Significant Subsidiary of the
Company; any mortgage, lease or other disposition of any material amount of
assets of the Company or any Significant Subsidiary of the Company; or the
liquidation of the Company or any Significant Subsidiary of the Company;
provided, however, that the foregoing shall not apply to sales or transfers
of Common Stock to any Person in accordance with the terms of this
Agreement;
(vii) the declaration or payment of dividends or other
distributions to stockholders of the Company, except for the payment of any
dividend or distribution the declaration of which was previously approved
pursuant to this Section 2.2(a);
(viii) the repurchase, exchange or redemption by the
Company or any Subsidiary of the Company of any of its securities other
than (A) in connection with satisfying any of its obligations under an
employee benefit plan or employment agreement, (B) any required redemption
or exchange pursuant to the terms of the instrument governing any security
or (C) any exchange of Class B Common Stock for Class A Common Stock in
connection with a Tag-Along Sale;
(ix) except for transactions in the ordinary course of
business, transactions with Affiliates of the Company;
(x) the engagement by the Company or any Subsidiary of
the Company in any activity outside the ordinary course of its business (A)
which is not similar or related to an existing business or an extension
thereof that utilizes FTDI's distribution network, technology or
intellectual property and (B) which is material to the business of the
Company and its Subsidiaries, taken as a whole;
(xi) the making of any loan to Perry or any of its
Affiliates; and
(xii) any material refinancing or restructuring of the
indebtedness incurred under the Credit Agreement, dated as of the Closing
Date (the "Credit Agreement"), by and among Bankers Trust Company, as
----------------
agent, and the other banks listed on the signature pages thereto or the
Indenture, in each case which is reasonably likely to have an adverse
effect on the Company.
(b) Consent Matters. Prior to the submission of either of the
---------------
following matters for approval of the Board of Directors of the Company or a
Subsidiary of the Company,
8
<PAGE>
as the case may be, such matter shall first be approved by each of Perry and
Bain, which approval shall not be unreasonably withheld, except as required by
applicable law:
(i) approval of each annual operating budget for the Company
and any Significant Subsidiary of the Company and of any material amendment
or modification thereof or material deviation therefrom; or
(ii) the appointment of the Chairman and Chief Executive Officer
of the Company and FTDI (it being understood that Bain hereby consents to
the appointment of Richard Perry as the initial Chairman of the Company and
FTDI and Richard Boyce as the Chief Executive Officer of FTDI).
On or prior to the Closing Date, the Company shall adopt by-laws incorporating
the provisions of Section 2.2(a) and 2.2(b), and such incorporating provisions
of the by-laws shall not be amended without the affirmative vote of at least two
Designated Perry Directors and at least two Co-Investor Directors.
(c) Notwithstanding anything to the contrary contained herein, any
determination by the Board of Directors of whether to purchase the Common Stock
of a Section 3.7 Selling Stockholder (as defined) shall only require the
affirmative vote of (i) a majority of the Co-Investor Directors if Perry is the
Section 3.7 Selling Stockholder and (ii) a majority of the Designated Perry
Directors if any Co-Investor is the Section 3.7 Selling Stockholder.
(d) Except as provided in Section 3.7, any purchase, redemption or
exchange by the Company of Common Stock held by any of the Co-Investors, their
Affiliates or Permitted Transferees shall be offered to each of them pro rata
among all Co-Investors, their Affiliates and their Permitted Transferees.
2.3 Other Voting Matters. The Company has previously furnished to the
--------------------
Stockholders copies of its Certificate of Incorporation and By-Laws, each as
in effect on the date hereof (the "Charter Documents"). From and after the
-----------------
Closing Date, each Stockholder shall vote its shares of Common Stock, at any
regular or special meeting of stockholders of the Company or in any written
consent executed in lieu of such a meeting of stockholders, in either case in
accordance with the vote of the Directors designated by such Stockholder, and
shall take all actions necessary, to ensure that the Charter Documents do not,
at any time, conflict with the provisions of this Agreement.
SECTION 3. TRANSFERS AND ISSUANCES
3.1 Limitations on Transfer.
-----------------------
(a) Each Stockholder hereby agrees that, except for Transfers
effected pursuant to an effective registration statement filed under the
Securities Act, no Transfer shall occur unless the Company has been furnished
upon its request with an opinion, in form and substance reasonably satisfactory
to the Company, of counsel reasonably satisfactory to the Company that such
Transfer is exempt from the provisions of Section 5 under the Securities Act.
9
<PAGE>
(b) Each Stockholder hereby agrees that except for Transfers in
connection with a Public Offering, Transfers pursuant to the registration rights
granted under Section 4 and, following a Public Offering, Transfers pursuant to
Rule 144 or Rule 144A under the Securities Act, no Transfer shall occur unless
the transferee shall agree to become a party to, and be bound to the same extent
as its transferor by the terms of this Agreement pursuant to the provisions of
Section 5.7.
(c) No Transfer (other than to a Permitted Holder) shall be made by
such Stockholder or any of its Affiliates to any Person (including to any Person
who is part of any Group which includes the proposed transferee) who, after due
inquiry (which shall include a signed letter from such transferee which contains
representations from such transferee that the proposed transfer will not violate
this Section 3.1(c) (i)), would beneficially own Voting Stock (as defined in the
Indenture) of the Company of more than 35% of the total outstanding Voting Stock
of the Company (assuming the conversion of all Class B Common into Class A
Common Stock) and (ii) no Transfer shall be made by such Stockholder or any of
its Affiliates to any Person which would cause a Change of Control Event (as
defined in the Credit Agreement) to occur under the Credit Agreement (assuming
the conversion of all Class B Common Stock into Class A Common Stock.
3.2 Transfers to Affiliates. Notwithstanding any other provision of this
-----------------------
Agreement to the contrary, each Initial Investor and its Affiliates (but not any
other Permitted Transferee of any thereof) shall be entitled from time to time,
without compliance with any of the procedures specified in Section 3.5, or 3.7,
to Transfer any or all of the Common Stock beneficially owned by it to any of
its Affiliates who agree to become a party to, and be bound to the same extent
as its transferor by the terms of, this Agreement. Any Transfer by any Initial
Investor to its partners of any or all of the Common Stock beneficially owned by
it (including a distribution of such Common Stock to such Initial Investor's
partners upon a liquidation of such Initial Investor or otherwise) shall be
deemed to be a Transfer to Affiliates of such Initial Investor for purposes of
this Section 3.2.
3.3 Effect of Void Transfers. In the event of any purported Transfer of
------------------------
any Common Stock in violation of the provisions of this Agreement, such
purported Transfer shall be void and of no effect and the Company shall not give
effect to such Transfer.
3.4 Legend on Common Stock. Each certificate representing Common Stock
----------------------
issued to any Stockholder shall bear the following legend on the face thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS' AGREEMENT AMONG PERRY ACQUISITION PARTNERS, L.P., BAIN
CAPITAL FUND IV, L.P., BAIN CAPITAL FUND IV-B, L.P., INFORMATION PARTNERS
CAPITAL FUND, L.P., BCIP ASSOCIATES, BCIP TRUST ASSOCIATES, L.P., FLEET
GROWTH RESOURCES, INC., CHISHOLM PARTNERS II, L.P., TURNBERRY PARTNERS,
L.P., RANDOLPH STREET PARTNERS AND THE COMPANY, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
STOCKHOLDERS'
10
<PAGE>
AGREEMENT AND (A) PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN
FURNISHED UPON ITS REQUEST WITH AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
STOCKHOLDERS' AGREEMENT, INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF
ANY VOTING RIGHTS GRANTED BY THE SECURITIES."
3.5 Tag-Along Rights.
----------------
(a) With respect to any proposed Transfer, or related series of
proposed Transfers (other than as provided in Section 3.2 or 3.6), by Perry and
its Affiliates (in such capacity, a "Transferring Stockholder") of Class A
------------------------
Common Stock at any time after the Transferring Stockholder has Transferred more
than 5% of the Class A Common Stock initially held by Perry on the Closing Date
(excluding for the purposes of such calculation, Transfers made pursuant to
Sections 3.2, 3.6 and if to any Stockholder or its Affiliates, 3.7), the
Transferring Stockholder shall have the obligation, and each of the other
Stockholders shall have the right, to require the proposed transferee to
purchase (a "Tag-Along Sale") from such Stockholder (in such capacity, a
--------------
"Tagging Stockholder") out of the total number of shares of Common Stock
- --------------------
proposed to be acquired in the Tag-Along Sale the same proportion of the number
of shares of Common Stock to be sold pursuant to the Tag-Along Sale as the total
number of shares of Common Stock held on the date of sale by such Tagging
Stockholder bears to the total number of shares of Common Stock of held on such
date by the Transferring Stockholder and all Tagging Stockholders and all other
Persons exercising similar "tag-along" rights pursuant to contractual
commitments of the Company, and at the same price and upon the same terms and
conditions (including without limitation time of payment and form of
consideration) as to be paid and given to the Transferring Stockholder. All
shares of Common Stock for purposes of this Section shall be treated as if they
were a single class.
(b) The Transferring Stockholder shall give notice to the other
Stockholders of each proposed Tag-Along Sale at least 30 days prior to the
proposed consummation of such Tag-Along Sale, setting forth the number of shares
of Common Stock proposed to be sold pursuant to the Tag-Along Sale, the name and
address of the proposed transferee, the proposed amount and form of
consideration and other terms and conditions of payment offered by the proposed
transferee, and a representation that the proposed transferee has been informed
of the tag-along rights provided for in this Section 3.5 and has agreed to
purchase Common Stock in accordance with the terms hereof. The tag-along rights
provided by this Section 3.5 must be exercised by the Tagging Stockholder within
15 days following receipt of the notice required by the preceding sentence, by
delivery of a written notice to the Transferring Stockholder indicating such
Tagging Stockholder's desire to exercise its rights and specifying the number of
shares of Common Stock it desires to sell. If the proposed transferee fails to
purchase Common Stock from the Tagging Stockholder which has properly exercised
its tag-along rights,
11
<PAGE>
then the Transferring Stockholder shall not be permitted to make the proposed
Transfer, and any such attempted Transfer shall be void and of no effect, as
provided in Section 3.3 hereof.
(c) If the Tagging Stockholder exercises its rights under
Section 3.5(a), the closing of the purchase of the Common Stock with respect to
which such rights have been exercised shall take place concurrently with the
closing of the sale of the Transferring Stockholder's Common Stock. No Transfer
shall occur pursuant to this Section 3.5 unless the transferee shall agree to
become a party to, and be bound to the same extent as its transferor by the
terms of, this Agreement and the transfer shall otherwise comply with the
provisions of Sections 3.1 and 5.7.
(d) If the proposed Tag-Along Sale is not consummated within 90
days of the expiration of the other Stockholders' tag-along rights with respect
to such Tag-Along Sale (as described herein), such Tag-Along Sale shall again be
subject to this Section 3.5.
3.6 Public Offerings, etc. The provisions of Sections 3.5 and 3.7
----------------------
shall not be applicable to offers and sales of Common Stock (i) in a Public
Offering, (ii) pursuant to the registration rights granted under Section 4,
(iii) following a Public Offering, pursuant to Rule 144 or Rule 144A under the
Securities Act or (iv) in an FTD Member Offering or other offering of securities
by the Company made solely to members of FTD Association.
3.7 Right of First Refusal.
----------------------
(a) Subject to the provisions of Section 3.1 and except as
provided in Sections 3.2 and 3.6, if any Stockholder (a "Section 3.7 Selling
-------------------
Stockholder")at any time intends to Transfer any Common Stock to a Third Party
- -----------
in a bona-fide arms-length transaction, the Section 3.7 Selling Stockholder
shall first give to the Company and the other Stockholders who are not
Affiliates of the Section 3.7 Selling Stockholder (the "Other Stockholders")
------------------
written notice (a "Seller's Notice") at least 75 days in advance of the proposed
---------------
Transfer (the "Notice Period"), stating the Section 3.7 Selling Stockholder's
-------------
intention to make such Transfer, the name of the proposed Third Party
transferee, the number of shares of Common Stock to be transferred (the "Offered
-------
Securities"), the proposed amount and form of consideration for the Offered
- ----------
Securities which the Section 3.7 Selling Stockholder is to be paid by the Third
Party (the "Offer Price") and the other material terms upon which such Transfer
-----------
is proposed.
(b) During the first 30 days of the Notice Period, the Company shall
have an irrevocable option to purchase (or to cause one or more of its
Significant Subsidiaries to purchase) all (but not less than all) of the Offered
Securities at the applicable Offer Price. The option of the Company under this
Section 3.7(b) shall be exercisable by written notice to the Section 3.7 Selling
Stockholder and each other Stockholder given on or before the 30th day of the
Notice Period.
(c) If after the 30th day of the Notice Period the Company has not
exercised its option to purchase all of the Offered Securities under Section
3.7(b), the Other Stockholders jointly shall have an irrevocable option to
purchase all (but not less than all) of the Offered Securities at the applicable
Offer Price. The option by the Other Stockholders shall be exercisable by
written notice to the Section 3.7 Selling Stockholder and each other Stockholder
given on or before the 45th day of the Notice Period. Each Other Stockholder
shall be entitled to
12
<PAGE>
purchase a portion of the Offered Securities equal to that percentage of the
Offered Securities determined by dividing the number of shares of Common Stock
owned by such Other Stockholder on such date by the total number of shares of
Common Stock owned by all Other Stockholders on such date (the "Other
-----
Stockholder's Proportionate Share"). To the extent that any such Other
- ---------------------------------
Stockholder does not subscribe for such Other Stockholder's Proportionate Share
of the Offered Securities, each Other Stockholder participating under this
Section 3.7(c) shall have an opportunity, exercisable by written notice to the
Section 3.7 Selling Stockholder (a "Supplemental Notice") during the remainder
-------------------
of the Notice Period, to purchase that portion of the Offered Securities not
purchased in an amount determined by dividing the number of additional shares of
Common Stock subscribed to by such participating Other Stockholder (as set forth
in its Supplemental Notice) by the total number of additional shares of Common
Stock subscribed to by all participating Other Stockholders (as set forth in
each of their respective Supplemental Notices) who elect to purchase the Offered
Securities not purchased or determined by such other method as such
participating Other Stockholders shall agree. Each of the Stockholders may
assign its rights as an Other Stockholder to any of its respective Affiliates;
provided, that such Affiliates shall comply with the provisions of Section 3.1
and Section 5.7.
(d) If at the end of the Notice Period the Company and the Other
Stockholders have not elected to exercise its or their option to purchase all of
the Offered Securities under this Section 3.7, the Section 3.7 Selling
Stockholder shall be free, for a period of 90 days from the expiration of the
Notice Period, to sell the Offered Securities to the Third Party transferee at a
price equal to or greater than the Offer Price (without modification of the form
or forms of consideration proposed other than to substitute cash (in the amount
of the fair market value of the non-cash consideration) for noncash
consideration) and on the same (or no more favorable to such Third Party) terms
as were contained in the Seller's Notice, provided that such Transfer complies
with the provisions of Section 3.1 and Section 5.7.
(e) If the Company or the Other Stockholders exercise its or their
option, as the case may be, under this Section 3.7, the closing of the purchase
of the Offered Securities with respect to which such option has been exercised
shall take place on the twentieth Business Day after the later of (i) the date
the Company or the Other Stockholders, as the case may be, give notice of such
exercise and the fair market value determination, as provided below, if any, is
completed and (ii) the expiration of such time as the Company or the Other
Stockholders, as the case may be, may reasonably require in order to comply with
applicable United States Federal and state laws and regulations, which in no
event shall be more than 60 days after the date specified in clause (i) of this
Section 3.7(e). The Other Stockholders shall be deemed to have given notice of
exercise on the earliest date on which the Offered Securities are fully
subscribed. Upon exercise by the Company or the Other Stockholders, as the case
may be, of its or their option under this Section 3.7, the Company or the
participating Other Stockholders, as the case may be, and the Section 3.7
Selling Stockholder shall be legally obligated to consummate the purchase
contemplated thereby and shall use their best efforts to make all necessary
filings and to secure any approvals required and to comply as soon as
practicable with all applicable United States Federal and state laws and
regulations in connection therewith. If any portion of the Offer Price is
proposed to be paid in a form other than cash, the Company or the participating
Other Stockholders, as the case may be, shall have the option to pay such
consideration in the form proposed or in an amount of cash equal to the fair
market value of such non-cash consideration. The fair market value of any non-
cash consideration shall be determined by the mutual agreement of the Company or
the participating Other Stockholders, as the case
13
<PAGE>
may be, and the Section 3.7 Selling Stockholder or, if they cannot so agree
within 20 Business Days after exercise of the option, by a nationally recognized
investment banking firm selected by the Company or the participating Other
Stockholders, as the case may be, and the Section 3.7 Selling Stockholder (which
investment banking firm shall be retained by, and the fees and expenses of which
shall be shared equally by, the Company or the participating Other Stockholders,
as the case may be, on the one hand, and the Section 3.7 Selling Stockholder on
the other hand).
(f) No Transfer shall occur pursuant to this Section 3.7 unless the
transferee shall agree to be bound to the same extent as its transferor by the
terms of this Agreement pursuant to the provisions of Section 3.1 and 5.7.
(g) No Stockholder may sell, assign, encumber or otherwise transfer
any Common Stock except in accordance with applicable laws and regulations
(including any applicable provisions of Regulation Y under the Bank Holding
Company Act of 1956, as amended).
SECTION 4. REGISTRATION RIGHTS
4.1 Demand Registration.
-------------------
(a) Registration Request. Subject to the provisions of Sections
--------------------
4.1(f) and 4.10, at any time and from time to time after the earlier of (i) the
Company's first Public Offering and (ii) the fourth anniversary of the Closing
Date, upon the written request to the Company and each other Stockholder (a
"Registration Request") of the holders of a majority of Securities held by
--------------------
Perry, its Affiliates and their Permitted Transferees, on the one hand, or
holders of a majority of the Securities held by the Co-Investors, their
Affiliates and their Permitted Transferees, on the other hand (in each case,
together with any other Co-Investor, its Affiliates and Permitted Transferees
joining in such request, a "Requesting Stockholder"), that the Company effect
----------------------
the registration under the Securities Act of all or part of the Securities owned
by such Requesting Stockholder, the Company will use its best efforts to effect
the registration under the Securities Act of such Securities and all other
Securities which the Company has been requested to register by any other
Stockholder by written request received by the Company within 20 days after the
giving of written notice of such Registration Request; provided, however, that
the Securities covered by any such Registration Request shall constitute not
less than five percent (5%) of the aggregate number of shares of Common Stock
outstanding on a fully diluted basis at the time of the Registration Request.
No other securities of the Company except Securities held by any other
Stockholder and securities held by Persons entitled to exercise "piggy-back"
registration rights pursuant to contractual commitments of the Company shall be
included in a registration under this Section 4.1.
(b) Priority in Demand Registration. In a registration pursuant to
-------------------------------
this Section 4.1 involving an underwritten offering, if the managing underwriter
of such underwritten offering shall inform the Company and the relevant
Stockholders by letter of its belief that the Securities to be included in such
registration would adversely affect the ability to effect such offering, then
the Company will be required to include in such registration only that number of
Securities which it is so advised should be included in such offering. In such
event, securities of the Company shall be registered in such offering as
follows: (i) first, the Securities of the
14
<PAGE>
Requesting Stockholder, its Affiliates and their Permitted Transferees (pro rata
based on the amount of Securities sought to be registered by such Persons), (ii)
second, the Securities of Stockholders and their respective Affiliates and
Permitted Transferees which have been requested to be included in such
registration pursuant to Section 4.2 and the securities of Persons party to the
Stockholders' and Registration Rights Agreement which have been requested to be
included in such registration pursuant to the Stockholders' and Registration
Rights Agreement (pro rata based on the amount of securities sought to be
registered by such Persons), and (iii) third, the securities of other Persons
entitled to exercise "piggy-back" registration rights pursuant to other
contractual commitments of the Company (pro rata based on the amount of
securities sought to be registered by such Persons).
(c) Registration Statement Form. Registrations under this Section
---------------------------
4.1 shall be on such appropriate registration form of the SEC (i) as shall be
selected by the Company and (ii) as shall permit the disposition of the
Securities being registered in accordance with the intended method or methods of
disposition specified in the request for such registration. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the underwriters, the Requesting Stockholder and the
Company, is required to be included.
(d) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 4.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective and
the Requesting Stockholder, its Affiliates and its Permitted Transferees have
sold at least seventy-five percent (75%) of the Securities included by them in
such registration statement, or (ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other Governmental Authority for any reason not
attributable to the Requesting Stockholder or any of its Affiliates and has not
thereafter become effective.
(e) Limitations on Demand Registrations. Notwithstanding anything
-----------------------------------
in this Section 4.1 to the contrary, in no event will (i) the Company be
required to effect more than one registration pursuant to Section 4.1(a) within
any 360-day period, (ii) Perry, its Affiliates and their Permitted Transferees
be entitled to more than five registrations pursuant to Section 4.1(a) or (iii)
the Co-Investors, their Affiliates and their Permitted Transferees be entitled
to more than three registrations pursuant to Section 4.1(a), unless in the case
of each of clauses (ii) and (iii) above, such Requesting Stockholder agrees to
pay all of the costs and expenses of each such additional registration (other
than costs and expenses which relate to or are caused by any registration
effected as a result of Section 4) (unless either (x) a registration so
requested is not effected for a reason not attributable to the Requesting
Stockholder or any of its Affiliates or (y) the amount of Securities sought to
be included by such Requesting Stockholder in such registration is reduced by
more than 25% pursuant to the provisions of Section 4.1 (b)).
(f) First Demand Registration. If no prior registration has been
-------------------------
effected by the Company pursuant to a Registration Request on behalf of Perry,
its Affiliates and their Permitted Transferees under this Section 4.1, and the
Co-Investors, their Affiliates and their Permitted Transferees deliver a
Registration Request to the Company under this Section 4.1, then Perry, its
Affiliates and their Permitted Transferees shall have 45 days after the
Company's and Perry's receipt of the Registration Request previously delivered
by the Co-Investors, their Affiliates and their Permitted Transferees (the
"Advance Demand Notice Period") to elect to
----------------------------
15
<PAGE>
deliver a Registration Request; provided, however, that if the Co-Investors'
Registration Request is delivered prior to the fifth anniversary of the Closing
Date, the Advance Demand Notice Period shall expire on the later of 45 days
after the Company's and Perry's receipt of the Registration Request delivered by
the Co-Investors, their Affiliates and their Permitted Transferees and the fifth
anniversary of the Closing Date; provided further, that in order to preserve its
rights under this paragraph (f), Perry shall use all reasonable efforts to file
and have the registration statement relating thereto declared effective by the
later of the fifth anniversary of the Closing Date and 180 days after the
delivery of the Registration Request. If Perry elects to deliver a Registration
Request during the Advance Demand Notice Period, then the Registration Request
previously delivered by the Co-Investors, their Affiliates and their Permitted
Transferees shall be deemed to have been withdrawn and the Co-Investors shall
not be deemed to have exercised a demand registration right and shall have no
rights with respect to Perry's Registration Request other than pursuant to
Section 4.2. If Perry does not elect to deliver a Registration Request during
the Advance Demand Notice Period and the Co-Investors, their Affiliates and
their Permitted Transferees withdraw their Registration Request, (i) the
provisions of this Section 4.1(f) shall remain in full force and effect and (ii)
for purposes of Section 4.1(e), the Company shall be deemed to have effected a
registration on behalf of the Co-Investors, their Affiliates and their Permitted
Transferees, unless such withdrawal was the result of the occurrence of facts or
circumstances which have a material adverse effect on the ability of the Co-
Investors or any underwriter to consummate the sale of the shares covered by the
Co-Investors' Registration Request, which facts and circumstances were unknown
to any of such Co-Investors at the time of making the Registration Request.
4.2 Incidental Registration.
-----------------------
(a) Right to Include Securities. After the first Public Offering,
---------------------------
if the Company at any time proposes or is requested to register any shares of
Common Stock under the Securities Act (except registrations on such form(s)
solely for registration of Common Stock in connection with any employee benefit
plan or dividend reinvestment plan or a merger or consolidation), including
registrations pursuant to Section 4.1(a), whether or not for sale for its own
account, it will each such time as soon as practicable give written notice of
its intention to do so to the Stockholders. Upon the written request (which
request shall specify the total amount of Securities intended to be disposed of
by such Stockholder) of any Stockholder made within 30 days after the receipt of
any such notice (15 days if the Company gives telephonic notice with written
confirmation to follow promptly thereafter, stating that (i) such registration
will be on Form S-3 and (ii) such shorter period of time is required because of
a planned filing date), the Company will use its best efforts to effect the
registration under the Securities Act of all Securities held which the Company
has been so requested to register for sale in the manner initially proposed by
the Company. If the Company thereafter determines for any reason not to register
or to delay registration of the Securities, the Company may, at its election,
give written notice of such determination to the Stockholders and (i) in the
case of a determination not to register, shall be relieved of the obligation to
register such Securities in connection with such registration, without
prejudice, however, subject to any right a Requesting Stockholder may have to
request that such registration be effected as a registration under Section
4.1(a) and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Securities of a Stockholder for the same
period as the delay in registration of such other securities. No registration
effected under this Section 4.2(a) shall relieve the Company of any obligation
to effect a registration upon a Registration Request under Section 4.1(a).
16
<PAGE>
(b) Priority in Incidental Registration. In a registration
-----------------------------------
pursuant to this Section 4.2 (and not involving a Registration Request)
involving an underwritten offering, if the managing underwriter of such
underwritten offering shall inform the Company and the relevant Stockholders by
letter of its belief that the amount of Securities to be included in such
registration would adversely affect the ability to effect such offering, then
the Company will be required to include in such registration only the amount of
securities which it is so advised should be included in such offering. In such
event: (x) in cases initially involving the registration for sale of Common
Stock for the Company's own account, securities shall be registered in such
offering as follows: (i) first, the shares of Common Stock which the Company
proposes to register, (ii) second, the Securities which have been requested to
be included in such registration pursuant to this Section 4.2 and the securities
of Persons party to the Stockholders' and Registration Rights Agreement which
have been requested to be included in such registration pursuant to the
Stockholders' and Registration Rights Agreement (pro rata based on the amount of
securities sought to be registered by such Persons), (iii) third, the securities
of other Persons entitled to exercise "piggy-back" registration rights pursuant
to contractual commitments of the Company (pro rata based on the amount of
securities sought to be registered by such Persons); and (y) in cases not
initially involving the registration for sale of Common Stock for the Company's
own account, securities shall be registered in such offering as follows: (i)
first, the securities of any Person whose exercise of a "demand" registration
right pursuant to a contractual commitment of the Company is the basis for the
registration, (ii) second, the Securities of Stockholders which have been
requested to be included in such registration pursuant to this Section 4.2 and
the securities of Persons party to the Stockholders' and Registration Rights
Agreement which have been requested to be included in such registration
pursuant to the Stockholders' and Registration Rights Agreement (pro rata based
on the total amount of securities sought to be registered by such Persons),
(iii) third, securities of other Persons entitled to exercise "piggy-back"
registration rights pursuant to contractual commitments (pro rata based on the
amount of securities sought to be registered by such Persons) and (iv) fourth,
the shares of Common Stock which the Company proposes to register.
4.3 Registration Procedures. In connection with the Company's
-----------------------
obligations pursuant to Sections 4.1 and 4.2 hereof, the Company will use its
best efforts to effect such registration and the Company will promptly (subject
to Section 4.1(f)):
(a) prepare and file with the SEC as soon as practicable after
request for registration hereunder the requisite registration statement to
effect such registration and use its best efforts to cause such registration
statement to become effective and to remain continuously effective until the
earlier to occur of (x) 180 days following the date on which such registration
statement is declared effective or (y) the termination of the offering being
made thereunder.
(b) prepare and file with the SEC 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 and to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such securities have
been sold or such lesser period of time as the Company, any seller of such
securities or any underwriter is required under the Securities Act to deliver a
17
<PAGE>
prospectus in accordance with the intended methods of disposition by the sellers
of such securities set forth in such registration statement or supplement to
such prospectus;
(c) furnish to each Stockholder which owns securities covered by
such registration state ment (the "Selling Stockholders") and the managing
--------------------
underwriter, if any, at least one executed original of the registration
statement and such number of conformed copies of such registration statement and
of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the Securities
Act, as may reasonably be requested by such Selling Stockholder;
(d) use its best efforts (i) to register or qualify all
securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions where an exemption is not available as the
Selling Stockholders shall reasonably request, (ii) to keep such registration or
qualification in effect for so long as such registration statement remains in
effect and (iii) to take any other action which may be reasonably necessary or
advisable to enable the Selling Stockholders to consummate the disposition in
such jurisdictions of such securities; provided that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified, subject itself to taxation in any such jurisdiction or take
any action which would subject it to general service of process in any such
jurisdiction;
(e) notify the Selling Stockholders and the managing underwriter,
if any, promptly, and confirm such advice in writing (i) when a registration
statement, prospectus or any prospectus supplement or post-effective amendment
has been filed, and, with respect to a registration statement or any post-
effective amendment, when the same has become effective, (ii) of any request by
the SEC for amendments or supplements to a registration statement or related
prospectus or for additional information, (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of a registration statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any of the registered securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event or information becoming known which requires the making
of any changes in a registration statement or related prospectus so that such
documents will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, (vi) of the Company's reasonable
determination that a post-effective amendment to a registration statement would
be appropriate and (vii) if at any time the representations and warranties of
the Company made as contemplated by Section 4.4 cease to be true and correct;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the lifting
of any suspension of the qualification of any of the registered securities for
sale in any jurisdiction, at the earliest possible moment;
(g) upon the occurrence of any event contemplated by clause (e)
(v) above, prepare a supplement or post-effective amendment to the applicable
registration statement or related prospectus or any document incorporated
therein by reference or file any other required
18
<PAGE>
document so that, as thereafter delivered to the purchasers of the securities
being sold thereunder, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(h) use its best efforts to furnish to the Selling Stockholders a
signed counterpart, addressed to the Selling Stockholders and the underwriters,
if any, of (A) an opinion of counsel for the Company, and (B) a "comfort"
letter, signed by the independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, in the
case of the accountant's letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities (and dated the dates such opinions and comfort
letters are customarily dated) and, in the case of the accountant's letter, such
matters, and in the case of the legal opinion, such other legal matters, as the
Selling Stockholders or the underwriters may reasonably request;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Stockholders an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 promulgated thereunder, no later than 90 days after the end of
any 12-month period beginning after the effective date of a registration
statement pursuant to which Securities are sold, which statement shall cover
such 12-month period;
(j) cooperate with the Selling Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Securities to be sold; and enable such Securities to
be in such denominations and registered in such names as the Selling
Stockholders or the managing underwriters, if any, may request at least two
Business Days prior to any sale of Securities to the underwriters;
(k) use its best efforts to cause the Securities covered by the
applicable registration statement to be registered with or approved by such
other Governmental Authorities as may be necessary to enable the Selling
Stockholder(s) or the underwriters, if any, to consummate the disposition of
such Securities;
(l) cause all Securities covered by the registration statement to
be listed on each securities exchange, if any, on which any securities of the
same class as the Securities are then listed if requested by the managing
underwriters, if any, or the holders of a majority of the Securities covered by
the registration statement and entitled hereunder to be so listed;
(m) cooperate and assist in any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD") and in the
----
performance of any due diligence investigation by any underwriter (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD);
(n) as soon as practicable prior to the filing of any document
which is to be incorporated by reference into the registration statement or the
prospectus (after initial
19
<PAGE>
filing of the registration statement) provide copies of such document to counsel
to the Selling Stockholders and to the managing underwriters, if any, and make
the Company's representatives available for discussion of such document and
consider in good faith making such changes in such document prior to the filing
thereof as counsel for such Selling Stockholders or underwriters may reasonably
request;
(o) provide and cause to be maintained a transfer agent and
registrar for all Securities covered by such registration statement from and
after a date not later than the effective date of such registration statement;
(p) enter into such agreements and take such other actions as the
Selling Stockholders holding 51% of the shares so to be sold shall reasonably
request in order to expedite or facilitate the disposition of such Securities;
and
(q) use its best efforts to provide a CUSIP number for the
Securities, not later than the effective date of the registration statement.
The Company may require each Selling Stockholder to furnish to the
Company such information regarding such Selling Stockholder and the distribution
of such securities as the Company may from time to time reasonably request in
writing in order to comply with the Securities Act.
The Selling Stockholders agree that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.3(e) (ii), (iii), (iv), (v) or (vi) hereof, they will forthwith discontinue
disposition pursuant to such registration statement of any Securities covered by
such registration statement or prospectus until their receipt of the copies of
the supplemented or amended prospectus relating to such registration statement
or prospectus or until they are advised in writing by the Company that the use
of the applicable prospectus may be resumed (and the period of such
discontinuance shall be excluded from the calculation of the period specified in
clause (x) of Section 4.3(a)) and, if so directed by the Company, will deliver
to the Company (at the Company's expense, except as otherwise provided in
Section 4.1(e)) all copies, other than permanent file copies then in their
possession, of the prospectus covering such securities in effect at the time of
receipt of such notice. The Selling Stockholders agree to furnish the Company a
signed counterpart, addressed to the Company and the underwriters, if any, of an
opinion of counsel for the Selling Stockholders covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) as are customarily covered in opinions of selling stockholder's counsel
delivered to the underwriters in underwritten public offerings of securities
(and dated the dates such opinions are customarily dated) and such other legal
matters as the Company or the underwriters may reasonably request.
4.4 Underwritten Offerings.
----------------------
(a) Demand Underwritten Offerings. In any underwritten offering
-----------------------------
pursuant to a registration requested under Section 4.1, the Company will use its
best efforts to enter into an underwriting agreement for such offering with the
underwriters selected by the Requesting Stockholder, such agreement and
underwriters to be reasonably satisfactory in form and substance to the Company,
the Requesting Stockholder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally
20
<PAGE>
prevailing in agreements of that type. The Selling Stockholders who hold
Securities to be distributed by such underwriters shall be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of them and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to their obligations. The Company may, at its option, require that any
or all of the representations and warranties by, and the other agreements on the
part of the Selling Stockholders to and for the benefit of such underwriters
shall also be made to and for the benefit of the Company with due regard to the
amount of Securities being sold by such Selling Stockholder and the nature of
such representations, warranties and agreements and the underwriting.
(b) Incidental Underwritten Offerings. If the Company at any time
---------------------------------
proposes to register any shares of its Common Stock under the Securities Act as
contemplated by Section 4.2 and such shares of Common Stock are to be
distributed by or through one or more underwriters, the Company and the Selling
Stockholders who hold Securities to be distributed by such underwriters in
accordance with Section 4.2 hereof shall be parties to the underwriting
agreement between the Company and such underwriters and may, at their option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of them and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to their obligations. The
Company may, at its option, require that any or all of the representations and
warranties by, and the other agreements on the part of the Selling Stockholders
to and for the benefit of such underwriters shall also be made to and for the
benefit of the Company with due regard to the amount of Securities being sold by
such Selling Stockholder and the nature of such representations, warranties and
agreements and the underwriting.
4.5 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Selling Stockholders, the
underwriters and their respective counsel and accountants the opportunity (but
such Persons shall not have the obligation) to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
SEC, and, to the extent practicable, each amendment thereof or supplement
thereto, and will give each of them such access to its books and records (to the
extent customarily given to the underwriters of the Company's securities), and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have certified its financial statements
as shall be necessary, in the opinion of the Selling Stockholders' and the
underwriters' respective outside counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
4.6 Limitations, Conditions and Qualifications to Obligations under
---------------------------------------------------------------
Registration Covenants. The obligations of the Company to use its best efforts
- ----------------------
to cause Securities to be registered under the Securities Act are subject to
each of the following limitations, conditions and qualifications:
(a) The Company shall be entitled to postpone for a reasonable
period of time the filing or effectiveness of, or suspend the rights of Selling
Stockholders to make sales
21
<PAGE>
pursuant to, any registration statement otherwise required to be prepared, filed
and made and kept effective by it hereunder (but the duration of such
postponement or suspension may not exceed the earlier to occur of (A) 15 days
after the cessation of the circumstances requiring such postponement or
suspension as described below or (B) 120 days after the date of the
determination of the Board of Directors referred to below, and the duration of
such postponement or suspension shall be excluded from the calculation of the
period specified in clause (x) of Section 4.3(a)) if the Board of Directors of
the Company determines in good faith that the filing or effectiveness of, or
sales pursuant to, such registration statement would impede, delay or interfere
with any financing, offer or sale of securities, acquisition, corporate
reorganization or other significant transaction involving the Company or any of
its affiliates or require disclosure of material information which the Company
has a bona fide business purpose for preserving as confidential. If the Company
shall so delay the filing of a registration statement, it shall, as promptly as
possible, notify the Selling Stockholders of such determination, and the Selling
Stockholders shall have the right (y) in the case of a postponement of the
filing or effectiveness of a registration statement, to withdraw the request for
registration by giving written notice to the Company within 10 days after
receipt of the Company's notice or (z) in the case of a suspension of the right
to make sales, to receive an extension of the registration period equal to the
number of days of the suspension.
(b) The Company shall not be required hereby to include
Securities in a registration statement if, in the written opinion of outside
counsel to the Company of recognized standing in securities law matters, the
beneficial owners of such Securities seeking registration would be free to sell
all of such Securities within the current calendar quarter without registration
under Rule 144 under the Securities Act.
(c) The Company's obligations shall be subject to the obligations
of the Selling Stockholders, which the Selling Stockholders acknowledge, to
furnish all information and materials and to take any and all actions as may be
required under applicable federal and state securities laws and regulations to
permit the Company to comply with all applicable requirements of the SEC and to
obtain any acceleration of the effective date of such registration statement.
(d) The Company shall not be obligated to cause any special audit
to be undertaken in connect.ion with any registration pursuant hereto unless
such audit is requested by the underwriters with respect to such registration.
4.7 Expenses. Except as otherwise provided in Section 4.1(e), the
--------
Company will pay all reasonable out-of-pocket costs and expenses incurred in
connection with each registration of Securities pursuant to this Agreement,
including, without limitation, the reasonable fees and disbursements of a single
firm of outside counsel retained by (i) in the case of a registration pursuant
to Section 4.1, the Requesting Stockholder and (ii) in the case of a
registration pursuant to Section 4.2, the Selling Stockholder(s) which
beneficially owns a majority of the total number of shares being registered by
Selling Stockholders (the "Majority Selling Stockholder"), and any and all
----------------------------
filing fees payable to the SEC, fees with respect to filings required to be made
with stock exchanges, the Nasdaq Stock Market and the NASD, fees and expenses of
compliance with state securities or blue sky laws (including reasonable fees and
disbursements of a single firm of outside counsel for the underwriters or the
Requesting Stockholder or the Majority Selling Stockholder, as the case may be,
in connection with blue sky
22
<PAGE>
qualifications of the Securities being registered and determination of its
eligibility for investment under the laws of such jurisdictions as the Selling
Stockholders may designate), printing expenses, fees and disbursements of
counsel and accountants of the Company, including costs associated with comfort
letters, and fees and expenses of other Persons retained by the Company, but
excluding underwriters' expenses (including discounts, commissions or fees of
underwriters and expenses included therein, selling brokers, dealer managers or
similar securities industry professionals relating to the distribution of the
securities being registered or legal expenses of any Person other than the
Company and the Selling Stockholders). The Company shall, in any event in all
cases, pay its internal expenses (including, witnout limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), and the expense of securities law liability insurance fees, if any.
4.8 Participation in Underwritten Registrations. No Stockholder may
-------------------------------------------
participate in any underwritten registration hereunder unless such Stockholder
(a) agrees to sell its securities on the basis provided in and in compliance
with any underwriting arrangements approved by the persons entitled hereunder to
approve such arrangements and to comply with Rules 10b-6 and l0b-7 under the
Exchange Act, and (b) completes and executes all questionnaires, appropriate and
limited powers of attorney, escrow agreements, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements; provided that all such documents shall be consistent
with the provisions hereof.
4.9 Rule 144. The Company hereby covenants that after it has filed
--------
(and such registration statement has become effective and Common Stock has been
sold pursuant thereto) a registration statement pursuant to the requirements of
Section 12 of the Exchange Act or a registration statement pursuant to the
requirements of the Securities Act in respect of Common Stock, the Company will
file in a timely manner all reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder (or, if the Company is not required to file such reports, it
will, upon the request of any Stockholder, make publicly available other
information so long as necessary to permit sales by such Stockholder under Rule
144 under the Securities Act) and will take such further action as any
Stockholder may reasonably request to the extent required from time to time to
enable such Stockholder to sell Securities under Rule 144 under the Securities
Act.
4.10 Holdback Agreements.
-------------------
(a) Each Stockholder agrees that, with respect to any
registration statement filed by the Company in connection with an underwritten
public offering, it shall not effect any public sale or distribution of equity
securities of the Company during the 30 days prior to or for a period of up to
120 days beginning on the effective date of such registration statement (except
as part of such registration) if and to the extent reasonably requested in
writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
(b) The Company agrees not to effect any primary public sale or
distribution of any equity securities of the Company during the 30 days prior to
and the 90-day period beginning on the effective date of any registration
statement in which any Stockholder is participating in connection with an
underwritten public offering of Securities if and to the extent
23
<PAGE>
reasonably requested in writing (with reasonable prior notice) by the managing
underwriter of the underwritten public offering.
4.11 Indemnification.
---------------
(a) Indemnification by the Company. In connection with any
------------------------------
registration pursuant hereto in which Securities are to be disposed of, the
Company shall indemnify and hold harmless, to the full extent permitted by law,
each holder of such Securities to be disposed of and, when applicable, its
officers, directors, stockholders, partners, agents and employees and each
Person who controls such holder (within the meaning of the Securities Act or the
Exchange Act) against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of a material fact contained in
any registration statement, prospectus or preliminary prospectus or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, including,
without limitation, any loss, claim, damage, liability or expense resulting from
the failure to keep a prospectus current, except insofar as the same (i) are
caused by or contained in any information relating to such holder furnished in
writing to the Company by such holder expressly for use therein or (ii) are
caused by such holder's failure to deliver a copy of the current prospectus
simultaneously with or prior to such sale after the Company has furnished such
holder with a sufficient number of copies of such prospectus correcting such
material misstatement or omission or (iii) arise in respect of any offers to
sell or sales made during any period when a holder is required to discontinue
sales under Section 4.3(e) (and after such holder has received the notice
contemplated by Section 4.3(e)). The Company shall also indemnify underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person
who controls such Persons (within the meaning of the Securities Act) to the same
extent as provided above with respect to the indemnification of the holders of
such Securities to be disposed of, and shall enter into an indemnification
agreement with such Persons containing such terms, if requested.
(b) Indemnification by Stockholders. In connection with each
-------------------------------
registration statement effected pursuant hereto in which Securities are to be
disposed of, each Selling Stockholder shall, severally but not jointly,
indemnify and hold harmless, to the full extent permitted by law, the Company,
the other Selling Stockholder and their respective directors, officers,
stockholders, partners, agents and employees and each Person who controls the
Company and the other Selling Stockholder (within the meaning of the Securities
Act or the Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of a material fact or any omission
of a material fact required to be stated in such registration statement or
prospectus or preliminary prospectus or necessary to make the statements therein
not misleading, to the extent, but only to the extent, that such untrue
statement or omission relates to such Selling Stockholder and is contained in
any information furnished in writing by such Selling Stockholder or any of its
Affiliates to the Company expressly for inclusion in such registration statement
or prospectus. In no event shall the liability of any Selling Stockholder
hereunder be greater in amount than the dollar amount of the proceeds actually
received by such Selling Stockholder upon the sale of the securities giving rise
to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any Person entitled
--------------------------------------
to indemnification hereunder shall give prompt notice to the indemnifying party
of any claim with
24
<PAGE>
respect to which it shall seek indemnification and shall permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (i) the
indemnifying party shall have agreed to pay such fees or expenses, or (ii) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (iii) in the opinion of
outside counsel to such Person there may be one or more legal defenses available
to such Person which are different from or in addition to those available to the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party because of a reason
described in clause (iii) above, the indemnifying party shall not have the right
to assume the defense of such claim on behalf of such Person). No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. No indemnified party shall consent to entry of any judgment
or enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party (or assumed by the indemnified party because of
a reason described in clause (iii) above) without the consent of such
indemnifying party. 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 firm of counsel (and, if necessary, local counsel) for
all parties indemnified by such indemnifying party with respect to such claim,
unless in the written opinion of outside counsel to an indemnified party a
conflict of interest as to the subject matter exists between such indemnified
party and another indemnified party with respect to such claim, in which event
the indemnifying party shall be obligated to pay the fees and expenses of
additional counsel for such indemnified party.
(d) Contribution. If for any reason the indemnification provided
------------
for herein is unavailable to an indemnified party or is insufficient to hold it
harmless as contemplated hereby, then the indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations;
provided that in no event shall the liability of any Selling Stockholder for
such contribution and indemnification exceed, in the aggregate, the dollar
amount of the proceeds received by such Selling Stockholder upon the sale of
securities giving rise to such indemnification and contribution obligation.
SECTION 5. MISCELLANEOUS
5.1 Excess Proceeds Sales; FTDA Member Offerings.
--------------------------------------------
(a) Upon Bain's or Fleet's (which shall include for the purposes
of this paragraph Bain's or Fleet's pro rata portion of any similar Transfer by
Randolph or its respective Affiliates) or any of its respective Affiliate's
Transfer of any Common Stock to any unaffiliated person, Bain or Fleet, as the
case may be, shall pay Perry the Excess Proceeds (defined below), if any, from
such Transfer; provided that Bain shall be released from its obligations
pursuant to this
25
<PAGE>
Section 5.1(a) at such time as it has paid Perry Excess Proceeds in an amount
equal to $333,333 and Fleet shall be released from its obligations pursuant to
this Section 5.1(a) at such time as it has paid Perry Excess Proceeds in an
amount equal to $166,666. "Excess Proceeds" shall mean the amount equal to (A)
---------------
the gross proceeds of a Transfer by Bain or Fleet (including Randolph) or any of
its respective Affiliates of Common Stock to an unaffiliated person less the
out-of-pocket expenses directly related to such Transfer (not including any
taxes associated with the sale or transfer) minus (B) the original amount paid
-----
for such Common Stock by Bain or Fleet, as the case may be, pursuant to a
Subscription Agreement; provided that if such amount is negative, the Excess
Proceeds shall equal zero. Any non-cash proceeds of a Transfer shall be valued
at their fair market value as mutually agreed by Bain or Fleet, as the case may
be, and Perry. Except with respect to a one-time transfer by Fleet to a newly
formed fund controlled by or under common control with Fleet Growth Resources,
Inc. and Chisholm Partners II, L.P. (which fund shall have investors and shall
engage in investments substantially similar to any of the Co-Investors), in the
event that Bain or Fleet as the case may be, has not fully satisfied its
obligation to pay Perry Excess Proceeds pursuant to this Section 5.1(a) at such
time as such person consummates a Transfer to an Affiliate which in the
aggregate with all other Transfers to Affiliates exceeds 35% of Bain or Fleet's
Common Stock acquired on the Closing Date, Bain or Fleet, as the case may be,
shall pay Perry the full amount of its obligation pursuant to this Section
5.1(a) less any Excess Proceeds previously paid by Bain or Fleet, as the case
may be.
(b) Each of Perry, Bain and Fleet (including pro rata
participation by Randolph in Bain's or Fleet's obligation in such) agree to
offer and sell 65%, 23.33% and 11.67%, respectively, of the shares of Class A
Common Stock of the Company to be sold pursuant to Sections 4.1 and 4.2 of the
Mutual Support Agreement to the extent that the Company elects not to issue the
shares offered with respect thereto.
5.2 Additional Securities Subject to Agreement. Each Stockholder
------------------------------------------
agrees that any Common Stock or other securities which it shall hereafter
acquire by means of a stock split, stock dividend, distribution or otherwise
(other than pursuant to a Public Offering) shall be subject to the provisions of
this Agreement to the same extent as if held on the date hereof.
5.3 Termination. This Agreement (other than the provisions of
-----------
Sections 3.5, 4 and 5.1) shall terminate, and thereby become null and void, on
the earliest of (i) the date on which Perry and the Co-Investors and their
respective Affiliates do not own in the aggregate at least 35% of the Common
Stock outstanding on a fully diluted basis, (ii) the date on which either Perry
and its Affiliates, on the one hand, or the Co-Investors and their Affiliates,
on the other hand, do not own in the aggregate at least 10% of the Common Stock
on a fully diluted basis or (iii) the ninth anniversary of the date hereof.
5.4 Injunctive Relief. The Stockholders acknowledge and agree that a
-----------------
violation of any of the terms of this Agreement will cause the Stockholders
irreparable injury for which adequate remedy at law is not available.
Accordingly, it is agreed that each Stockholder shall be entitled to an
injunction, restraining order or other equitable relief to prevent breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or
any state thereof, in addition to any other remedy to which they may be entitled
at law or equity.
26
<PAGE>
5.5 Other Stockholders' Agreements. Except as provided in the letter
------------------------------
between Fleet and Bain attached as Exhibit A hereto and the Securityholders' and
Registration Rights Agreement, no Stockholder shall enter into or agree to be
bound by any voting trust with respect to any shares of Common Stock held by it
nor shall any Stockholder enter into any stockholder agreement or other
arrangement of any kind with any Person with respect to Common Stock which is
inconsistent with the provisions of this Agreement or which may impair its
ability to comply with this Agreement, including but not limited to agreements
and arrangements with respect to the acquisition, disposition or voting of
Common Stock inconsistent herewith.
5.6 Amendments. This Agreement may be amended only by a written
----------
instrument signed by each of Perry, so long as it (or its Affiliates) owns
Securities and by Bain, so long as it (or its Affiliates) owns Securities, and
the Company.
5.7 Successors, Assigns and Transferees. The provisions of this
-----------------------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their Permitted Transferees and their respective successors, each of
which Permitted Transferees shall agree in a writing in form and substance
satisfactory to the Company and the owners of a majority of the Class A Common
Stock outstanding and owned by all Stockholders, to become a party hereto and be
bound to the same extent as its transferor hereby, provided that no rights
granted hereunder specifically to Perry and its Affiliates or the Co-Investors
and their Affiliates may be assigned to any Permitted Transferees thereof,
except as otherwise expressly set forth herein, and no Stockholder may assign to
any Permitted Transferee any of its rights hereunder other than in connection
with a Transfer to such Permitted Transferee of Securities in accordance with
the provisions of this Agreement.
5.8 Notices. All notices, requests, demands and other communications
-------
which are required or may be given hereunder shall be in writing and shall be
deemed to have been duly given upon the earlier of delivery if delivered
personally, or upon receipt if sent by registered or certified mail, return
receipt requested, postage prepaid, or on the second next business day after
deposit if sent by recognized overnight delivery service, or upon transmission
if sent by telecopy or facsimile transaction (with request of assurance of
receipt in a manner customary for communications of such type) as follows:
if to Perry or the Company, to:
Richard C. Perry
President
Perry Capital Corp.
245 Park Avenue
New York, New York 10167
Fax: (212) 272-7422
with a copy to:
Gary P. Cullen
Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
27
<PAGE>
Chicago, Illinois 60606
Fax: (312) 407-0411
if to the Co-Investors, to:
Marc Wolpow
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Fax: (617) 572-3274
and
Habib Y. Gorgi
Chisholm Partners II, L.P.
c/o Fleet Equity Partners
111 Westminster Street
Providence, Rhode Island 02903
Fax: (401) 278-6387
and
Habib Y. Gorgi
Fleet Growth Resources, Inc.
111 Westminster Street
Providence, Rhode Island 02903
Fax: (401) 278-6387
with copies to:
William S. Kirsch
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Fax: (312) 861-2200
and
Christopher D. Graham
Edwards & Angell
2700 Hospital Trust Tower
Providence, Rhode Island 02903
Fax: (401) 276-6625
5.9 Integration. This Agreement and the documents referred to herein
-----------
or delivered pursuant hereto, including the Stock Subscription Agreements,
contain the entire understanding of the parties with respect to the subject
matter hereof and thereof. There are no agreements, representations,
warranties, covenants or undertakings with respect to the subject
28
<PAGE>
matter hereof and thereof other than those expressly set forth herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
5.10 Severability. If one or more of the provisions, paragraphs,
------------
words, clauses, phrases or sentences contained herein, or the application
thereof in any circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision, paragraph, word, clause, phrase or sentence in every other respect
and of the remaining provisions, paragraphs, words, clauses, phrases or
sentences hereof shall not be in any way impaired, it being intended that all
rights, powers and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
5.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, and by different parties on separate counterparts each of which
shall be deemed an original, but all of which shall constitute one and the same
instrument.
5.12 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of Delaware without regard
to the conflicts of law principles thereof. The parties executing this
Agreement hereby agree to submit to the nonexclusive jurisdiction of the federal
and state courts located in the State of Delaware in any action or proceeding
arising out of or relating to this Agreement.
5.13 Confidentiality. Each Stockholder agrees to use, and to cause
---------------
its directors, officers, employees, agents and Affiliates to use, only in a
manner consistent with its status as a Stockholder and not in furtherance of any
other business purpose, any information which it or any of them may receive
from, or at the direction of, the Company or any Subsidiary with respect to the
financial condition or business operations of the Company or any Subsidiary, and
to hold such information in confidence, except for disclosures as required by
law, regulation or legal process or in accordance with the prior written consent
of the Company. The information subject to the restrictions set forth in this
paragraph shall not include, information which (i) becomes generally available
to the public other than as a result of a disclosure by any Stockholder, or any
of its directors, officers, employees, agents or Affiliates (other than the
Company or its Subsidiaries), (ii) was available to a Stockholder on a non-
confidential basis prior to its disclosure or (iii) becomes available to a
Stockholder on a non-confidential basis from a source other than the Company, a
Subsidiary or their representatives provided, that such source is not bound by a
confidentiality agreement with the Company, a Subsidiary or their
representatives.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PERRY CAPITAL CORP.
By: /s/ Richard Perry
--------------------------------------
Its: President
PERRY ACQUISITION PARTNERS, L.P.
By: PERRY INVESTORS, L.L.C.,
its general partner
By: /s/ Richard Perry
--------------------------------------
Its:
---------------------------------
BAIN CAPITAL FUND IV, L.P.
BAIN CAPITAL FUND IV-B, L.P.
INFORMATION PARTNERS CAPITAL
FUND, L.P.
BCIP ASSOCIATES
BCIP TRUST ASSOCIATES, L.P.
By: BAIN CAPITAL, INC., each of their
general partner
By: /s/
--------------------------------------
Its:
---------------------------------
RANDOLPH STREET PARTNERS
By: /s/
--------------------------------------
Its:
---------------------------------
30
<PAGE>
CHISHOLM PARTNERS II, L.P.
By: SILVERADO II, L.P., its
general partner
By: SILVERADO II CORP., its
general partner
By: /s/
--------------------------------------
Its: President
FLEET GROWTH RESOURCES, INC.
By: /s/
--------------------------------------
Its: President
TURNBERRY PARTNERS, L.P.
By: CHATHAM CAPITAL MANAGEMENT,
INC., its managing general partner
By: /s/ William P. Phelan
--------------------------------------
Its: President
31
<PAGE>
Exhibit 10.1
================================================================================
FORMATION AGREEMENT
between
FLORISTS' TRANSWORLD DELIVERY, INC.,
a Michigan corporation
and
ftd.com inc.,
a Delaware corporation
Dated as of May 19, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<C> <S> <C>
ARTICLE I CAPITAL CONTRIBUTION............................... 1
ARTICLE II TRANSFER OF ASSETS................................. 1
2.1 Transfer of Assets................................. 1
2.2 Retained Assets.................................... 3
2.3 Assignability and Consents......................... 4
2.4 Covenants of Further Assurance..................... 4
ARTICLE III ASSUMPTION......................................... 4
3.1 Assumption by ftd.com.............................. 4
3.2 Retained Liabilities............................... 4
3.3 Covenants of Further Assurance..................... 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES..................... 5
4.1 As Is.............................................. 5
4.2 Representations and Warranties of FTDI............. 5
4.3 Representations and Warranties of.................. 6
4.4 Survival of Representations and Warranties......... 6
ARTICLE V CERTAIN COVENANTS AND ASSURANCES................... 6
5.1 Cooperation by FTDI................................ 6
5.2 Cooperation by ftd.com............................. 7
5.3 Expenses........................................... 7
5.4 Filings............................................ 7
5.5 Bulk Transfer Laws................................. 7
5.6 Certain Payments................................... 7
ARTICLE VI POST-CLOSING COVENANTS............................. 7
ARTICLE VII CONDITIONS TO CLOSING.............................. 8
7.1 Conditions to the Obligations of ftd.com........... 8
7.2 Conditions to the Obligations of FTDI.............. 9
ARTICLE VIII MISCELLANEOUS...................................... 9
8.1 Schedules.......................................... 9
8.2 Amendments......................................... 9
8.3 Entire Agreement................................... 9
8.4 Governing Law...................................... 10
8.5 Notices............................................ 10
8.6 Transfer Taxes..................................... 10
8.7 Counterparts....................................... 10
8.8 Assignment......................................... 10
8.9 Waivers............................................ 10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.10 Third Parties...................................10
8.11 Headings........................................11
ii
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedules:
- ------------
<S> <C> <C>
2.1 -- Balance Sheet as of March 31, 1999
2.1.1 -- Personal Property
2.1.3 -- Contracts
2.1.4 -- Permits and Approvals
</TABLE>
iii
<PAGE>
FORMATION AGREEMENT
-------------------
This FORMATION AGREEMENT (this "Agreement") is dated as of May 19, 1999
between Florists' Transworld Delivery, Inc., a Michigan corporation ("FTDI"),
and ftd.com inc., a Delaware corporation ("ftd.com").
R E C I T A L S:
- - - - - - - -
A. FTDI has, as of May 19, 1999, formed ftd.com.
B. FTDI is engaged in, among other things, the business of offering
consumers the opportunity to place floral and specialty gift orders directly
with FTDI through FTDI's toll free telephone number (1-800-SEND-FTD) or its
online Internet site (www.ftd.com) (the "Direct Access Business").
C. FTDI has agreed to make a capital contribution to ftd.com of
substantially all of FTDI's assets, rights and interests (subject to certain
associated liabilities) relating to the Direct Access Business and reflected on
the Balance Sheet (as hereinafter defined) in exchange for one hundred percent
(100%) of ftd.com's Class B common stock and it is intended that such
transaction qualify as a tax-free transaction under Section 351 of the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants hereinafter set forth, and other good and valuable consideration had
and received, the parties agree as follows:
ARTICLE I CAPITAL CONTRIBUTION
-------------------------------
Upon the terms and subject to the conditions herein contained, FTDI hereby
transfers to ftd.com as a contribution to the capital of ftd.com, and ftd.com
hereby accepts and acquires from FTDI, the Acquired Assets (as hereinafter
defined), subject to the Assumed Liabilities (as hereinafter defined), effective
as of the date hereof (the "Effective Time"), in exchange for such number of
shares of Class B common stock that represent one hundred percent (100%) of the
issued and outstanding equity securities of ftd.com as of the Effective Time.
ARTICLE II TRANSFER OF ASSETS.
------------------------------
2.1 Transfer of Assets. Upon the terms and subject to the conditions
herein contained, except as otherwise provided in Section 2.2 hereof, effective
as of the Effective Time, FTDI hereby transfers to ftd.com as a contribution to
the capital of ftd.com, and ftd.com hereby accepts and acquires from FTDI, all
of FTDI's right, title and interest in and to all of the tangible and intangible
assets, rights and interests reflected on the unaudited balance sheet dated as
of March 31, 1999 of the Direct Access Business attached hereto as Schedule 2.1
(the "Balance Sheet") and owned, used or held by or for the benefit of FTDI,
solely to the extent of FTDI's interest therein and to the extent such assets,
rights and interests relate to the Direct Access Business (except to the extent
that any such assets have been disposed of by FTDI between the date of the
Balance Sheet and the Effective Time), wherever situated, including, without
limiting
<PAGE>
the generality of the foregoing, the following assets, rights and interests
(collectively, the "Acquired Assets"):
2.1.1 Tangible Personal Property. The equipment, machines, supplies,
furniture, tools, fixtures, vehicles and other items of tangible personal
property, including leased personal property, identified on Schedule 2.1.1,
solely to the extent such tangible personal property relates to the Direct
Access Business.
2.1.2 Third Party Warranties; Claims. All rights and benefits of FTDI
under any and all manufacturers' and third party warranties and service or
replacement programs, solely to the extent such warranties and programs relate
to the Direct Access Business, and all claims, demands, causes of action,
judgments and pending litigation of whatever nature as to which FTDI is a
claimant, plaintiff, judgment creditor, beneficiary or the like, including,
without limitation, all warranty or infringement claims against third-party
manufacturers or sellers relating to the conduct or operation of the Direct
Access Business, solely to the extent such claims, demands, causes of action,
judgments and pending litigation relate to the Direct Access Business.
2.1.3 Contracts. All rights and benefits of FTDI in, to or under
those licenses, contracts, leases of personal property, agreements, purchase
orders, commitments, undertakings and all other arrangements, whether oral or
written, and to which FTDI is a party or by which any of the Acquired Assets are
bound, solely to the extent such agreements and instruments relate to the Direct
Access Business, including, without limitation, the agreements and instruments
identified on Schedule 2.1.3 attached hereto (collectively, "Acquired
Contracts").
2.1.4 Permits and Approvals. All of the transferable licenses,
permits, approvals, variances, waivers or consents issued to FTDI by any United
States, state, county, local or foreign governmental entity or municipality or
subdivision thereof or any authority, department, commission, board, bureau,
agency, court or instrumentality, solely to the extent such licenses, permits,
approvals, variances, waivers and consents relate to the Direct Access Business,
including (to the extent transferable), without limitation, the licenses,
permits, approvals, variances, waivers or consents identified on Schedule 2.1.4,
and all rights of FTDI relating to any such license, permit, approval, variance,
waiver or consent.
2.1.5 Receivables. All accounts and notes receivable, other accrued
or future rights to receive money, unpaid interest accrued thereon, and any
security or collateral relating thereto, solely to the extent such receivables,
unpaid interest accrued thereon and any security or collateral relating thereto
relate to the Direct Access Business ("Accounts Receivables").
2.1.6 Prepaids. All prepaid expenses, advance payments, deposits,
surety accounts and other similar assets, solely to the extent such assets
relate to the Direct Access Business.
2.1.7 Cash and Cash Equivalents. All cash and cash equivalents
reflected on the Balance Sheet, solely to the extent such cash and cash
equivalents relate to the Direct Access Business and except to the extent that
FTDI disposed of any such cash or cash equivalents between the date of the
Balance Sheet and the Effective Time.
2
<PAGE>
2.1.8 Goodwill. The goodwill of FTDI solely related to the Direct
Access Business as a going concern.
2.2 Retained Assets. Notwithstanding any other provision of this
Agreement, the Acquired Assets shall not include, and FTDI shall, and hereby
does, retain all of FTDI's right, title and interest in and to all of the
tangible and intangible assets, rights and interest owned, used or held by or
for the benefit of FTDI, wherever situated, other than such of the foregoing to
the extent they relate to the Direct Access Business, including, without
limiting the severality of the foregoing, the following assets, rights and
interests (the "Retained Assets"):
(a) this Agreement;
(b) FTDI's ownership interest in ftd.com;
(c) the name "Florists' Transworld Delivery, Inc." or any
related or derivative name;
(d) FTDI's ownership interest in the trademarks, patents and
similar intellectual property, including the Universal Resource Locator
("URL"), www.ftd.com, to be licensed to ftd.com pursuant to the Trademark
License Agreement (the "Trademark License Agreement") to be dated as of the
date hereof by and between ftd.com and FTDI;
(e) the capital stock of any of FTDI's direct or indirect,
wholly or partially owned, subsidiaries and their respective assets,
properties and businesses;
(f) any and all assets, funds and properties (including without
limitation any such assets, funds or properties held in trust or any other
funding vehicle);
(g) Any cash or cash equivalent of, owned, or held by, FTDI not
transferred, assigned and conveyed to ftd.com pursuant to Section 2.1.7;
(h) FTDI's stock certificates, treasury stock, stock transfer
records, corporate seals and minute books;
(i) FTDI's federal income tax and information returns filed on
Form 1120S, its state and local income tax and information returns and
reports, and any tax supporting information related thereto;
(j) all assets, properties, rights and interests in, under or to
agreements, instruments or contracts relating to businesses, operations or
assets that immediately prior to the Effective Time (i) have been closed,
wound up or otherwise terminated or (ii) ceased to be held or used in
connection with FTDI's businesses or operations, including the Direct
Access Business;
(k) all books, records and written and electronic storage
materials to the extent relating to or used in connection with or
reasonably necessary to the use of the Retained Assets, the Acquired Assets
or the Direct Access Business or any part thereof; provided, however, that
ftd.com may make copies of such books, records and written and
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electronic storage materials, to the extent they relate to the Acquired
Assets or the Direct Access Business, or examinations thereof as needed.
(l) all other assets of FTDI of every kind and nature not
reflected on the Balance Sheet.
2.3 Assignability and Consents. To the extent that the assignment of any
Acquired Contract to ftd.com as provided herein shall require the consent or
waiver of other parties, this Agreement shall not constitute an agreement to
assign the same if an attempted assignment without such consent or waiver would
constitute a breach thereof or entitle the other party thereto to terminate, or
accelerate any obligation under, such Acquired Contract. FTDI shall cooperate
with ftd.com and shall use its best efforts to obtain the consent of the other
parties to such Acquired Contracts. If any such consent has not been obtained as
of the Effective Time, such Acquired Contract shall be retained by FTDI unless
and until such consent has been obtained, and FTDI shall use its reasonable best
efforts to make the full use and benefit of such Acquired Contract available to
ftd.com to the same extent, as nearly as may be possible, as if such impediment
to assignment or transfer did not exist, including, but not limited to, rights
arising out of any breach or cancellation by such other parties.
2.4 Covenants of Further Assurance. FTDI shall, at any time and from time
to time after the Effective Time, upon request of ftd.com and without further
cost or expense to ftd.com, prepare, execute and deliver such instruments of
conveyance and assignment and shall take such action as ftd.com may reasonably
request to more effectively transfer to and vest in ftd.com, or its successors
and assigns, and to put ftd.com in possession of, any and all of the Acquired
Assets.
ARTICLE III ASSUMPTION
------------------------
3.1 Assumption by ftd.com. Except as provided in Section 3.3 hereof or
otherwise herein, upon the terms and subject to the conditions set forth in this
Agreement, ftd.com hereby agrees, from and after the Effective Time, to assume,
pay, perform and discharge as and when due, and indemnify and hold FTDI, its
directors, stockholders, affiliates, officers, employees and agents harmless
from and against, all liabilities and obligations of whatever nature (whether
absolute, accrued, fixed, contingent or otherwise and whether known or unknown)
arising out of or in connection with (i) the Acquired Assets, (ii the Direct
Access Business and the operation thereof and (ii the ownership, use or sale of
the Acquired Assets (the "Assumed Liabilities").
3.2 Retained Liabilities. Notwithstanding any other provision of this
Agreement or doctrine of law, FTDI shall retain, and ftd.com shall not assume,
or be liable with respect to, those liabilities and obligations of FTDI to the
extent not related to the Acquired Assets or the Direct Access Business.
3.3 Covenants of Further Assurance. ftd.com shall, at any time and from
time to time after the Effective Time, upon the request of FTDI and without
further cost or expense to FTDI, prepare, execute and deliver such instruments
of assumption and shall take such action as FTDI may reasonably request to
effect the assumption by ftd.com of the Assumed Liabilities.
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ARTICLE IV REPRESENTATIONS AND WARRANTIES
-------------------------------------------
4.1 As Is. ftd.com agrees and acknowledges that it is receiving the
Acquired Assets on an "as is" basis, without any representations or warranties,
written or implied, from FTDI regarding such Acquired Assets.
4.2 Representations and Warranties of FTDI. FTDI represents and warrants to
ftd.com that, as of the Effective Time, each of the following statements are
true and correct:
(a) Organization and Existence. FTDI is duly organized, validly
existing and in good standing under the laws of the State of Michigan. FTDI
has full corporate power and authority to own and lease the properties and
assets it now owns and leases and to carry on its business as and where
such properties and assets are now owned or leased and such business is now
conducted. FTDI is in good standing and duly qualified to conduct its
business as a foreign corporation in each of the jurisdictions in which the
ownership or leasing of its properties or assets or the conduct of its
business requires such qualification, except where any failure to be so
qualified would not have a material adverse effect.
(b) Authority and Approval. FTDI has the requisite corporate power and
authority to enter into this Agreement and is authorized to perform its
obligations hereunder. This Agreement has been duly authorized, executed
and delivered by FTDI and is a valid and binding obligation of FTDI,
enforceable against FTDI in accordance with its terms. No other act,
approval or proceedings on the part of FTDI is, or will be, required to
authorize the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement.
(c) No Conflict. The execution and delivery of this Agreement by FTDI,
and the fulfillment and compliance with the terms and conditions of this
Agreement and the consummation of the transactions contemplated by this
Agreement, will not:
(i) conflict with, result in a breach of, constitute a default under,
or require the consent of any person under, any of the terms,
conditions or provisions of the articles of incorporation or by-
laws of FTDI other than such as has been obtained prior to the
Effective Time; or
(ii) violate any provision of, or require any notice, consent,
authorization, filing, registration or approval under, any law or
administrative regulation or any judicial, administrative or
arbitration order, award, judgment, writ, injunction or decree
applicable to FTDI.
(d) Securities Act. The shares of Class B common stock of ftd.com
received by FTDI pursuant to this Agreement are being acquired for
investment only and not with a view to any public distribution thereof, and
FTDI shall not offer to sell or otherwise dispose of the shares so acquired
by it in violation of any registration requirements of the Securities Act
of 1933, as amended.
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4.3 Representations and Warranties of ftd.com. ftd.com represents and
warrants to FTDI that
(a) Organization and Existence. ftd.com is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. ftd.com has full legal power and authority to own and
lease the properties and assets it now owns and leases and to carry on its
business as and where such properties and assets are now owned or leased
and such business is now conducted.
(b) Authority and Approval. ftd.com has the requisite corporate power
and authority to enter into this Agreement and is authorized to perform its
obligations hereunder. This Agreement has been duly authorized, executed
and delivered by ftd.com and is a valid and binding obligation of ftd.com,
enforceable against ftd.com in accordance with its terms. No other act,
approval or proceedings on the part of ftd.com is, or will be, required to
authorize the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement.
(c) No Conflict. The execution and delivery of this Agreement by
ftd.com, and the fulfillment and compliance with the terms and conditions
of this Agreement and the consummation of the transactions contemplated by
this Agreement, will not:
(i) conflict with, result in a breach of, constitute a default under,
or require the consent of any person under, the terms, conditions
or provisions of the certificate of incorporation, by-laws or
other corporate documents of ftd.com other than such as have been
obtained prior to the Effective Time; or
(ii) violate any provision of, or require any notice, consent,
authorization, filing or registration or approval under, any law
or administrative regulation or any judicial administrative or
arbitration order, award, judgment, writ, injunction or decree
applicable to ftd.com.
4.4 Survival of Representations and Warranties. All representations and
warranties made by FTDI or ftd.com in this Agreement and in any Schedules,
certificates or other documents delivered in connection with the transactions
contemplated hereby shall survive the Effective Time until December 31, 2000.
ARTICLE V CERTAIN COVENANTS AND ASSURANCES
--------------------------------------------
5.1 Cooperation by FTDI. FTDI will cooperate and will use its reasonable
best efforts to have its agents and employees cooperate with ftd.com, at
ftd.com's request and at ftd.com's expense, on and after the Effective Time, in
furnishing information, evidence, testimony and other assistance in connection
with any actions, proceedings, arrangements or disputes involving the operations
of the Direct Access Business or based upon contracts, understandings or acts of
the Direct Access Business that were in effect or occurred on or prior to the
Effective Time; provided, however, that FTDI shall not be required by this
Section 5.1 to provide any such cooperation if FTDI is a party, or is threatened
to be a party, to any such action, proceeding, arrangement or dispute and FTDI
or its legal counsel determines that any such
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information, evidence, testimony or other assistance would be adverse to FTDI's
interests therein.
5.2 Cooperation by ftd.com. ftd.com will cooperate and will use its
reasonable best efforts to have its agents and employees cooperate with FTDI, at
FTDI's request and at FTDI's expense, on and after the Effective Time, in
furnishing information, evidence, testimony and other assistance in connection
with any actions, proceedings, arrangements or disputes involving FTDI and the
operations of the Direct Access Business or based upon contracts, understandings
or acts of the Direct Access Business that are in effect or occur after the
Effective Time; provided, however, that ftd.com shall not be required by this
Section 5.2 to provide any such cooperation if ftd.com is a party, or is
threatened to be a party, to any such action, proceeding, arrangement or dispute
and ftd.com or its legal counsel determines that any such information, evidence,
testimony or other assistance would be adverse to ftd.com's interests therein.
5.3 Expenses. ftd.com will bear the reasonable legal, accounting and other
expenses incurred by each party in connection with this Agreement, the Ancillary
Agreements (as hereinafter defined) and the other agreements and transactions
contemplated hereby.
5.4 Filings. Each of the parties hereto agree to cooperate fully with the
other in the preparation and filing, whether before or after the Effective Time,
of all documents and instruments required to be filed by FTDI or ftd.com, in
connection with the transactions contemplated by this Agreement, including,
without limitation, any business certificate, or any trade, assumed or
fictitious name certificates, or any applications for authority to do business,
or any registrations or assignments of registrations of any patents, trademarks,
trade names, service marks, copyrights or similar rights.
5.5 Bulk Transfer Laws. ftd.com hereby waives compliance by FTDI with the
laws of any jurisdiction relating to bulk transfers of goods that may be
applicable in connection with the transfer of the Acquired Assets to ftd.com, if
any. FTDI shall indemnify and hold ftd.com, its directors, stockholders,
affiliates, officers, employees and agents harmless from and against any failure
by FTDI to comply with any such law. The foregoing covenants of this Section 5.5
shall survive indefinitely.
5.6 Certain Payments. If FTDI receives any payment relating to any Account
Receivable, such payment shall be the property of, and shall be immediately
forwarded and remitted to, ftd.com. FTDI will promptly endorse and deliver to
ftd.com any cash, checks or other documents received by FTDI on account of any
such Account Receivable.
ARTICLE VI POST-CLOSING COVENANTS
----------------------------------
FTDI and ftd.com agree to use reasonable efforts to negotiate and enter
into (1) the Intercompany Services Agreement to be dated as of the date hereof
between ftd.com and FTDI, (2) the Commission Agreement to be dated as of the
date hereof between ftd.com and FTDI, (3) the Indemnification Agreement to be
dated as of the date hereof among ftd.com, FTDI and FTD Corporation, a Delaware
corporation ("FTDC"), (4) the Trademark Licensing Agreement, (5) the Florists
Online Hosting Agreement to be dated as of the date hereof between ftd.com and
FTDI and (6) the Tax Sharing Agreement to be dated as of December 19, 1994, as
amended by that certain Amendment dated as of the date hereof, among ftd.com,
FTDI and FTDC (collectively, the "Ancillary Agreements"), within [60] days after
the Effective Time.
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ARTICLE VII CONDITIONS TO CLOSING
-----------------------------------
7.1 Conditions to the Obligations of ftd.com. The obligations of ftd.com
to proceed with its obligations hereunder are subject to the satisfaction on or
prior to the Effective Time of all of the following conditions, any one or more
of which may be waived in whole or in part by ftd.com:
(a) Representations and Warranties. The representations and
warranties contained in Section 4.2 and in all schedules and certificates
delivered by FTDI to ftd.com pursuant to this Agreement shall be true and
accurate on and as of the Effective Time with the same effect as though
made on and as of such date, except for such changes, if any, as may be
expressly permitted by this Agreement or agreed to in writing by the
parties hereto.
(b) Performance of Covenants. FTDI shall have performed and complied
in all material respects with each and every covenant, agreement and
condition required to be performed or complied with by it hereunder on or
prior to the Effective Time.
(c) Licenses, Consents, etc. FTDI shall have obtained all licenses,
approvals, and permits of or given all notices to and made all filings with
governmental authorities required to be obtained, given or made by it for
or in connection with the transactions contemplated hereby, and all
consents and approvals (including the giving of notice), if any, of other
parties, including, but not limited to, the consent of creditors or
contracting parties of FTDI, in each case in which the failure to obtain
such consent or approval of other parties would have a material adverse
effect on the Acquired Assets or would materially interfere with the right
or ability of ftd.com to use the Acquired Assets or interfere with the
rights or ability of ftd.com to transfer good and unencumbered title to or
lawful use of the Acquired Assets, and no such governmental license,
approval or permit or consent or approval of any third party shall have
been withdrawn or suspended.
(d) No Injunction. As of the Effective Time, there shall be no
injunction, writ, restraining order or any other order of any nature issued
by a court or governmental agency of competent jurisdiction directing that
any of the transactions provided for in this Agreement not be consummated
as herein or therein provided.
(e) No Actions. As of the Effective Time, there shall be no action or
proceeding pending or threatened by or before any court or other judicial,
administrative or regulatory body to restrain or prohibit the transactions
contemplated by this Agreement.
(f) Corporate Authorization. FTDI shall have delivered to ftd.com a
certificate of the Secretary of FTDI, in form reasonably satisfactory to
ftd.com and its counsel, dated as of the date hereof, certifying (i) that a
true and correct copy of the articles of incorporation and bylaws of FTDI,
as amended as of the date hereof, is attached thereto, and (ii) the
authorization and approval of this Agreement, and the transactions
contemplated hereby, by the Board of Directors of FTDI in accordance with
the provisions of its bylaws.
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7.2 Conditions to the Obligations of FTDI. The obligations of FTDI to
proceed with its obligation hereunder are subject to the satisfaction on or
prior to the Effective Time of all of the following conditions, any one or more
of which may be waived in whole or in part by FTDI:
(a) Representations and Warranties. The representations and
warranties contained in Section 4.3 and in all certificates delivered by
ftd.com to FTDI pursuant to this Agreement shall be true and accurate on
and as of the Effective Time with the same effect as though made on and as
of such date, except for such changes, if any, as may be expressly
permitted by this Agreement or agreed to in writing by the parties hereto.
(b) Performance of Covenants. ftd.com shall have performed and
complied in all material respects with each and every covenant, agreement
and condition required to be performed or complied with by it hereunder on
or prior to the Effective Time.
(c) Licenses, Consents, etc. ftd.com shall have obtained all
licenses, approvals, and permits of governmental authorities required to be
obtained by it for or in connection with the transactions contemplated
hereby.
(d) No Injunction. As of the Effective Time, there shall be no
injunction, writ, restraining order or any other order of any nature issued
by a court or governmental agency of competent jurisdiction directing that
any of the transactions provided for in this Agreement not be consummated
as herein or therein provided.
(e) No Actions. As of the Effective Time, there shall be no action or
proceeding pending or threatened by or before any court or other judicial,
administrative or regulatory body to restrain or prohibit the transactions
contemplated by this Agreement.
(f) Corporate Authorization. ftd.com shall have delivered to FTDI a
certificate of a duly authorized officer of ftd.com, in form reasonably
satisfactory to FTDI and its counsel, dated as of the date hereof,
certifying (i) that a true and correct copy of the certificate of
incorporation and bylaws of ftd.com, as amended as of the date hereof is
attached thereto, and (ii) the authorization and approval of this
Agreement, and the transactions contemplated hereby and thereby, by the
Board of Directors of ftd.com in accordance with the provisions of its
bylaws.
ARTICLE VII MISCELLANEOUS
--------------------------
8.1 Schedules. All references in this Agreement to "Schedules" shall mean
the disclosure schedules identified in this Agreement and listed on page "(iii)"
hereof, which are attached hereto and incorporated herein and shall be deemed a
part of this Agreement for all purposes.
8.2 Amendments. This Agreement may be amended only by a writing executed
by all of the parties hereto.
8.3 Entire Agreement. This Agreement and the other agreements expressly
provided for herein set forth the entire understanding of the parties hereto and
supersede all prior contracts,
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agreements, arrangements, communications, discussions, representations and
warranties, whether oral or written, between the parties with respect to the
subject matter hereof.
8.4 Governing Law. This Agreement shall in all respects be governed by and
construed and enforced in accordance with the internal laws of the State of
Illinois without regard to the principles of conflict of laws thereof.
8.5 Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given (i) upon receipt if personally delivered, or (ii) on the third business
days after being sent by registered or certified mail, return receipt requested,
postage prepaid, to the parties at their respective addresses set forth below.
To FTDI: Florists' Transworld Delivery, Inc.
3113 Woodcreek Drive
Downers Grove, Illinois 60515
Attention: President
To ftd.com: ftd.com inc.
3113 Woodcreek Drive
Downers Grove, Illinois 60515
Attention: President
Any party by written notice to the other may change the address or the persons
to whom notices or copies thereof shall be directed.
8.6 Transfer Taxes. FTDI and ftd.com shall each bear one-half of all
liabilities and obligations for taxes, if any, imposed upon FTDI, ftd.com or any
of the Acquired Assets arising out of or measured by the contribution of the
Acquired Assets pursuant hereto.
8.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
8.8 Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of each party hereto, but no rights,
obligations or liabilities hereunder shall be assignable by ftd.com without the
prior written consent of FTDI.
8.9 Waivers. Any waiver by any party of any violation of, breach of or
default under any provision of this Agreement or any other agreements provided
for herein, by the other party shall not be construed as, or constitute, a
continuing waiver of such provision, or waiver of any other violation of, breach
of or default under any other provision of this Agreement or any other
agreements provided for herein.
8.10 Third Parties. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any person or entity
(including without limitation any employee or any beneficiary of any employee)
other than ftd.com and FTDI any rights or remedies under or by reason of this
Agreement.
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8.11 Headings. The headings in this Agreement are solely for convenience of
reference and shall not be given any effect in the construction or
interpretation of this Agreement.
[The remainder of this page intentionally is left blank.]
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IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
FLORISTS' TRANSWORLD DELIVERY, INC.
By: /s/ Robert L. Norton
-----------------------------------
Name: Robert L. Norton
Title: President
ftd.com inc.
By: /s/ Michael J. Soenen
-----------------------------------
Name: Michael J. Soenen
Title: President and
Chief Executive Officer
<PAGE>
Schedule 2.1
Balance Sheet as of March 31, 1999
Attached
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Schedule 2.1.1
Personal Property
None
14
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Schedule 2.1.3
Contracts
15
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Schedule 2.1.4
Permits and Approvals
16
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EXHIBIT 10.5
TAX SHARING AGREEMENT
THIS AGREEMENT, effective as of December 19, 1994, by and among Perry
Capital Corp. ("Parent") and Florists' Transworld Delivery, Inc. ("Subsidiary").
WHEREAS, Parent is the common parent of an affiliated group (the "Group")
of domestic corporations (as such terms are defined in Section 1504(a) of the
Internal Revenue Code of 1986, as amended) (the "Code");
WHEREAS, Subsidiary is presently a subsidiary of Parent and a member of the
Group; and
WHEREAS, Parent and Subsidiary wish to allocate and settle between each
other in an equitable manner the consolidated federal income tax liability of
the Group.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
1. For each taxable year, Parent shall file, and shall cause all
includable members of the Group to join in the filing of, consolidated federal
income tax returns. Parent and Subsidiary shall execute and file such consents,
elections and other documents as Parent reasonably believes may be required or
appropriate for the filing of such returns.
2. (a) Except as otherwise provided herein, within 15 days of each of
Parent's estimated federal income tax payment dates and the March 15 extension
date and within 30 days of the filing of the Group's federal income tax return,
Parent and Subsidiary shall settle and pay, where appropriate, any amounts that
may be allocated under this Agreement; provided, however, that Subsidiary may
defer payment of any amount owing by it to Parent within 15 days of each such
estimated federal income tax payment date and the March 15 extension date until
the earlier of (1) 30 days prior to the filing of the federal income tax return
or (ii) 15 days prior to the next
<PAGE>
estimated federal income tax payment date or extension date of the Group for
which the Group actually incurs a federal income tax liability. The amount of
any overpayment or underpayment pursuant to this Section 2(a) shall be credited
against, or added to, as the case may be, the amount otherwise required to be
paid for the period within which the amount of such overpayment or underpayment
first becomes reasonably ascertainable. The settlements may be satisfied by
check or wire transfer or by such other means as the parties may mutually agree.
(b) To the extent the Subsidiary has "Separate Company Tax Liability"
(hereinafter defined), the Subsidiary shall pay Parent in the time and manner
described in Section 2(a). For purposes of this Agreement, "Separate Company Tax
Liability" for any taxable year or fractional period shall be the amount, if
any, of the federal income tax liability (including, without limitation,
liability for any penalty, fine, additions to tax, interest, minimum tax (but
only to the extent of Subsidiary's allocable share of actual consolidated
minimum tax liability based upon Subsidiary's relative amounts of items of tax
preference, and any credit with respect thereto shall be allocated to
Subsidiary) and other items of any nature applicable to the Subsidiary in
connection with the determination of Subsidiary's tax liability) which
Subsidiary would have incurred if Subsidiary had filed a separate federal income
tax return (or estimated federal income tax return) for a taxable period
consisting of such taxable year or fractional period computed in a manner
consistent with (i) general tax accounting principles, (ii) the Code and
regulations thereunder, and (iii) so long as a reasonable legal basis exists
therefor, prior custom and practice. Transactions between Subsidiary and Parent
which are deferred under the federal income tax return shall also be deferred
for purposes of this Agreement. In the event Subsidiary owns subsidiaries that
are members of the Group, Separate Company Tax Liability shall be computed on a
deemed consolidated basis as if Subsidiary were the common parent of an
affiliated group of domestic corporations (within the meaning of Section 1504(a)
of the Code)
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consisting of itself and its includable subsidiaries (the "Hypothetical
Subsidiary Group"). In no event shall the amount required to be paid by
Subsidiary to Parent on behalf of Parent exceed the amount that would have been
paid had Subsidiary (or the Hypothetical Subsidiary Group) filed on a separate
basis.
(c) In the event Subsidiary (or the Hypothetical Subsidiary Group, if
applicable) realizes in any taxable year any tax losses or tax credits that
would be permitted under the Code and regulations to be carried back or forward
to one or more taxable years if the Subsidiary had filed a separate federal
income tax return (or a Hypothetical Subsidiary Group return, if applicable) for
any such taxable years, Separate Company Tax Liability shall be computed for
such preceding and succeeding taxable years taking into account such carryback
or carryforward and the payments pursuant to Section 2 (b) shall be
appropriately adjusted. Any payment from Parent to Subsidiary required by such
adjustment shall be paid within 15 days of the date the benefit of the carryover
would have been realized by Subsidiary had it filed its own federal income tax
return or as soon as such adjustment can practicably be calculated, if later.
(d) Parent agrees to make all required payments to the Internal
Revenue Service ("IRS") of the federal consolidated tax liability, if any, of
the Group.
3. If the consolidated federal income tax liability of the Group is
adjusted for any taxable period for any reason other than a loss or credit
carryback to the extent already provided for in Section 2(c), whether by means
of an amended return, judicial decision, claim for refund or after a tax audit
by the IRS, the Separate Company Tax Liability of Subsidiary shall be recomputed
to give effect to such adjustment, and Parent shall make payment to Subsidiary
for its allocable share of any refund (plus interest) of payments made under
Section 2 to which Subsidiary is entitled, based upon Subsidiary's recomputed
Separate Company Tax Liability, and Subsidiary shall pay to Parent its allocable
share of any increased tax liability and interest which
3
<PAGE>
it is obligated to pay under Section 2, based upon Subsidiary's recomputed
Separate Company Tax Liability. Any payments to be paid to or by Subsidiary
under this Section 3 shall be made within 15 days after any refund is received
by (or credited to) Parent (in the event such adjustment results in a net refund
to the Group) or within 15 days after payment is made by Parent (in the event
such adjustment results in a net increase in tax liability to the Group) .
4. Parent and Subsidiary agree that the preparation of the federal income
tax returns, amended returns, claims for refund, IRS examination or litigation
relating to the foregoing, may require the use of records and information that
is within the exclusive possession and control of either of Parent and
Subsidiary. Each of Parent and Subsidiary will provide such records, information
and assistance (which may include making employees of any of the foregoing
entities available to provide additional information and explanation material
hereunder) as are requested by Parent or Subsidiary, as the case may be, during
regular business hours, in connection with any of the developments described in
the preceding sentence. Any of the information obtained pursuant to this Section
or any Section hereof providing for the sharing of information shall be kept
confidential by the parties hereto.
5. This Agreement shall not be assignable by any party hereto without the
prior written consent of the other parties hereto. The rights and obligations
hereunder of the parties shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. Subsidiary shall
cause each member of the Hypothetical Subsidiary Group to formally assent to the
terms hereof. Nothing in this Agreement shall confer any right or benefit upon
any person or entity other than the parties hereto and their respective
successors and permitted assigns.
6. This Agreement contains the entire Agreement of Parent and Subsidiary
with respect to the subject matter hereof and there are no other agreements,
representations or
4
<PAGE>
warranties with respect to the subject matter hereof not contained herein. This
Agreement may not be modified or amended except by written instrument.
7. Any dispute concerning the interpretation of a Section or amount of
payment due under this Agreement shall be resolved by the independent public
accountants for Parent, whose judgment shall be conclusive and binding on the
parties.
8. In any audit conference or other proceeding with the IRS or in any
judicial proceedings concerning the determination of the federal income tax
liabilities of the Group or any of its members, including Subsidiary, the Group
and each of its members shall be represented by persons selected by Parent. The
settlement and terms of settlement of any issues relating to such proceeding
shall be in the sole discretion of Parent, and Subsidiary hereby appoints Parent
as its agent for the purpose of proposing and concluding any such settlement.
9. All provisions of this Agreement shall apply with the same force and
effect to any state or local income tax liabilities that are computed with a
combined, consolidated or unitary method by the parties.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to its conflict of law
provisions.
11. This Agreement shall terminate with respect to a member of the Group if
(a) all the parties hereto agree in writing to such termination or (b) such
member is no longer includable in the Group; provided, however, that (i) this
Agreement shall remain in effect with respect to any period of time during which
it is applicable by its terms (regardless of whether such member is included in
the Group for such period of time) and (ii) no such termination shall affect any
party's rights to receive payments hereunder for any period during which this
Agreement was in effect.
5
<PAGE>
12. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be duly executed, and their respective corporate seals to be affixed hereto, all
as of the date first above written.
PERRY CAPITAL CORP.
By: /s/ Richard C. Perry
---------------------------------------
Name: Richard C. Perry
Title: President
FLORISTS' TRANSWORLD DELIVERY, INC.
By: /s/ Richard C. Perry
---------------------------------------
Name: Richard C. Perry
Title: President
6
<PAGE>
Exhibit 10.9
================================================================================
AGREEMENT AND PLAN OF MERGER
among
FLORISTS' TRANSWORLD DELIVERY ASSOCIATION
and
PERRY CAPITAL CORP.
and
IRIS ACQUISITION CORP.
AUGUST 2, 1994
================================================================================
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<PAGE>
TABLE OF CONTENTS
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<TABLE>
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<S> <C>
RECITALS........................................................................................................... A-1
ARTICLE I DEFINITIONS........................................................................................... A-2
1.1 Definitions........................................................................................... A-2
1.2 Other Definitions; Rules of Construction.............................................................. A-11
ARTICLE II PLAN OF MERGER........................................................................................ A-12
2.1 Merger................................................................................................ A-12
2.2 Effects of the Merger................................................................................. A-12
2.3 Filing of Certificates and Conversion to Profit Corporation........................................... A-13
2.4 Conversion of Shares and Membership Interests......................................................... A-13
2.5 Surrender and Exchange of Interests................................................................... A-14
2.6 Further Action and Obligations of Surviving Corporation............................................... A-17
ARTICLE III PRELIMINARY ACTIONS BY FTD............................................................................ A-18
3.1 FTD Member Approvals.................................................................................. A-18
3.2 Organization of FTDA.................................................................................. A-18
3.3 Required Consents..................................................................................... A-18
3.4 Pre-Merger Amendment of Articles of Association or Bylaws............................................. A-19
3.5 Approval of Michigan Certificate of Merger............................................................ A-19
ARTICLE IV PRELIMINARY ACTIONS BY BUYER AND BUYER SUB............................................................ A-19
4.1 Deposit............................................................................................... A-19
4.2 Organization and Capitalization of Buyer Sub.......................................................... A-19
4.3 Covenants and Undertakings............................................................................ A-20
ARTICLE V CLOSING............................................................................................... A-20
Closing....................................................................................................... A-20
ARTICLE VI POST-SALE RELATIONSHIPS............................................................................... A-21
Post Sale Relationships between Buyer and FTDA................................................................ A-21
ARTICLE VII REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF FTD..................................................... A-21
7.1 Organization, Good Standing, and Power of FTD......................................................... A-21
7.2 Authority and Capacity of FTD......................................................................... A-21
7.3 Effect of Agreement................................................................................... A-22
7.4 Financial Statements of FTD........................................................................... A-23
7.5 Litigation............................................................................................ A-23
7.6 Title to Properties; Absence of Liens and Encumbrances................................................ A-23
7.7 Organization, Good Standing, and Power of Subsidiaries................................................ A-24
7.8 Stock of Subsidiaries................................................................................. A-24
7.9 Intellectual Property................................................................................. A-24
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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7.10 List of Leases....................................................................................... A-26
7.11 Employee Benefit Plans............................................................................... A-26
7.12 Taxes................................................................................................ A-27
7.13 Absence of Certain Changes or Events................................................................. A-27
7.14 Labor Relations and Employment....................................................................... A-28
7.15 Compliance........................................................................................... A-28
7.16 Information Statement................................................................................ A-28
7.17 Inventory............................................................................................ A-29
7.18 Opinion of Investment Banker......................................................................... A-29
7.19 Environmental Matters................................................................................ A-29
7.20 [Reserved]........................................................................................... A-29
7.21 Cash Merger Consideration............................................................................ A-29
7.22 The Merger and Certain Related Matters............................................................... A-29
7.23 Fees and Charges..................................................................................... A-30
ARTICLE VIII REPRESENTATIONS, WARRANTIES, AND
AGREEMENTS OF BUYER AND BUYER SUB.................................................................... A-30
8.1 Organization, Good Standing, and Power of Buyer and Buyer Sub........................................ A-30
8.2 Authority and Capacity of Buyer and Buyer Sub........................................................ A-30
8.3 Effect of Agreement.................................................................................. A-30
8.4 Litigation........................................................................................... A-31
8.5 Financing............................................................................................ A-31
8.6 The Merger........................................................................................... A-31
ARTICLE IX CONDUCT OF BUSINESS PENDING CLOSING.................................................................... A-31
9.1 Conduct of Business.................................................................................. A-31
9.2 FTD's Pre-Closing Transactional Expenses............................................................. A-33
ARTICLE X CONDITIONS TO CLOSING................................................................................... A-34
10.1 Buyer and Buyer Sub.................................................................................. A-34
10.2 FTD.................................................................................................. A-35
ARTICLE XI OBLIGATIONS OF FTD AT THE CLOSING...................................................................... A-36
11.1 FTD's Deliveries and Documents....................................................................... A-36
11.2 Opinion of Counsel for FTD........................................................................... A-36
11.3 Certificate of FTD................................................................................... A-37
11.4 Certified Resolutions................................................................................ A-37
11.5 Certificates of Good Standing and Incumbency......................................................... A-37
11.6 Return of Deposit.................................................................................... A-37
11.7 Resignations......................................................................................... A-37
11.8 Certificate of Independent Accountants............................................................... A-37
ARTICLE XII OBLIGATIONS OF BUYER AND BUYER SUB AT CLOSING....................................................... A-37
12.1 Buyer's and Buyer Sub's Deliveries and Documents..................................................... A-37
12.2 Opinion of Counsel for Buyer and Buyer Sub........................................................... A-37
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
12.3 Certificate of Buyer and Buyer Sub............................................................................ A-37
12.4 Certified Resolutions......................................................................................... A-38
12.5 Certificates of Good Standing and Incumbency.................................................................. A-38
ARTICLE XIII ANTITRUST FILING........................................................................................... A-38
13.1 Filing........................................................................................................ A-38
ARTICLE XIV EMPLOYEES.................................................................................................. A-38
14.1 Certain Employment Obligations................................................................................ A-38
14.2 Severance Arrangements........................................................................................ A-38
14.3 Post-Merger Transferred Employees............................................................................. A-39
14.4 Termination Notice............................................................................................ A-39
ARTICLE XV ARBITRATION................................................................................................ A-39
15.1 Arbitration................................................................................................... A-39
ARTICLE XVI TERMINATION................................................................................................ A-39
16.1 Termination Events............................................................................................ A-39
16.2 Effect of Termination......................................................................................... A-40
ARTICLE XVII MISCELLANEOUS.............................................................................................. A-41
17.1 Other Offers.................................................................................................. A-41
17.2 Sales and Transfer Taxes...................................................................................... A-41
17.3 Brokers and Finders........................................................................................... A-41
17.4 Non-Survival of Representations and Warranties................................................................ A-41
17.5 Waivers....................................................................................................... A-42
17.6 Expenses...................................................................................................... A-42
17.7 Notices....................................................................................................... A-42
17.8 Confidentiality............................................................................................... A-43
17.9 Binding Effect................................................................................................ A-43
17.10 Non-Assignability............................................................................................. A-43
17.11 Section and Other Headings.................................................................................... A-43
17.12 Counterparts.................................................................................................. A-43
17.13 Publicity..................................................................................................... A-44
17.14 Entire Agreement.............................................................................................. A-44
17.15 Best Efforts.................................................................................................. A-44
17.16 Governing Law................................................................................................. A-44
17.17 Severability.................................................................................................. A-44
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") dated August 2, 1994, among
Florists' Transworld Delivery Association, a Michigan nonprofit corporation
("FTD"); Perry Capital Corp., a Delaware corporation ("Buyer"), and IRIS
Acquisition Corp., a Delaware corporation ("Buyer Sub").
RECITALS:
WHEREAS, FTD is a Michigan nonprofit corporation organized on a membership
basis and operated on behalf of the Members (as defined below) and is engaged in
providing services to and facilitating orders among the Members, including
without limitation granting the Members the right to use the Logo (as defined
below); and
WHEREAS, Buyer is the sole stockholder of Buyer Sub; and
WHEREAS, prior to the Merger (as defined below), FTD Association ("FTDA")
will be incorporated in an appropriate United States jurisdiction as a nonprofit
corporation organized on a membership basis; and
WHEREAS, FTD and Buyer desire to cause Buyer Sub to be merged with and into
FTD (the "Merger") on the terms set forth herein, with FTD to be the surviving
corporation following the Merger, with Buyer to be the sole member of FTD, and
with Buyer converting FTD into a Michigan business corporation immediately upon
the Merger becoming effective; and
WHEREAS, FTD will retain in the Merger all of FTD's assets that are
currently used in connection with conducting the operations of FTD known as
Floral Network, Marketplace, Clearing House, Publications, Renaissance Greeting
Cards, and Direct Access (collectively, the "Businesses"); and
WHEREAS, as a result of the Merger, Buyer's stock in Buyer Sub will be
converted to and exchanged for a membership interest in FTD, and Buyer shall be
the sole member of FTD; and
WHEREAS, as a result of the Merger, each Member's FTD Membership Interest
will be converted solely into the right to receive certain cash consideration,
as described below; and
WHEREAS, FTD has operated on a cooperative basis since 1970 in carrying out
its business within the scope of the purposes set forth in its Articles of
Association, and the Board of Directors of FTD has determined that the Cash
Merger Consideration (as defined below) should be distributed on a cooperative
basis substantially in the manner set forth in FTD's Bylaw XIV(d), using the
Patronage Distribution Method (as defined below), subject, with respect to the
Declaratory Judgment Merger Consideration (as defined below), to the
determination of a court of competent jurisdiction in the Declaratory Judgment
Action (as defined below) or a change in applicable law, in either case so as to
provide for the legal method of distributing the Cash Merger Consideration; and
<PAGE>
WHEREAS, FTD believes that an actual controversy will exist as to the
Distribution Method (as defined below) and FTD agrees that DJ Trustee shall be
authorized, and the Members shall appoint DJ Trustee at the time of the vote on
the Merger, to serve on an all expense paid basis as the duly authorized
representative of the Members in commencing and conducting the Declaratory
Judgment Action; and
WHEREAS, concurrently with the Merger, each member of FTD will be given the
opportunity to become a member of FTDA; and
WHEREAS, the members of FTD who become members of FTDA will continue to
have the right to use the Member Used Intellectual Property after the Merger
pursuant to rights granted by the Surviving Corporation (as defined below) under
a Trademark Membership License Agreement to be entered into with each such FTDA
member; and
WHEREAS, immediately after the Merger, Buyer, as the sole member of FTD,
will cause FTD to amend its Articles of Association to convert FTD into a
Michigan business corporation, all as described below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, the Parties agree as follows.
ARTICLE I
---------
DEFINITIONS
1.1 Definitions. Terms set forth below shall have the following meanings:
"Acquisition Proposal" has the meaning set forth in Section 17.1.
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by, or is under common control
with such Person. As used in this definition, "control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Person, whether through owning voting securities,
by contract, or otherwise. With respect to Buyer, "Affiliate" shall include all
successors and assignees of Buyer or FTD.
"Allocable Cash Merger Consideration" means an amount equal to the sum of
(a) the Member Equity attributable to a Distributee Member; and (b) the portion
of the Declaratory Judgment Merger Distribution distributable to such member
pursuant to the Declaratory Judgment Decision.
"Antitrust Filing" has the meaning set forth in Section 13.1.
"Businesses" has the meaning set forth in the Recitals.
"Bylaws" means the FTD Bylaws contained in the FTD Handbook at pages 76
through 117, as amended at FTD's 1993 Annual Members' Meeting and through the
Closing Date.
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<PAGE>
"Cash Merger Consideration" means an amount equal to $112,200,000 less the
sum of (a) the Transaction Expenses incurred on or after July 1, 1994, (b) the
amount of Members' Equity or any amount of the Credit Deposit Fund paid by FTD
to or on behalf of Members in cash on or after July 1, 1994 through the Closing
Date, (c) the fees, costs and expenses incurred or paid by FTD in connection
with the Declaratory Judgment Action prior to the Closing Date, and (d) the
Credit Deposit Fund as of the Cut Off Time.
"Closing" has the meaning set forth in Article V.
"Closing Date" means the date established by the parties on which the
Closing of the Merger and transactions contemplated by this Agreement shall
occur, such date to be not later than ten (10) business days following the date
on which the conditions set forth in Article X have been satisfied or waived.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consent Order" means the Modified Final Judgment, dated November 13, 1990,
of the United States District Court for the Eastern District of Michigan in the
United States of America v. Florists' Telegraph Delivery Association, Civ. No.
56-15748, and United States of America v Florists' Transworld Delivery
Association, Civ. No. 66-28784.
"Corporation Act" means the Michigan Business Corporation Act, as amended,
M.C.L.A. Sec. 450.1101 et seq.
"Credit Deposit Fund" means the money held on behalf of members as a
credit deposit which is part of the Credit Deposit Fund and which is reported in
the Members' equity section of the Financial Statements.
"Cut Off Time" means the close of business on the date which is five (5)
business days prior to the Closing Date.
"DGCL" means the Delaware General Corporation Law.
"DJ Trustee" means the Person or Persons appointed by the Board of
Directors of FTD, and approved by the FTD Record Members at the Special
Membership Meeting, as the authorized representative(s) of the Distributee
Members to bring and prosecute the Declaratory Judgment Action and thereafter
implement the Declaratory Judgment Decision in accordance with this Agreement.
"Damages" means any and all loss, damage, liability or expense (including
reasonable attorneys fees and costs of litigation) arising out of a dispute.
"Declaratory Judgment Action" means an action brought by the DJ Trustee on
or immediately after the approval of the Merger by the Members, but before the
Closing Date, in the Circuit Court for the County of Oakland, State of Michigan
(or if such forum as unavailable, another court of competent jurisdiction)
pursuant to Michigan Court Rule 2.605 to settle an actual controversy, to
preserve legal rights, and to guide future conduct regarding whether the
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<PAGE>
Patronage Distribution Method is the proper manner and basis under applicable
law of distributing to Distributee Members the Declaratory Judgment Merger
Distribution or whether it must be modified in any respect so that no member is
adversely affected, within the meaning of applicable law.
"Declaratory Judgment Decision" means the first to occur of (a) the final
and non-appealable decision rendered in the Declaratory Judgment Action, (b)
such change in circumstance or law which, in the written opinion of counsel to
the DJ Trustee acceptable to the Surviving Corporation, resolves the controversy
that would otherwise be decided in a Declaratory Judgment Action, or (c)
settlement of the Declaratory Judgment Action on such basis as may be approved
by the court hearing such action.
"Declaratory Judgment Merger Consideration" means an amount equal to the
Cash Merger Consideration less the Member Merger Distributions.
"Declaratory Judgment Merger Distribution" means the Declaratory Judgment
Merger Consideration: (x) less (a) the attorneys fees, costs, and expenses of
the Declaratory Judgment Action; (b) the fees, costs, and expenses of the
Disbursing Agent; (c) the fees, costs and expenses of the DJ Trustee incurred in
connection with the Declaratory Judgment Action on or after the Closing Date;
and (d) any Damages incurred by Buyer or the Surviving Corporation arising out
of or relating to the method of distributing the Cash Merger Consideration; (y)
adjusted for the increase or decrease in the amount of the deposited funds
resulting from income and/or losses arising from the investment of such funds in
Permitted Investments for the period through the date of the Declaratory
Judgment Decision; and, (z) less all taxes imposed on the net income of such
fund as determined by the Distribution Accountants and as required to be set
forth on the tax returns for such fund which returns shall be prepared by the
Distribution Accountants for filing by the DJ Trustee.
"Deposit" has the meaning set forth in Section 4.1.
"Direct Access" means FTD Direct Access, Inc., a Delaware corporation and
wholly-owned subsidiary of Holdings.
"Directory Advertising" means Directory Advertising, Inc., a Michigan
corporation and wholly-owned subsidiary of FTD.
"Disbursement Agreement" means the agreement between the Disbursing Agent
and FTD, in form and substance reasonably satisfactory to the parties, pursuant
to which, among other things, the Cash Merger Consideration will be distributed
as described in Article II.
"Disbursing Agent" means a Person mutually acceptable to Buyer and FTD
which shall disburse the Cash Merger Consideration to Distributee Members
pursuant to the Disbursement Agreement.
"Distributee Member" means a member of FTD immediately prior to the
Effective Time which is entitled to receive a portion of the Cash Merger
Consideration pursuant to the Articles of Association and Bylaws of FTD and
applicable law which members are: (i) the "Active
A-4
<PAGE>
Members" which hold the Voting Membership Interests described is Part I of
Schedule 2.4; (ii) the "Affiliate Members" which hold the Affiliate Membership
Interests (Nonvoting) described in Part II of Schedule 2.4; and (iii) those
"Foreign Members" which hold Other Members (Nonvoting) membership interests
described in Part III, subsection (c) of Schedule 2.4 and which Foreign Members
are, in addition, Foreign Members whose business operations are conducted in the
Republic of the Philippines and who are shown on FTD's books and records as
having Member Equity.
"Distribution Accountants" means a national accounting firm mutually
acceptable to the parties and retained for the purpose of calculating the
amounts due to be distributed to the Distributee Members pursuant to the terms
of this Agreement and the Disbursement Agreement.
"Distribution Method" means the Patronage Distribution Method, the Per
Capita Distribution Method or such other method of distributing the Declaratory
Judgment Merger Distribution as shall be determined in the Declaratory Judgment
Action to be proper and lawful.
"Distribution Percentage" means, with respect to any Distributee Member,
that percentage which bears the same ratio to one hundred percent (100%) as the
Member Equity attributable to such Distributee Member bears to the sum of all
Members' Equity attributable to all Distributee Members.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 7.11.
"ERISA Employee Benefit Plan" means any (i) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan as defined in ERISA Section 3(2) ("Employee Pension Benefit Plan"),
(ii) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (iii) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any Multi-
employer Plan as defined in ERISA), or (iv) Employee Welfare Benefit Plan as
defined in ERISA Section 3(1).
"Effective Time" has the meaning set forth in Section 7.22.
"Employee Benefit Plan" means any employee benefit or compensation plan,
program, agreement or arrangement, including, without limitation, any ERISA
Employee Benefit Plan, employee fringe benefit plan or program, incentive
compensation plan (whether short term or long term), stock-based pine or
severance or termination plan or program.
"Encumbrances" has the meaning set forth in Section 7.6.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person or entity alleging
potential liability arising out of, based on or resulting from (a) the presence,
or release into the environment, of any Hazardous Substances at any location,
whether or not owned or operated by FTD or (b) circumstances forming the basis
of any violation, or alleged violation, of any Environmental Law.
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<PAGE>
"Environmental Laws" means all federal, state, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.
"Escrow Agent" has the meaning set forth in Section 4.1(b).
"Escrow Agreement" has the meaning set forth in Section 4.1(a).
"FTD" has the meaning set forth in the Recitals prior to the Merger and
shall mean the Surviving Corporation effective as of the Merger.
"FTD Canada" means Florists' Transworld Delivery Association of Canada
Limited, a Federal corporation and wholly-owned subsidiary of FTD.
"FTD Handbook" means the FTD Member/Owner Handbook issued by FTD and
containing the Articles of Association, Bylaws, Rules, Regulations, and Policies
(all as described in the FTD Handbook) effective as of April 14, 1993, and as
the same may have been amended by the Members or FTD's Board of Directors
thereafter, a true and complete copy of which or reproduction thereof is
included with the Schedules to this Agreement.
"FTD Membership Interest" means the membership interest of a Distributee
Member.
"FTD Non-Distributee Membership Interest" means the membership interest of
a Non-Distributee Member.
"FTD Permits" has the meaning set forth in Section 7.15.
"FTD Record Member" means a member of FTD on the Record Date entitled to
vote at the Special Membership Meeting pursuant to the Articles of Association
and Bylaws of FTD and applicable law which members are "Active Members" and hold
the Voting Membership Interests described as such in Part I of Schedule 2.4.
"FTD's Intellectual Property" has the meaning set forth in Section 7.9(a).
"FTDA" has the meaning set forth in the Recitals.
"FTDA Bylaws" means the Bylaws of FTDA to be adopted by FTDA.
"FTDA Handbook" means the document which shall be substantially similar to
the FTD Handbook as in effect on the date hereof with such changes or
modifications as are necessary to effectuate the transactions contemplated by
this Agreement.
"Financial Statements" has the meaning set forth in Section 7.4.
"Floral Network" means the system of computer terminals and central
processing units and related peripheral equipment, software, computer programs,
electronic data storage
A-6
<PAGE>
mechanisms, and systems, regardless of the software architecture employed, (i)
used in the provision of a specialized electronic network that is currently used
in the Businesses for, among other functions, floral order transmission and
processing, computer network communications services, Member support and
telemarketing services, (ii) used in the provision of depot maintenance, and
(iii) used to provide PC-based business management application software to the
Members, and all documentation and resource material related to any of the
foregoing and all additions, improvements, updates and accessions thereto.
"GAAP" means generally accepted accounting principles applied consistently.
"HSR Act" has the meaning set forth in Section 13.1.
"Hazardous Substances" means those substances designated pursuant to Sec.
101(14) and Sec. 102 of the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. Sec. 9601(14) and Sec. 9602; imminently hazardous
chemical substances or mixtures as defined in Sec. 7(f) of the Toxic Substances
Control Act, 15 U.S.C. Sec. 2606(f); and oils, petroleum, and petroleum
products.
"Holdings" means FTD Holdings, Incorporated, a Delaware corporation and
wholly-owned subsidiary of FTD.
"Information Statement" means the information statement to be sent to
members (including FTD Record Members) in connection with the Special Membership
Meeting.
"Insurance Programs" has the meaning set forth in the Mutual Support
Agreement.
"Intellectual Property'" has the meaning act forth in Section 7.9(a).
"Interflora" means Interflora, Inc., a Michigan corporation.
"Leaseback Agreement" means the agreement to be entered into no later than
the date immediately prior to the Closing Date between the Surviving Corporation
and FTDA in form and substance mutually satisfactory to the parties which shall
provide for: (i) the lease by FTDA at fair market value of certain real property
in Southfield, Michigan and certain furniture and equipment located thereat for
a term of five (5) years, provided the Surviving Corporation shall be entitled
to terminate the Lease for the real property upon reasonable notice in the event
it sells or completely vacates the facility currently occupied by employees of
FTD; (ii) the assignment of the lease and all obligations relating to the office
space in Washington, D.C. currently occupied by employees of FTD or,
alternatively, such other arrangements providing for the use of such space by
FTDA on the terms contained in the underlying lease and otherwise on terms and
conditions mutually acceptable to the Surviving Corporation and FTDA; and (iii)
the lease by FTDA of the publications known as "FTD FAMILY" and "FLORIST" for a
99-year renewable term, in consideration of FTDA providing advertising space to
Surviving Corporation in such publications with a value of $10,000 annually,
adjusted for increases in the CPI Index in the manner provided in the Mutual
Support Agreement.
"Leased Premises" has the meaning set forth in Section 7.6.
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<PAGE>
"Leases" has the meaning set forth in Section 7.10.
"Liabilities to Distributee Members and Non-Distributee Members" means
those amounts payable or credited by FTD to Distributee Members and Non-
Distributee Members in the ordinary course of business pursuant to the following
plans or programs: Clearinghouse statement balances, convention savings fund
balances, benevolent fund payments, foreign tour fund balances, and education
savings balances which are included as liabilities in the Financial Statements
for the period ending June 30, 1994 or which if payable or credited after such
date would have been included on such Financial Statements if they were payable
or credited prior to that date.
"Licensed Intellectual Property" means the registered and unregistered
Trademarks owned and used by FTD as of the date of this Agreement, including
without limitation the Logo and the marks "FTD", "FTDA", and "FLORISTS
TRANSWORLD DELIVERY", "FLORIST" and "FTD FAMILY" (all as set forth on Exhibit
TL-A to the Trademark License Agreement, and all other Trademarks used in
connection with the Retail/Professional Florists Industry acquired by the
Surviving Corporation at any time after the date of the Merger, but shall not
include such Trademarks as are used solely in connection with the Floral
Network, any Software which FTD owns or has the right to use pursuant to a
license or other agreement, the marks "Interflora" and "Fleurin" licensed to FTD
under the Interflora/FTD License Agreements dated December 7, 1987 between
Interflora and FTD, or any Trademarks owned by RGC. However, Licensed
Intellectual Property shall not include any Intellectual Property which was used
by FTD prior to the Merger pursuant to an agreement which restricts or otherwise
limits the Surviving Corporation's ability to license to FTDA, or use on FTDA's
behalf, said Intellectual Property, unless the necessary consents from third
parties have been duly obtained pursuant to Section 3.3.
"Licenses" has the meaning set forth in Section 7.9.
"Litigation" has the meaning set forth in Section 7.5.
"Logo" means the stylized Mercury man emblem shown in Exhibit TL-B to the
Trademark License Agreement.
"Material Adverse Effect" means any adverse change in the financial
condition, business, prospects or results of operations of FTD or any of the
Subsidiaries, which is material to FTD and the Subsidiaries, taken as a whole.
"Member" means an Active Member and an Affiliate Member (each as defined in
Bylaw I, Section 2 of FTD's Bylaws) of FTD.
"Member Equity" means the amounts available to be distributed to each
Distributee Member in forms other than cash held by FTD for the account of each
Distributee Member as of June 30, 1994, plus such amounts as shall be
distributable in cash or written notices of allocation to each Distributee
Member for the fiscal year ended June 30, 1994, plus the Stub Period Member
Equity less any amount paid by FTD from the equity account of such Distributee
Member to, or on behalf of, such Distributee Member in cash on or after July 1,
1994 through the Effective Time. Member Equity does not include any amount of
the Credit Deposit Fund.
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"Member Equity Merger Distribution" means that portion of the Cash Merger
Consideration that will be distributed to Distributee Members in satisfaction of
Members' Equity other than Stub Period Member Equity.
"Member Merger Distributions" means the Member Equity Merger Distribution
and the Stub Period Merger Distribution.
"Member Used Intellectual Property" has the meaning set forth in the Mutual
Support Agreement.
"Members' Equity" means the cumulative amount of Member Equity for all
Distributee Members.
"Merger" has the meaning set forth in the Recitals.
"Michigan Certificate of Merger" means the certificate of merger to be
filed pursuant to Section 2.3(c).
"Mutual Support Agreement" means the agreement to be entered into no later
than the date immediately prior to the Closing Date between the Surviving
Corporation and FTDA in the form attached as Exhibit A to this Agreement.
"NOLs" has the meaning set forth in Section 7.12.
"Non-Distributee Member" means those members of FTD which are not
Distributee Members.
"Nonprofit Act" means the Michigan Nonprofit Corporation Act, as amended,
M.C.L.A. Sec. 450.2101 et seq.
"Patronage Distribution Method" means that method of determining the amount
to be distributed to any Distributee Member by applying the Distribution
Percentage to the aggregate amount to be distributed.
"Per Capita Distribution Method" means that method of determining the
amount to be distributed to any Distributee Member by dividing the aggregate
amount to be distributed on an equal per capita basis.
"Permitted Investments" means direct obligations of or obligations fully
guaranteed by the United States of America; provided that the maturities of such
obligations shall be such so as to permit the Disbursing Agent to distribute the
Declaratory Judgment Merger Distribution in accordance with the terms of this
Agreement and the Disbursement Agreement but in no event shall such maturities
exceed more than three hundred and sixty-five (365) days.
"Person" means an individual, a corporation, a partnership, an association,
a trust, or any other entity or organization, including a governmental or
political subdivision or an agency or instrumentality thereof.
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"Pre-Merger Amendment" means an amendment to FTD's Articles of Association
and/or Bylaws to provide for an additional class of FTD membership to which
Buyer will be admitted at the Effective Time of the Merger. Such amendment
shall be in the form to be mutually agreed upon by Buyer and FTD.
"Private Letter Ruling" means the private letter ruling from the United
States Internal Revenue Service to FTD, dated January 23, 1970.
"RGC" means Renaissance Greeting Cards, Inc., a Maine corporation formerly
known as "Renaissance Acquisition Company", and majority-owned subsidiary of
Holdings.
"Real Property" means the real property owned by FTD and/or its
Subsidiaries.
"Record Date" means the record date established by FTD's Board of Directors
for the purpose of determining which of FTD's members are entitled to notice of
and to vote at the Special Membership Meeting to be held to review and approve
the Merger, the Pre-Merger Amendment, and the transactions contemplated by this
Agreement.
"Related Agreements" means the Mutual Support Agreement, Trademark License
Agreement, Leaseback Agreement, the Escrow Agreement, the Disbursement Agreement
and any other agreements, certificates and instruments executed in connection
with this Agreement and the transactions contemplated hereby and by such other
agreements.
"Restated FTD Articles" has the meaning set forth in Section 2.3(d).
"Retail/Professional Florists Industry" means the business of selling
products and performing services customarily associated with operating and
maintaining a retail/professional florist business.
"Securities Act" has the meaning set forth in Section 6.20.
"Software" means all computer software and databases, including all
embodiments or fixations thereof and related resource material and
documentation, and all additions, improvements, enhancements, updates and
accessions thereto, and including without limitation the Floral Network.
"Special Credit Deposit" means the aggregate of all amounts which have been
assessed against, paid by and remain to the credit of Members as Special Credit
Deposits and advance payments pursuant to the Clearing House Rules set forth in
the FTD Handbook at pages 144 through 149 and which are included as liabilities
in the Financial Statements for the period ended June 30, 1994 or which, if
payable or credited after such date, would have been included on each Financial
Statement if they were payable or credited prior to such date.
"Special Membership Meeting" has the meaning set forth in Section 3.1.
"Stub Period Member Equity" means with respect to each Distributee Member
such amounts as shall be distributable in cash or written notices of allocation
to such Distributee
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Member for the partial fiscal year beginning on July 1, 1994, and ending on the
Closing Date less any amounts paid by FTD from the equity account of such
Distributee Member during such period.
"Stub Period Merger Distribution" means that portion of the Cash Merger
Consideration that will be distributed to Distributee Members in satisfaction of
Stub Period Member Equity.
"Subsidiaries" means, collectively, Holdings, Direct Access, FTD Canada,
Directory Advertising and RGC.
"Surviving Corporation" means FTD following the Merger and its successors.
"Tax" or "tax" has the meaning set forth in Section 7.12 for purposes of
such Section.
"Trademark License Agreement" means the license agreement in substantially
the form attached as Exhibit MS-A to the Mutual Support Agreement to be entered
into no later than the date immediately prior to the Closing Date between the
Surviving Corporation and FTDA.
"Trademark Membership License Agreement" means the license agreement in
substantially the form attached as Exhibit MS-B to the Mutual Support Agreement
to be entered into after the Closing between the Surviving Corporation and each
Person who becomes a member of FTDA.
"Trademarks" means those trademarks, trade dress, trade names, trade
styles, logos or service marks, including all registrations thereof and
applications therefor in the United States, any political subdivisions thereof,
and any foreign jurisdictions.
"Transaction Expenses" has the meaning set forth in Section 9.2.
"Transferred Employees" has the meaning set forth in Section 10.1(n).
"Transmittal Form" has the meaning set forth in Section 2.5(b)(ii).
"Value Plus Program" means the FTD program of member incentives previously
adopted by FTD's Board of Directors and as in effect on the date of this
Agreement and through the Closing Date and described in or attached as Schedule
1.1.
"Value Plus Program Liabilities" means FTD's liabilities to Members accrued
as of the Closing Date on the books of account of FTD to provide benefits to the
Members under the Value Plus Program.
1.2 Other Definitions; Rules of Construction.
(a) As used herein, the terms "Agreement", "FTD", "Buyer", and "Buyer Sub"
shall have the respective meanings ascribed thereto in the introductory
paragraph of this Agreement. These terms, together with the terms defined in
Section 1.1, shall include both the singular and the plural forms thereof and
shall be construed accordingly.
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(b) References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided.
ARTICLE II
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PLAN OF MERGER
2.1 Merger. On the Closing Date, in accordance with the Nonprofit Act,
the Corporation Act (to the extent it may be applicable) and the DGCL, FTD and
Buyer Sub shall be merged into a single corporation existing under the laws of
the State of Michigan, to wit, FTD, one of the constituent corporations, which
shall be the Surviving Corporation. The separate existence of Buyer Sub shall
thereupon cease, and FTD shall continue its corporate existence as the Surviving
Corporation.
2.2 Effects of the Merger. At the Effective Time:
(a) the separate existence of Buyer Sub shall cease and Buyer Sub
shall be merged with and into FTD, which shall be the Surviving Corporation
under the Nonprofit Act;
(b) the Cash Merger Consideration shall be remitted to the Disbursing
Agent and disbursed as required by this Agreement and in the Disbursement
Agreement, provided that the Declaratory Judgment Merger Consideration
shall be held by the Disbursing Agent and invested in Permitted Investments
as directed by the Surviving Corporation until the Declaratory Judgment
Decision is obtained, after which distribution shall be made to Distributee
Members in accordance with such agreements;
(c) the Articles of Association of FTD as in effect on the Closing
Date shall be the Articles of Association of the Surviving Corporation;
(d) Buyer Sub's Bylaws shall be the Bylaws of the Surviving
Corporation, provided that the name of the Surviving Corporation shall
remain Florists' Transworld Delivery Association until it shall be changed
by the filing of the Restated Articles;
(e) the directors of Buyer Sub shall be the directors of the Surviving
Corporation and shall hold office until their successors are elected in
accordance with the Bylaws of the Surviving Corporation or until their
earlier resignation, removal or death;
(f) the officers of Buyer Sub shall be the officers of the Surviving
Corporation and shall hold office at the pleasure of the Surviving
Corporation's Board of Directors and until their successors are elected in
accordance with the Bylaws of the Surviving Corporation or until their
earlier resignation, removal or death; and
(g) the Surviving Corporation shall thereafter possess all the rights,
privileges, immunities, and franchises, and be responsible and liable for
all liabilities, of each of the constituent corporations as provided by the
Nonprofit Act and the DGCL.
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2.3 Filing of Certificates and Conversion to Profit Corporation. Before,
on or immediately after the Effective Time as herein specified, the following
shall be filed by or on behalf of each of FTD and/or Buyer Sub with the
appropriate authority:
(a) prior to the Effective Time, the Pre-Merger Amendment to the FTD
Articles of Association;
(b) a certificate of merger pursuant to Section 103 of the DGCL to be
effective on the Closing Date;
(c) a certificate of merger pursuant to Sections 707 and 131 of the
Nonprofit Act ("Michigan Certificate of Merger") to be effective as of the
Closing Date after the filing described in subsection (b); and
(d) immediately after the Effective Time, a certificate of amendment
which shall amend the Articles of Association of the Surviving Corporation
to, inter alia, (i) convert the Surviving Corporation to a "for profit"
corporation pursuant to Section 601(2) of the Nonprofit Act, and (ii)
change the name of the Surviving Corporation to "Florists' Transworld
Delivery, Inc." (the "Restated FTD Articles").
2.4 Conversion of Shares and Membership Interests. The manner of
converting outstanding shares of Buyer Sub stock into the consideration to be
exchanged therefor and of converting FTD Membership Interests into the
consideration to be distributed in exchange therefor shall be as follows:
(a) Membership Interests.
(i) A true and accurate description of FTD's outstanding types of
membership interests prior to the effectiveness of the Pre-Merger
Amendment contemplated by Section 2.3(a) is set forth on Schedule
2.4(a), which membership interests are the only existing membership
interests of FTD of any kind or nature whatsoever. The FTD Record
Members are the only holders of membership interests entitled to vote
with respect to the Merger and each such FTD Record Member is entitled
to cast one vote with respect to such member's membership interest.
The Distributee Members hold the only FTD membership interests of any
kind or nature whatsoever that are entitled to be converted in the
Merger and receive any of the Cash Merger Consideration pursuant to
the Articles of Association or Bylaws of FTD or applicable law. At the
Effective Time the membership interests of Non-Distributee Members
will be extinguished and are not entitled to be converted in the
Merger or receive any of the Cash Merger Consideration pursuant to the
Articles of Association or Bylaws of FTD or applicable law.
(ii) At the Effective Time, by virtue of the Merger and without
any further action on the part of the holder thereof, FTD, or Buyer
Sub, each FTD Membership Interest shall be converted into a right to
receive the Allocable Cash
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Merger Consideration (less any required withholding of taxes) without
interest (other than as provided for in the Declaratory Judgment
Merger Distribution).
(iii) At the Effective Time, all FTD membership interests of any
kind or nature whatsoever (excluding only the membership interest to
be held by Buyer pursuant to Section 2.4(b)(ii)) in existence
immediately prior to the Effective Time shall terminate and be
extinguished and the holders of such interests shall cease to have any
rights with respect to the Surviving Corporation except (A) each
Distributee Member shall have the right to receive the Allocable Cash
Merger Consideration (less any applicable withholding of taxes)
without interest (other than as provided for in the Declaratory
Judgment Merger Distribution) pursuant to subsection (ii), and (B) as
provided in Section 2.6.
(b) Buyer Sub Stock.
(i) A description of Buyer Sub's stock issued and outstanding and
entitled to vote with respect to the Merger is 100 shares of common
stock, which is the only issued and outstanding stock of Buyer Sub.
(ii) At the Effective Time, by virtue of the Merger and without
any further action on the part of Buyer, Buyer Sub, or FTD, the 100
issued and outstanding shares of Buyer Sub common stock shall be
converted into the sole membership interest in the Surviving
Corporation.
2.5 Surrender and Exchange of Interests. After the Effective Time, the
exchange and conversion of the interests of Buyer and the Distributee Members in
Buyer Sub and FTD, respectively, shall be carried out as follows:
(a) Buyer Sub Certificates Exchanged for Membership Interest in Surviving
Corporation. Buyer shall surrender to the Surviving Corporation the certificate
or certificates representing the 100 issued and outstanding shares of Buyer Sub
common stock and shall be entitled upon such surrender to receive in exchange
therefor a certificate representing the sole membership interest in the
Surviving Corporation.
(b) Deposit of Funds; Converting FTD Membership Interests.
(i) At or prior to the Effective Time, (A) the Escrow Agent shall have
delivered the Deposit to the Buyer or, at Buyer's direction, the Disbursing
Agent, in partial payment of the Cash Merger Consideration, and (B) Buyer
Sub shall deposit by wire transfer with the Disbursing Agent, pursuant to
the terms of the Disbursement Agreement and this Agreement, an amount in
cash equal to the total Cash Merger Consideration, less the amount of the
Deposit, if delivered to the Disbursing Agent pursuant to clause (A) above.
Buyer Sub shall furnish to FTD evidence satisfactory to FTD that such funds
have been so deposited with the Disbursing Agent. Except with respect to
amounts required to be distributed as part of the Declaratory Judgment
Merger Distribution, no interest on amounts deposited with the Disbursing
Agent shall accrue for the benefit of, or be paid to Distributee Members.
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(ii) Promptly after the Effective Time, the Disbursing Agent shall
notify each Distributee Member and Non-Distributee Member of the
effectiveness of the Merger and shall cause a transmittal and instruction
form ("Transmittal Form") to be sent to each Distributee Member advising
such members of (a) the terms of payment to be effected in connection with
the Merger, (b) the procedure for instructing the Disbursing Agent
regarding the manner and timing of delivering the Allocable Cash Merger
Consideration to which such member is entitled under this Agreement, (c)
the actions required to be taken to become a member of FTDA and continue to
use the Member Used Intellectual Property which actions shall include, but
not be limited to, execution and delivery to FTDA of the Trademark
Membership License Agreement, and (d) that such Distributee Member's FTD
Membership Interest has, by virtue of the Merger, been converted solely
into the right to receive the Allocable Cash Merger Consideration and the
right to receive, as applicable, credits for or repayments of the program
balances described in Section 2.6. Such Transmittal Form shall include, as
a condition to receipt of the Allocable Cash Merger Consideration, an
unconditional release from each Distributee Member for any and all
liabilities owed to such member by FTD, the Surviving Corporation, Buyer or
FTDA in connection with the Merger or such member's FTD membership
interests other than the Allocable Cash Merger Consideration and any
amounts or credits described in Section 2.6.
(iii) The Surviving Corporation shall notify the Disbursing Agent of
the effectiveness of the Merger. Thereafter,
(A) Upon the Disbursing Agent receiving a duly executed Transmittal
Form and such other documents reasonably requested by the Disbursing
Agent from a Distributee Member, the Disbursing Agent shall promptly
pay by check to each such submitting member an amount equal to the
Member Equity attributable to such member as of June 30, 1994 (less
any required withholding of taxes) without interest, provided that if
such submitting member shall have complied with the instructions for
becoming a member of FTDA, the amount payable pursuant to this
subsection shall be reduced by the amount thereof which such member
authorizes the Disbursing Agent to pay over to FTDA as a membership
fee on behalf of such member. The Member Equity attributable to each
Distributee Member pursuant to this subsection shall be as set forth
in the books and records of FTD and shall be certified by the
Distribution Accountants and provided to the Disbursing Agent prior to
the Effective Time;
(B) Upon the Disbursing Agent's receipt of the calculation of the
Stub Period Member Equity for each Distributee Member (if any),
certified by the Distribution Accountants and approved by the
Surviving Corporation and the DJ Trustee, the Disbursing Agent shall
promptly pay, by check to each Distributee Member who has theretofore
submitted a duly executed Transmittal Form, the Stub Period Member
Equity attributable to such member (less any required withholding for
taxes) without interest;
(C) Upon the Disbursing Agent's receipt of a certified Declaratory
Judgment Decision and of a calculation of the portion of the
Declaratory
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Judgment Merger Distribution distributable to each Distributee Member
certified by the Distribution Accountants and approved by the
Surviving Corporation and the DJ Trustee, the Disbursing Agent shall
promptly pay by check to each such Distributee Member who has
theretofore submitted a duly executed Transmittal Form, the portion of
the Declaratory Judgment Merger Distribution distributable to such
member (less any required withholding for taxes) without interest
(other than as provided for in the Declaratory Judgment Merger
Distribution);
(D) In no event shall the Disbursing Agent be required to make any
payment to a person other than a Distributee Member in whose name the
applicable FTD Membership Interest is recorded on FTD's records
immediately prior to the Effective Time, and the Disbursing Agent
shall be permitted to make such inquiries as it deems appropriate to
assure itself with respect to the identity and entitlement to
distribution of any applicant;
(E) Until surrender of the Transmittal Form, the FTD Membership
Interest of a Distributee Member shall represent only the right to
receive such holder's Allocable Cash Merger Consideration and such
holder shall cease to have any other rights with respect to such
interest or the Surviving Corporation other than as provided in
Section 2.6; and,
(F) To the extent that the Surviving Corporation has incurred
Damages arising out of or relating to the method on distributing the
Cash Merger Consideration, Buyer or the Surviving Corporation shall
provide written notice to the DJ Trustee, after which the Surviving
Corporation and the DJ Trustee shall negotiate in good faith to agree
on the total amount of such Damages. In the event that such agreement
cannot be reached within ten (10) days after such notice, the dispute
shall be resolved pursuant to the arbitration procedures set forth in
Article XV. The Disbursing Agent shall pay to the Surviving
Corporation from the Declaratory Judgment Merger Consideration, the
amount of such Damages determined by agreement of the parties or
pursuant to an arbitration award.
(iv) Six (6) months after the Declaratory Judgment Decision, the
Disbursing Agent shall deliver to the Surviving Corporation any funds not
disbursed pursuant to subsection (iii) above, and thereafter the Surviving
Corporation (subject to applicable abandoned property laws) shall, upon
delivery to it of a duly executed Transmittal Form by a Distributee Member,
distribute to such member the Allocable Cash Merger Consideration without
interest (other than as provided for in the Declaratory Judgment Merger
Distribution) in accordance with the terms of this Section.
(v) Except as provided in subsection (ii) and Section 2.6, after
delivery of the Cash Merger Distribution to the Disbursing Agent, the Buyer
and the Surviving Corporation shall have no further obligations to any
holder of a membership interest in FTD of any kind or nature whatsoever.
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(vi) The DJ Trustee shall be charged with making any and all
determinations, decision and judgments, for any or all purposes, with
respect to the conduct, prosecution and settlement of the Declaratory
Judgment Action and the matters specified in Section 2.5. In no event
shall the DJ Trustee be liable to the Distributee Members in the absence of
willful misconduct or gross negligence. Neither the DJ Trustee, its
affiliates nor any of their respective directors, officers or employees
shall be entitled to compensation for any services provided hereunder;
provided that the DJ Trustee shall be reimbursed for any reasonable out-of-
pocket expenses incurred by the DJ Trustee out of the funds deposited with
the Disbursing Agent.
(vii) The parties to this Agreement acknowledge and agree that they
will treat, and cause the DJ Trustee to treat, all amounts deposited with
the Disbursing Agent, and all earnings thereon, for all tax purposes as
owned by a separate taxpayer that is not an Affiliate of any party to this
Agreement. The parties hereto will charge the DJ Trustee with filing all
tax returns and paying all taxes due with respect to the income and losses
of the funds deposited with the Disbursing Agent and invested in Permitted
Investments. Accordingly, the portion of the Declaratory Judgment Merger
Distribution to be paid to each Distributee Member pursuant to this
Agreement shall be net of an allocable portion of the total amount of such
taxes.
(c) On or before the Cut Off Time, FTD shall provide Buyer with a
Closing statement which sets forth the amount of the Cash Merger
Consideration and the method of calculation thereof. In the event that
Buyer disputes the amount of the Cash Merger Consideration, Buyer and FTD
shall negotiate in good faith to resolve any difference.
2.6 Further Action and Obligations of Surviving Corporation. Following the
Closing, the Surviving Corporation shall be required to satisfy FTD's
obligations to the former Distributee Members and Non-Distributee Members with
respect to the following:
(a) liabilities of the Surviving Corporation to former members for:
(i) Liabilities to Distributee Members' and Non-Distributee
Members' funds or accounts; and
(ii) the Special Credit Deposit attributable to such former
Member's deposit account;
(b) payment of an amount in cash equal to:
(i) the Value Plus Program Liabilities attributable to each former
member at the Effective Time; provided that the Surviving Corporation
shall only pay such liabilities by check thirty (30) days after it has
filed a consolidated tax return for the tax period ending at the
Effective Time which filing the Surviving Corporation undertakes to
make on or before six (6) months from the Closing Date; and
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(ii) the Credit Deposit Fund account balance attributable to each
former member at the Effective Time shall be paid by check promptly
after the Closing Date; and
(c) rights of each former member who is or becomes a Provisional
Member of FTDA (as defined in the Mutual Support Agreement) or who elects
to become a member of FTDA to continue to use the Member Used Intellectual
Property, subject to the Mutual Support Agreement and such member's
execution of and adherence to the terms of the Trademark Membership License
Agreement.
ARTICLE III
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PRELIMINARY ACTIONS BY FTD
3.1 Ftd Member Approvals. FTD, acting through its Board of Directors,
shall promptly take the actions necessary in accordance with the Nonprofit Act,
the Corporation Act (to the extent the same may be applicable), and its Articles
of Association and Bylaws to call and give notice of a special meeting of the
members for the purpose of approving the proposed plan of merger and related
transactions (the "Special Membership Meeting") and to otherwise facilitate
receiving the affirmative vote of members with respect to the Merger and the
other transactions contemplated hereby. The Special Membership Meeting will be
held at the earliest practicable date for the purpose of considering and
approving the Merger and transactions contemplated in this Agreement, including
adopting the Pre-Merger Amendment. FTD's Board of Directors shall recommend
that FTD Record Members vote in favor of the adoption and approval of: the
Merger and transactions contemplated by this Agreement and the Pre-Merger
Amendment and that FTD's Board of Directors include such recommendation in the
Information Statement and other materials to be distributed to members in
connection with the Special Membership Meeting. FTD shall promptly prepare and
submit to Buyer for approval the Information Statement and agrees to consult and
cooperate with Buyer in connection with preparing or making any announcements to
or communications with Members or obtaining the approval of Members, in each
case relating to the transactions contemplated by the Agreement. The Information
Statement shall seek approval of the FTD Record Members of the manner and method
of distributing the Cash Merger Consideration contemplated by this Agreement.
3.2 Organization of FTDA. FTD shall permit, encourage and facilitate the
independent organization of FTDA as a nonprofit corporation organized on a
membership basis in an appropriate United States jurisdiction as soon as
practicable after the date of this Agreement but prior to the Special Membership
Meeting. The Articles of Incorporation and Bylaws of FTDA shall be in
substantially the form submitted to the Members in the Information Statement
after approval of Buyer which approval shall not be unreasonably withheld.
Following the Merger, each member who is or becomes a Provisional Member of FTDA
or who elects to become a member of FTDA will continue to have the right to use
the Member Used Intellectual Property; subject to the Mutual Support Agreement
and such member's execution of and adherence to the terms of the Trademark
Membership License Agreement.
3.3 Required Consents. To the extent that any License, contract, Real
Property lease, Lease, FTD Permit, or other asset used in conducting any of the
Businesses is subject to
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restrictions which may require that FTD may not effect or be a party to the
Merger without the consent of a third party or which may restrict the ability of
the Surviving Corporation to operate the Businesses as herein contemplated, FTD
shall use its reasonable best efforts to obtain the third party's consent to the
Merger and deliver such consent at the Closing.
3.4 PRE-MERGER AMENDMENT OF ARTICLES OF ASSOCIATION OR BYLAWS. Upon
obtaining the affirmative vote of the FTD Record Members as required by law in
favor of the Pre-Merger Amendment, FTD shall, prior to the Closing, take all
further steps required or appropriate to implement and effect the Pre-Merger
Amendment.
3.5 APPROVAL OF MICHIGAN CERTIFICATE OF MERGER. Promptly after the date
of this Agreement, FTD shall submit the proposed form of Michigan Certificate of
Merger to the Michigan Department of Commerce requesting the Department to give
its pre-filing approval to the proposed Michigan Certificate of Merger.
ARTICLE IV
PRELIMINARY ACTIONS BY BUYER AND BUYER SUB
4.1 DEPOSIT.
(a) Buyer shall, contemporaneous with executing and delivering this
Agreement, deposit $1,500,000 cash ("Deposit") pursuant to and in accordance
with the Escrow Agreement attached hereto as Exhibit B ("Escrow Agreement"), to
be held as described in subsection (b).
(b) The Deposit shall be held by The Bank of New York ("Escrow Agent") in
escrow pursuant to and in accordance with the terms hereof and the Escrow
Agreement until the earliest to occur of: (i) its proper distribution in
connection with the Merger in accordance with Section 2.5(b) hereof; (ii) its
disposition prior to the Merger by written agreement signed by both Buyer and
FTD; (iii) its release pursuant to Section 16.2; or (iv) its return to Buyer
pursuant to Section 16.2.
(c) At the Closing, the Deposit shall be released from escrow and returned
to Buyer.
4.2 ORGANIZATION AND CAPITALIZATION OF BUYER SUB.
(a) Buyer has formed Buyer Sub as a newly-organized, wholly-owned
subsidiary under the DGCL and such subsidiary has full corporate power and
authority to enter into and become a party to this Agreement.
(b) Immediately before the Closing, Buyer shall contribute or otherwise
provide cash to the capital of Buyer Sub in an amount sufficient to provide the
Cash Merger Consideration. Upon request, Buyer shall furnish to FTD and Buyer
Sub evidence satisfactory to FTD and Buyer Sub, respectively, that such funds
have been provided.
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4.3 COVENANTS AND UNDERTAKINGS.
(a) Buyer shall cause Buyer Sub to perform all of its obligations under
this Agreement and shall not permit Buyer Sub to take any action which it is not
permitted to take under this Agreement.
(b) Buyer Sub represents that from and after its organization it has not
and covenants and agrees that from and after the execution of this Agreement it
will not, prior to the Merger, (i) enter into any transaction except those
required or contemplated by this Agreement, (ii) conduct any business except
that required or contemplated by this Agreement, or (iii) incur any liability,
obligation, tax or other claim except as a consequence of any of the
transactions required or contemplated in this Agreement.
(c) After the Merger, the Surviving Corporation shall not and Buyer shall
not permit the Surviving Corporation to make the election provided by Code
Section 338(g) or take any action which would cause Buyer Sub to be treated as
having been deemed to make an election pursuant to Code Section 338(e) or
otherwise treat FTD as having sold all of its assets at the close of the Merger.
(d) Buyer Sub, acting through its Board of Directors, shall promptly take
all actions necessary in accordance with the DGCL to cause this Agreement to be
submitted to Buyer, as its sole stockholder, for approval pursuant to Sections
251 and 252 of such law; and, Buyer agrees to vote all the stock of Buyer Sub
for the adoption of the Agreement.
(e) Buyer agrees to cause the Surviving Corporation to continue to
indemnify:
(i) provided it is not contrary to applicable law, the officers and
directors of FTD to the fullest extent provided under the Articles of
Association, the Bylaws and the indemnification policy previously approved
by the FTD Board of Directors on February 2, 1988 as in effect on the date
hereof for any actions taken prior to the Effective Time; and
(ii) W. Y. Campbell & Company pursuant to Exhibit A to the Engagement
Letter dated April 13, 1994 (as amended).
ARTICLE V
CLOSING
CLOSING. The Closing of the Merger and the other transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Dickinson,
Wright, Moon, Van Dusen & Freeman, 500 Woodward Avenue, Suite 4000, Detroit,
Michigan 48226, on the Closing Date.
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ARTICLE VI
POST-SALE RELATIONSHIPS
POST-SALE RELATIONSHIPS BETWEEN BUYER AND FTDA. FTD acknowledges that, on
the Closing Date, FTD as the Surviving Corporation and FTDA will enter into and
be bound by the Mutual Support Agreement, the Trademark License Agreement and
the Leaseback Agreement.
ARTICLE VII
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF FTD
FTD represents, warrants, and agrees with Buyer as follows:
7.1 ORGANIZATION, GOOD STANDING, AND POWER OF FTD. FTD is a nonprofit
corporation duly organized, validly existing and is in good standing under the
laws of the State of Michigan and is qualified and in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by it requires such qualification, except where
failure to so qualify or be in good standing would not, individually or in the
aggregate, have a Material Adverse Effect. FTD has all requisite power to own
or lease its properties and to carry on its business in the manner and in the
place where such properties are owned or leased and its business is now being
conducted. FTD has heretofore made available to Buyer complete and correct
copies of the Articles of Association and Bylaws of FTD. Such Articles of
Association and Bylaws are in full force and effect and FTD is not in violation
of any provision of its Articles of Association and Bylaws.
7.2 AUTHORITY AND CAPACITY OF FTD. FTD has all requisite corporate power,
authority and capacity to enter into this Agreement and the Related Agreements
and transactions contemplated herein and therein and, subject to the approval of
this Agreement and the transactions contemplated herein by a majority of the FTD
Record Members at the Special Membership Meeting in accordance with the
Nonprofit Act and FTD's Articles of Association, to perform its obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and the Related Agreements and transactions contemplated by this
Agreement and the transactions contemplated herein and therein by FTD have been
duly authorized, approved and adopted by all necessary corporate action of FTD,
including the approval by its Board of Directors, and no other corporate
proceedings on the part of FTD are necessary to authorize this Agreement and the
Related Agreement contemplated herein or to consummate the transactions
contemplated herein and therein (other than the approval at this Agreement and
the transactions contemplated herein by the affirmative vote of a majority of
the FTD Record Members at the Special Membership Meeting in accordance with the
Nonprofit Act and FTD's Articles of Association and Bylaws as contemplated by
this Agreement and, with respect to the Related Agreements to be performed by
the Surviving Corporation, the ratification of such FTD approvals by the Board
or Directors of the Surviving Corporation as contemplated by Section 12.4).
This Agreement has been and the Related Agreements contemplated herein will be
when executed duly and validly certified, executed, acknowledged and delivered
by FTD and, subject to the approval of this Agreement and the transactions
contemplated herein and therein by the affirmative vote of a majority of the FTD
Record Members at the Special Membership Meeting in accordance with the
Nonprofit Act and FTD's Articles of Association and Bylaws, assuming
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this Agreement and the Related Agreements contemplated herein will constitute or
will constitute when executed, the valid and binding agreements of Buyer, the
Surviving Corporation and any other parties thereto, constitute the valid and
binding agreements of FTD, enforceable against FTD in accordance with their
respective terms, except that that enforcement hereof and thereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law).
7.3 Effect of Agreement. Neither the execution and delivery of this
Agreement or the Related Agreements nor the consummation by FTD of the
transactions contemplated herein or therein will (a) conflict with or result in
any breach of any provision of the Articles of Association or Bylaws of FTD or
the charter documents or bylaws of any of the Subsidiaries; (b) except as set
forth in Schedule 7.3, require any consent, approval, authorization or permit
or, or filing with or notification to, any governmental or regulatory authority,
except (i) in connection with the Antitrust Filing, (ii) the filing of the
Michigan Certificate of Merger pursuant to the Nonprofit Act, the Corporation
Law and the DGCL, and appropriate documents with the relevant authorities of
other jurisdictions in which FTD or any of the Subsidiaries are authorized to do
business, (iii) in connection with any state or local tax which is attributable
to the beneficial ownership of FTD's or the Subsidiaries' real property, if any,
(iv) such filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger or the other transactions contemplated
by this Agreement, (v) such filings, consents, approvals, orders, registrations
and declarations as may be required under the laws of any foreign country or
locality thereof in which FTD or any of the Subsidiaries conducts any business
or owns any assets, all of which are described in Schedule 7.3, or (vi) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not individually or in the aggregate,
have a Material Adverse Effect or impair the ability of FTD to consummate the
Merger and the transactions contemplated thereby; (c) except as set forth on
Schedule 7.3, result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration or lien or other charge or
encumbrance) under any or the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, permit, franchise, license, agreement or other
instrument or obligation to which FTD or any of the Subsidiaries or any of their
assets may be bound or affected, except for such violations, breaches and
defaults (or rights of termination, cancellation or acceleration or lien or
other charge or encumbrance) as to which requisite waivers or consents have been
obtained or which, individually or in the aggregate, would not have a Material
Adverse Effect or impair the ability by FTD to consummate the Merger and the
transactions contemplated hereby; or (d) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in this
Section 7.3 are duly and timely obtained or made and the approval of this
Agreement and the transactions contemplated herein by the Members has been
obtained, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to FTD or any of the Subsidiaries or to any of their
respective assets, including without limitation, the Consent Order and the
Private Letter Ruling, except for violations which would not, individually or in
the aggregate, have a Material Adverse Effect or impair the ability of FTD to
consummate the Merger and the transactions contemplated thereby.
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7.4 FINANCIAL STATEMENTS OF FTD.
(a) Except with respect to the change of accounting principles regarding
accounting for deferred taxes and retiree medical payments pursuant to F.A.S.B.
No. 106 and No. 109, FTD has maintained its books of account in accordance with
GAAP. FTD has previously delivered to Buyer copies of the audited consolidated
statements of financial position of FTD and its subsidiaries as of June 30,
1992, June 30, 1993, and June 30, 1994, audited by Deloitte & Touche, together
with the related audited consolidated statements of operations, members' equity,
and cash flows for such fiscal years then ended and the related notes thereto
(collectively, the "Financial Statements"). The Financial Statements, including
the notes thereto, (i) were prepared in accordance with GAAP, (ii) present
fairly in all material respects the consolidated financial position, results of
operations, and changes in financial position of FTD as of such dates and for
the periods then ended, and (iii) are, in all material respects, in accordance
with FTD's books of account and records.
(b) Except as and to the extent set forth in Schedule 7.4 or in the
Financial Statements, neither FTD nor any of the Subsidiaries has any liability
or obligation of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with GAAP, except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since June 30, 1994, which would not, individually or in the aggregate,
have a Material Adverse Effect.
7.5 LITIGATION. Except as set forth in Schedule 7.5 and 7.9(f), there is no
action, suit, charge, judicial or administrative proceeding, assessment,
arbitration or governmental investigation ("Litigation") pending, or to the best
knowledge of FTD, threatened, against or relating to FTD or any Subsidiary or
any of their respective properties, assets, rights or business or the
transactions contemplated by this Agreement or the Related Agreements, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against FTD or any of the Subsidiaries, which might reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect or impair the
ability of FTD consummate the Merger and the transactions contemplated herein.
7.6 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. Schedule 7.6
contains a complete and accurate list of street address (if any) and city and
state where located for all real property owned by FTD and the Subsidiaries as
of the date of this Agreement. No portion of the Real Property or any real
property acquired by FTD after the date hereof is subject to any governmental
decree or order to be sold or is being condemned, expropriated or otherwise
taken by any governmental authority or entity with or without payment of
compensation therefor, nor has any such condemnation, expropriation or taking
been proposed, that is reasonably likely to have a Material Adverse Effect.
Schedule 7.6 contains a complete and accurate list of the street address
(if any) and city and state where located for all real property leased by FTD or
the Subsidiaries as of the date of this Agreement ("Leased Premises"). FTD has
made available to Buyer complete and accurate originals or copies of all the
Leases with respect to the Leased Premises, including all amendments thereto.
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Except as disclosed in Schedule 7.6, FTD and each of the Subsidiaries have
good and valid title to or a valid leasehold interest in all the tangible
properties and assets which it purports to own or lease, including, without
limitation, the Real Property, the Leased Premises and all the personal
properties and assets reflected in the Financial Statements (except for property
sold, consumed or otherwise disposed of since June 30, 1994, in the ordinary
course of business and consistent with past practice), in each case, free and
clear of all title defects or objections, liens, claims, charges, security
interests or other encumbrances or any nature whatsoever ("Encumbrances") except
for Encumbrances which would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
7.7 Organization, good Standing, and Power of Subsidiaries. FTD has no
subsidiaries other than the Subsidiaries. Each of FTD and the Subsidiaries is a
corporation duly organized and validly existing and in good standing under the
laws of its respective jurisdiction of incorporation, and is qualified and in
good standing as a foreign corporation in each jurisdiction where the properties
owned, leased or operated, or the business conducted, by it requires such
qualification, except where failure to so qualify or be in good standing would
not individually or in the aggregate have a Material Adverse Effect. Each of
FTD and the Subsidiaries has all requisite power to own or lease its properties
and to carry on its business in all manner and in the place where such
properties are owned or leased and its business is now being conducted. FTD has
heretofore made available to Buyer complete and correct copies of the charter
documents and Bylaws of each of the Subsidiaries. Such charter documents and
Bylaws or the Subsidiaries are in full force and effect and none of the
Subsidiaries is (or will be, as applicable) in violation of any provision of its
respective charter documents or Bylaws.
7.8 Stock of Subsidiaries. Except as set forth on Schedule 7.8, FTD is,
directly or indirectly, the record and beneficial owner of all of the
outstanding shares of capital stock of each of the Subsidiaries, and no equity
securities of any of the Subsidiaries are or may become required to be issued by
reason of any options, warranties, or commitments of any character whatsoever
relating to, or securities convertible into, shares of any capital stock of any
Subsidiary, and there are no contracts or commitments by which FTD or any
Subsidiary is or may be bound to issue additional shares of the Subsidiaries'
capital stock. Except as set forth on Schedule 7.8, all of such shares owned by
FTD have been duly authorized and validly issued, and are fully paid and
nonassessable and are owned by it free and clear of any claim, lien, charge, or
encumbrance of any kind.
7.9 Intellectual Property.
(a) Schedule 7.9(a) sets forth a complete and accurate list of all (i)
patents and patent applications, (ii) registered copyrights, applications for
copyright registration, and material unregistered copyrights (including any in
proprietary computer software), (iii) all registered and all material
unregistered Trademarks, listing for each such Trademark the owner thereof and
whether it is used solely in connection with the Floral Network (the foregoing
items, together with all trade secrets, proprietary know-how, the goodwill of
the business symbolized by and/or associated with the Trademarks, unregistered
copyrights, Software, and general intangibles of like nature, and all technical
manuals and documentation made or used in connection with any of the foregoing,
are collectively referred to herein as the "Intellectual Property") owned by FTD
or
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a Subsidiary and used in or necessary for the conduct of the businesses of FTD
or a Subsidiary ("FTD's Intellectual Property").
(b) Schedule 7.9(b) sets forth a complete and accurate list of all
agreements pertaining to the use of or granting any right to use or practice any
rights under any Intellectual Property used in or necessary for the conduct of
the business or FTD and the Subsidiaries (whether FTD or a Subsidiary,
respectively, is the licensee, licensor, or another patty thereunder) listing in
each case, the parties to such agreement, whether FTD or a Subsidiary is the
licensee, licensor, or another party thereto, the subject matter of the license,
and whether the rights granted are exclusive or non-exclusive (collectively, the
"Licenses"). The Licenses include, without limitation, the agreement dated
April 5, 1984, between J. L. Dillon Inc., and FTD regarding the mark "PICK ME
UP", and the Interflora/FTD License Agreement dated December 7, 1987, between
Interflora and FTD regarding the mark "INTERFLORA".
(c) FTD or a Subsidiary owns or has the right to use all of FTD's
Intellectual Property. FTD or a Subsidiary is the sole and exclusive owner of
the Intellectual Property on Schedule 7.9(a) and its respective interest in the
Licenses, free and clear of all liens, claims and encumbrances. Either FTD or a
Subsidiary currently is listed in the records of the appropriate United States,
state or foreign agency as the sole owner of record for each application and
registration for the Intellectual Property on Schedule 7.9(s), except for those
applications and registrations listed in Schedule 7.9(c). To the best of FTD's
knowledge, the activities and products of FTD and the Subsidiaries, the conduct
of their respective businesses, and the exercise of FTD's Intellectual Property
do not infringe upon the rights of any third party.
(d) The Intellectual Property on Schedule 7.9(a) is valid, subsisting, in
proper form and enforceable, and has been duly maintained, including the
submission of all necessary filings in accordance with the legal and
administrative requirements of the appropriate jurisdictions. The Intellectual
Property on Schedule 7.9(a) has not lapsed, expired or been abandoned, and no
application or registration therefor is the subject of any pending, existing or
threatened opposition, interference, cancellation proceeding, or other legal or
governmental proceeding before any registration authority in any jurisdiction,
except for the pendency of those pending applications listed in Schedule 7.9(d).
(e) To the best of FTD's knowledge, no trade secret, know-how or any other
confidential information relating to FTD and the Subsidiaries has been disclosed
or authorized to be disclosed to any third party, other than pursuant to a non-
disclosure agreement that fully protects FTD's proprietary interest in and to
such confidential information.
(f) Except as set forth on Schedule 7.9(f), there are no claims or suits
pending or, to the best of FTD's knowledge, threatened, and FTD has received no
notice of any claim or suit (i) alleging that FTD's or a Subsidiary's activities
or products or the conduct of the businesses of FTD or a Subsidiary infringes
upon or constitutes the unauthorized use of the proprietary rights of any third
party, or (ii) challenging the ownership, use, validity or enforceability of
FTD's Intellectual Property.
(g) There are no infringement or violations by third parties of FTD's
Intellectual Property other than those listed in Schedule 7.9(g) and those which
have occurred in the ordinary
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course of business by retail florist shops which are not authorized to use FTD's
Intellectual Property and which would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect. FTD has not entered into
any consent, indemnification, forbearance to sue, or settlement agreement with
any third party relating to the Intellectual Property which would individually
or in the aggregate be reasonably likely to have a Material Adverse Effect.
(h) Except as disclosed on Schedule 7.9(h), there is no restriction or
limitation on the right of FTD or a Subsidiary to transfer any of FTD's
Intellectual Property, as herein contemplated. The consummation of the
transactions contemplated by this Agreement and the Related Agreements will not
result in the loss or impairment of any of FTD's or a Subsidiary's rights in and
to FTD's Intellectual Property or in, to and under the Licenses.
7.10 LIST OF LEASES. True and accurate copies of all leases used in the
business operations of FTD and its Subsidiaries (the "Leases") have previously
been delivered or made available to Buyer. The Leases are legally binding and
in full force and effect and, upon the Merger with any required consents as
contemplated by this Agreement, will constitute valid, binding and enforceable
leases in favor of FTD. No default presently exists under any material Lease
and no event of default will occur as a result of the Merger and the other
transactions contemplated by this Agreement and the Related Agreement and the
transactions contemplated herein and therein and no condition presently exists
which, with the passage of time, will result in a default thereunder.
7.11 EMPLOYEE BENEFIT PLANS. Schedule 7.11 sets forth a list of all
Employee Benefit Plans covering employees or former employees (or directors or
former directors) of FTD or any of the Subsidiaries. Copies or descriptions of
all such plans have previously been delivered by FTD to Buyer. Each of the
Employee Benefit Plans is in substantial compliance with applicable laws,
including ERISA and the Code; each of the Employee Benefit Plans intended to be
"qualified" within the meaning of section 401(a) of the Code is so qualified;
all contributions or other amounts payable by FTD or its Subsidiaries as of June
30, 1994 with respect to each Employee Benefit Plan in respect of current or
prior plan years have been either paid or accrued on the Financial Statements.
There are no pending, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of, or against any of the Employee Benefit
Plans or any trusts related thereto.
FTD and its Subsidiaries do not contribute to any multi-employer pension
plan, as defined in ERISA, and are not subject to any claims, whether fixed or
contingent, for withdrawal liability relating to any multiemployer pension plan.
As of June 30, 1994, the present value of the projected benefit obligations of
each ERISA Employee Benefit Plan that is subject to Title IV of ERISA, based
upon the actuarial assumptions (to the extent reasonable) presently used by such
ERISA Employee Benefit Plan, did not exceed the current value of the assets of
such plan by more than $3,400,000. No ERISA Employee Benefit Plan has an
accumulated or waived funding deficiency within the meaning of section 412 of
the Code. No "reportable event"' as such term is defined in section 4043(b) of
ERISA, has occurred with respect to any ERISA Employee Benefit Plan.
For purposes of this paragraph, the term "Plans" shall include each ERISA
Employee Benefit Plan subject to Title IV of ERISA maintained (or contributed
to) at any time within the
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past six years by FTD or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), which together with FTD would be deemed a "single
employer" within the meaning of section 4001 or ERISA. Neither the Company nor
an ERISA Affiliate has incurred, directly or indirectly, any liability
(including any contingent liability) to or on account of a Plan pursuant to
Title IV of ERISA; no proceedings have been instituted to terminate any Plan;
and no condition exists that presents a material risk to FTD or an ERISA
Affiliate of incurring a liability to or on account of a Plan pursuant to Title
IV of ERISA.
7.12 TAXES. Since 1970, FTD has been a cooperative within the meaning of
Section 1381 of the Code. As of June 30, 1994, FTD and its Subsidiaries had in
the aggregate at least $7.0 million of regular tax net operating losses within
the meaning of Section 172 of the Code ("NOLs"). FTD and each of the
Subsidiaries have correctly filed all material tax returns required to be filed
by any of them and has paid (or FTD has paid on its behalf), or has set up an
adequate reserve for the payment of, all taxes required to be paid as shown on
such returns and the Financial Statements reflect an adequate reserve for all
taxes payable by FTD and the Subsidiaries accrued through the date of such
Financial Statements. The unpaid taxes of FTD and the Subsidiaries, which have
accrued as of the date of the Financial Statements, do not materially exceed the
reserve for accrued tax liability (including any reserve for deferred taxes
established to reflect timing differences between book and tax income) set forth
or included in such Financial Statements. All material deficiencies or any
taxes which have been proposed, asserted or assessed against FTD or any of the
Subsidiaries have been fully paid, or are fully reflected as a liability in such
Financial Statements, or are being contested and an adequate reserve therefor
has been established and is fully reflected in such Financial Statements. There
are no liens for taxes (other than for current taxes not yet due and payable) on
the assets of FTD or the Subsidiaries. Except as otherwise set forth in
Schedule 7.12, as of the date hereof, neither FTD nor the Subsidiaries have been
audited by the United States Internal Revenue Service or any state, local or
foreign taxing jurisdiction since the year ended December 31, 1989, and no
agreements or consents extending the period during which any taxes may be
assessed or collected are now in force. FTD has previously delivered or made
available to Buyer true and complete copies of its federal income tax returns
for the last three taxable years ended June 30, 1993. Neither FTD nor any of
the Subsidiaries is a party to or bound by any agreement providing for the
allocation or sharing of taxes with any entity which is not, either directly or
indirectly, a Subsidiary. Neither FTD nor, to its knowledge, any of the
Subsidiaries has filed a consent pursuant to or agreed to the application of
Section 341(f) of the Code. FTD is not obligated for the payment of amounts
under any contract or arrangement that would not be deductible under Section
280G of the Code. For the purpose of this Agreement, the term "tax" (including,
with correlative meaning, the terms "taxes" and "taxable") shall include all
federal, state, local and foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, service, lease, property, withholding, excise
and other taxes, duties or assessments of any nature whatsoever, together with
all interest, penalties and additions imposed with respect to such amounts.
7.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Financial Statements or in Schedule 7.13, since June 30, 1994, (i) the business
of FTD has been carried on only in the ordinary and usual course and there has
not been any adverse change in its business, operations or financial condition
which, individually or in the aggregate, resulted in or is reasonably likely to
result in a Material Adverse Effect, and (ii) FTD has not taken any action
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that would have been prohibited by Section 9.1 if such action had been taken
after the date of this Agreement.
7.14 LABOR RELATIONS AND EMPLOYMENT. Except to the extent set forth in
Schedule 7.14, (i) there is no labor strike, dispute, slowdown, stoppage or
lockout actually pending, or to the best knowledge of FTD, threatened against or
affecting FTD or the Subsidiaries; (ii) to the best knowledge of FTD, no union
claims to represent the employees of FTD or the Subsidiaries; (iii) neither FTD
nor any Subsidiary is a party to or bound by any collective bargaining or
similar agreement with any labor organization, or work rules or practices agreed
to with any labor organization or employee association applicable to its
employees; (iv) FTD's and the Subsidiaries' employees are not represented by any
labor organization and FTD does not have any knowledge of any current union
organizing activities among such employees nor does any question regarding
representation exist concerning such employees; (v) there are no written
personnel policies, rules or procedures applicable to FTD's and the
Subsidiaries' employees other than those set forth in Schedule 7.14, true and
correct copies of which have heretofore been delivered to Buyer, and (vi) none
of FTD's or the Subsidiaries' employees has suffered an "employment loss" (as
defined in the Worker Adjustment and Retraining Notification Act of 1988) within
90 days prior to the Closing.
7.15 COMPLIANCE. Neither FTD nor any of the Subsidiaries is in conflict
with, or in default or violation of, (i) any order, writ, injunction, decree,
statute, rule or regulation applicable to FTD or any of the Subsidiaries or by
which any property or asset of FTD or any of the Subsidiaries is bound or
affected, including without limitation, the Consent Order and the Private Letter
Ruling, or (ii) any note, bond, mortgage, indenture, lease, permit, franchise,
license, agreement or other instrument or obligation to which FTD or any of the
Subsidiaries in a party or by which FTD or any of the Subsidiaries or any
property or asset of FTD or any of the Subsidiaries is bound or affected, except
for any such conflicts, defaults or violations that would not, individually or
in the aggregate, have a Material Adverse Effect. FTD and the Subsidiaries hold
all permits, licenses, exemptions, orders and approvals of all governmental and
regulatory authorities, necessary for the lawful conduct of their respective
businesses (the "FTD Permits"), except for failures to hold such FTD Permits
which would not, individually or in the aggregate, have a Material Adverse
Effect. FTD and the Subsidiaries are in compliance with the terms of the FTD
Permits, except where the failure to so comply would not, in the aggregate, be
reasonably likely to have a Material Adverse Effect.
7.16 INFORMATION STATEMENT. None of the information to be supplied by and
relating to FTD for inclusion in the Information Statement will, at the time of
the mailing of the Information Statement and at the time of the Special
Membership Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Special Membership Meeting,
any event with respect to FTD or any of the Subsidiaries should occur which is
required to be described in an amendment of, or a supplement to, the Information
Statement, such event shall be so described, and, as required by applicable
state law, such amendment or supplement shall be disseminated to the Members.
The Information Statement will comply as to form in all material respects with
the requirements of applicable state and Federal law.
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7.17 INVENTORY. As of June 30, 1994, the inventories of FTD and the
Subsidiaries as stated in the Financial Statements are usable or saleable in the
ordinary course of business, except for obsolete products and materials and
materials of below standard quality, which have either been written down to
their realizable market value (except for any such write downs which would not
have a Material Adverse Effect) or for which adequate reserves have been
provided for (except for any such reserves the lack of which would not have a
Material Adverse Effect).
7.18 OPINION OF INVESTMENT BANKERS. FTD has received the opinion of W. Y.
Campbell & Company dated July 18, 1994, updated as of the date hereof, to the
effect that, as of such dates, the Merger is fair to the Members of FTD from a
financial point of view and has provided Buyer with signed copies of such
opinion.
7.19 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 7.19, FTD is in compliance in all
material respects with all applicable Environmental Laws (which compliance
includes, but is not limited to, the possession by FTD of all permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof). FTD has not received any
communication (written or oral), whether from a governmental authority, citizens
group, employee or otherwise, that alleges that FTD is not in such compliance,
and, to the best knowledge of FTD, there are no circumstances that may prevent
or interfere with such compliance in the future.
(b) Except as set forth in Schedule 7.19, there is no Environmental Claim
pending or threatened against FTD or, to the best knowledge of FTD, against any
person or entity whose liability for any Environmental Claim FTD has or may have
retained or assumed either contractually or by operation of law.
7.20 [RESERVED]
7.21 CASH MERGER CONSIDERATION. Upon the effectiveness of the Merger and
the Cash Merger Consideration having been deposited with the Disbursing Agent in
accordance with the terms of this Agreement, any and all financial obligations
of the Surviving Corporation to any member of FTD (including Active, Affiliate,
Student, Retired, Honorary, Associate, and other members of FTD), including but
not limited to paying the Cash Merger Consideration and any and all patronage
dividends or other capital in FTD or the Surviving Corporation, shall have been
fully satisfied and extinguished except for the liabilities, obligations,
deposits and rights described in Section 2.6, and no Person shall hold any
membership interest in the Surviving Corporation of any kind or nature
whatsoever, except Buyer.
7.22 THE MERGER AND CERTAIN RELATED MATTERS. Upon filing with the
Secretary of State of the State of Delaware a certificate of merger, and
thereafter filing the Michigan Certificate of Merger and the endorsement upon
such certificate of the word "filed" in accordance with Section 131 of the
Nonprofit Act, the Merger will be effective in accordance with the DGCL and
Michigan law ("Effective Time"). Members are not entitled to dissenters rights
under the Nonprofit Act and the Corporation Act (to the extent it may be
applicable) as a result of the transactions contemplated by the Merger and the
Pre-Merger Amendment.
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7.23 FEES AND CHARGES. Schedule 7.23 contains a true and accurate list of
all fees, charges and assessments which are chargeable to members from and after
July 1, 1994. The fees, charges and assessments set forth therein are not
materially lower than the highest comparable amounts charged or assessed during
the fiscal year ended June 30, 1994.
ARTICLE VIII
REPRESENTATIONS, WARRANTIES, AND
AGREEMENTS OF BUYER AND BUYER SUB
Buyer and Buyer Sub hereby represent warrant, and agree with FTD as
follows:
8.1 ORGANIZATION, GOOD STANDING, AND POWER OF BUYER AND BUYER SUB. Each
of Buyer and Buyer Sub is a corporation duly organized, validly existing and in
good standing in the state of Delaware, and is (or will be prior to the Closing)
qualified to do business and in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by it requires such qualification, except where failure to so qualify
or be in good standing would not, individually or in the aggregate, have a
material adverse effect on Buyer's or Buyer's Sub's ability to consummate the
Merger and the other transactions contemplated herein, and has all requisite
power to own or lease its properties and to carry on its business in the manner
and in the place where such properties are owned or leased and its business is
now being conducted. All of the issued and outstanding shares of Buyer Sub's
capital stock have been duly authorized and validly issued, and are fully paid
and non-assessable.
8.2 AUTHORITY AND CAPACITY OF BUYER AND BUYER SUB. Each of Buyer and Buyer
Sub have all requisite corporate power, authority, and capacity to enter into
this Agreement and the Related Agreements and transactions contemplated herein
and therein aud to perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and the Related Agreements
and the transactions contemplated herein and therein by Buyer and Buyer Sub have
been duly authorized, approved and adopted by all necessary corporate action of
Buyer and Buyer Sub (other than the approval of Buyer as sole stockholder of
Buyer Sub), and no other corporate proceedings on the part of Buyer or Buyer Sub
(other than the approval of Buyer as sole stockholder of Buyer Sub) are
necessary to authorize this Agreement and the Related Agreements or to
consummate the transactions contemplated herein and therein. This Agreement and
the Related Agreements and the transactions contemplated herein and therein have
been and will be when executed duly and validly certified, executed,
acknowledged and delivered by Buyer and Buyer Sub and, assuming this Agreement
and the Related Agreements contemplated herein constitute the valid and binding
agreements of the other parties thereto, constitute (subject to the approval of
Buyer as sole stockholder of Buyer Sub) or will constitute when executed the
valid and binding agreements of Buyer and Buyer Sub, enforceable against Buyer
and Buyer Sub in accordance with their terms, except that the enforcement hereof
and thereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect relating to
creditor's rights generally and (ii) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
8.3 EFFECT OF AGREEMENT. The execution, delivery and performance of this
Agreement and the related agreements contemplated
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herein and the transactions contemplated herein and therein by Buyer and Buyer
Sub will not violate, with or without the giving of notice or the passage of
time, or both, any provision of law applicable to Buyer or Buyer Sub, and will
not conflict with, or result in the breach or termination of any provision of,
or constitute a default under, or result in the creation of any lien, charge or
encumbrance upon any of their assets pursuant to, any corporate charter, bylaws,
indenture, mortgage, lease or other agreement or instrument to which Buyer or
Buyer Sub is a party or by which Buyer or Buyer Sub or any of their respective
assets and properties may be bound, or any license, permit or franchise held by
Buyer or Buyer Sub except for such violations, conflicts, breaches,
terminations, liens, charges or encumbrances which would not have a material
adverse effect on the ability of Buyer or Buyer Sub to consummate the Merger and
the transactions contemplated herein.
8.4 LITIGATION. There is no action, suit, judicial or administrative
proceeding, assessment, arbitration, or governmental investigation pending or,
to the best knowledge of Buyer or Buyer Sub, threatened, against or relating to
Buyer or Buyer Sub or their respective properties, assets, rights, or business
which might reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the ability of Buyer and Buyer Sub to consummate the
Merger and the transactions contemplated by this Agreement or the other
transactions contemplated
8.5 FINANCING. Buyer has, in currently available funds or in committed
financing arrangements, all funds necessary to satisfy the Cash Merger
Consideration and to perform its other obligations required hereunder.
8.6 THE MERGER. Upon the delivery to the Secretary of State of the State
of Delaware of a certificate of merger and the endorsement upon the original
signed certificate of merger of the word "filed" in accordance with Section 103
of the DGCL, the Merger will be effective in accordance with Delaware law.
ARTICLE IX
CONDUCT OF BUSINESS PENDING CLOSING
9.1 CONDUCT OF BUSINESS. FTD agrees that, prior to the Closing Date and
except as set forth in Section 9.2 and except as otherwise consented to by Buyer
in writing, FTD shall and shall cause the Subsidiaries to:
(a) operate the Businesses only in the usual and ordinary manner
consistent with past practice and preserve the present business
organization intact, keep available the services of its present employees,
and preserve its member and supplier relationships;
(b) maintain its properties in customary repair, order and condition,
reasonable wear and tear excepted, and maintain insurance upon its
properties and with respect to the Businesses in such amounts and of such
kinds as would be maintained by a prudent person with respect to a similar
business of comparable size;
(c) maintain its books, accounts and records in the ordinary manner,
on a basis consistent with FTD's accounting practices and procedures
presently in existence, and comply with all applicable laws;
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(d) provide to Buyer, its agents and representatives, full access
(during regular business hours and upon reasonable notice) to the officers,
employees, agents, properties, offices, and other facilities, and to the
books, records, and contracts of FTD and the Subsidiaries, and shall
furnish Buyer, its agents and representatives, all financial, operating and
other data and information as Buyer may from time to time reasonably
request;
(e) provide to Buyer copies of all land surveys, real property
appraisals, environmental reports, and other records relating to the Real
Property as presently exist and are available in FTD's records, and provide
Buyer with a commitment for title insurance and a Phase I environmental
report, in each case of a recent date for each parcel of the Real Property;
(f) make no distributions to the members except distributions of
patronage dividends or out of the Credit Deposit Fund and Member Equity
consistent with FTD's past practice and prior to the Cut Off Time, it being
understood that all patronage dividends required in the opinion of FTD's
counsel to preserve FTD's cooperative tax-status shall be made prior to Cut
Off Time and that FTD shall, prior to the Closing Date, declare the
patronage dividend with respect to the fiscal and tax period from July 1,
1994 through the Closing Date;
(g) not intentionally incur any liability or obligation (absolute,
accrued, contingent or otherwise) other than in the ordinary and usual
course of business and consistent with past practice or issue any debt
securities or, other than in the ordinary course of business consistent
with past practice, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other Person;
(h) not acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division or significant assets thereof or acquire, directly or indirectly,
any equity interest in any Person;
(i) except as contemplated by this Agreement, not amend or modify the
Articles of Association or Bylaws or equivalent document of FTD or any of
the Subsidiaries or the provisions of the FTD Handbook as in effect on the
date hereof or any material agreement of FTD or any of the Subsidiaries;
(j) other than as contemplated by this Agreement and except as
permitted under Section 17.1, not sell, lease, license, encumber or
otherwise dispose of any of its assets which are material, individually or
in the aggregate, to FTD;
(k) not make any change in financial or tax accounting methods,
principles or practices or make or cause to be made any elections on any
federal, state or local tax returns of FTD or any Subsidiary, except as
consistent with past practices and promptly file all tax returns required
to be filed;
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(l) not fail to use all reasonable efforts to take or omit to take any
action where such failure would make any representation or warranty in
Article VII untrue or incorrect in any material respect;
(m) not make or commit to make any single capital expenditure in
excess of $25,000 or which, together with all other capital expenditures
made by FTD and the Subsidiaries after the date hereof and prior to the
Closing Date, exceeds $200,000 in the aggregate;
(n) except as permitted under Section 17.1, not enter into any
material agreement;
(o) not (i) enter into, adopt or (except as may be required by law)
amend or terminate any benefit or compensation plan, program, agreement or
arrangement for the benefit of any employee, director, former employee or
former director, (ii) increase in any manner the compensation or benefits
of any individual or pay any benefit not required by a plan, program,
agreement or arrangement as in effect as of the date hereof except for
merit increases consistent with past practice in the ordinary course of
business which shall not in the aggregate exceed four and four-tenths
percent (4.4%) of the compensation base of the employees eligible for such
increases as set forth on a schedule to be provided to Buyer as soon as
practicable after the execution hereof, (iii) fund any employee benefit
plan except as required by law or the terms of any such plan as in effect
as of the date of this Agreement, or (iv) enter into any contract,
agreement, commitment or arrangement to do any of' the foregoing;
(p) not cancel or forgive any indebtedness or waive or modify any
claims or rights of substantial value or pay or prepay any indebtedness,
expense or other obligation before the same becomes due;
(q) not make any material change in any plan, program or benefit
provided or related to members;
(r) not settle or discontinue the prosecution or defense of any
material claim, including but not limited to, the Floral Network Litigation
referred to in Section 2.8(p) of the Mutual Support Agreement;
(s) not make any payments out of the Credit Deposit Fund, of the
Member Equity or of the Stub Period Member Equity on or after the Cut Off
Time; or
(t) not agree, in writing or otherwise, to do any of the foregoing.
9.2 FTD'S PRE-CLOSING TRANSACTIONAL EXPENSES. Prior to or concurrently with
the Closing, FTD will pay all fees, costs, and expenses, whether or not accrued
or then invoiced, of FTD's investment bankers, legal counsel, accountants, other
financial advisors in connection with or related to the transactions anticipated
by this Agreement and the costs associated with printing and mailing the
Information Statement (the "Information Expenses"). Schedule 9.2 lists all
payees to whom it is expected such Transaction Expenses will be payable. Such
Schedule is to be updated as of the Effective Time.
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ARTICLE X
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CONDITIONS TO CLOSING
10.1 Buyer and Buyer Sub. All of Buyer's and Buyer Sub's obligations under
this Agreement are subject to the fulfillment, prior to or at the Closing, of
each or the following conditions:
(a) Buyer shall have received all of the documents and certificates
required to be delivered by FTD under Article XI.
(b) FTD's representations and warranties set forth in Article VII
shall be true and correct in all material respects as of the date of this
Agreement and shall be deemed to have been made again at and as of the
Closing and shall then be true and correct in all material respects.
(c) FTD shall have performed and satisfied its obligations then to be
performed under this Agreement in all material respects.
(d) FTD, FTDA, Buyer, and Buyer Sub shall have received all permits,
waivers, authorizations, consents, and approvals of all third parties or as
required by the laws of an applicable jurisdictions which are necessary or
desirable for consummating the transactions contemplated by this Agreement or
the failure of which to have or obtain would have a Material Adverse Effect;
provided, however, that no such permit, waiver, authorization, consent or
approval shall contain any material limitation on the conduct of the Businesses
after the Merger.
(e) The waiting period required in connection with the Antitrust
Filing, if any, shall have expired or been terminated.
(f) There shall not be any injunction, judgment, order, decree, or
ruling or other legal restraint or prohibition in effect from any court of
competent jurisdiction or government authority expressly preventing consummation
of any transactions contemplated by this Agreement and no proceeding brought by
any governmental authority shall be in effect, pending or threatened which seeks
an injunction, restraining order, or other order which would prohibit the
consummation of the Merger or materially impair Buyer's ability to own and
operate the Businesses after the Merger.
(g) FTD shall have received all authorizations, consents and approvals
of its Members required to be obtained in connection with FTD performing its
obligations under this Agreement, including the Merger and the Pre-Merger
Amendments.
(h) The Certificate of Merger to be filed in connection with the
Merger with the Michigan Department of Commerce and with the Secretary of State
of the State of Delaware shall have been accepted for filing by each such
office.
(i) Buyer shall have received commitments for title insurance and
Phase I environmental reports (and, if reasonably deemed necessary by Buyer,
Phase II environmental reports) relating to the Real Property in form and
substance reasonably satisfactory to Buyer.
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(j) The representations and warranties contained in Sections 7.1, 7.2,
7.3, 7.5, 7.15 and 7.16 with respect to FTD shall be true and correct in all
material respects with respect to FTDA, to the extent applicable, as if made by
FTDA on the Closing Date, and FTDA shall have executed and delivered no later
than the date immediately prior to the Closing Date the Related Agreements to
which it is a party.
(k) There shall not have occurred after the date hereof any change or
any fact, event or circumstance which has had or could have a Material Adverse
Effect.
(l) Each Person entitled to receive payments of Transaction Expenses
shall have provided Buyer with evidence reasonably satisfactory to Buyer that
such person has received payment in full for all services rendered in connection
with or related to the transaction contemplated by this Agreement on or prior to
the Closing Date.
(m) The Articles of Association and Bylaws of FTDA shall be in
substantially the forms submitted to the FTD Record Members as contemplated by
Section 3.2 hereof.
(n) FTDA shall have, not later than sixty (60) days prior to the
Merger or as close to such date as is reasonably practicable, identified to
Buyer (with Buyer's consent which shall not be unreasonably withheld) those
employees who, effective as of the Merger, shall have been offered employment
with FTDA ("Transferred Employees"), provided that the numbers of such
employees, shall be not less than forty (40), shall be reasonably allocated to
representative seniority levels, shall have expertise in FTD's core trade
association activities and shall be offered levels of compensation and benefits
substantially similar to those paid such employees prior to Closing; provided,
further, that in the event that any Transferred Employees do not accept such
offers of employment, FTDA shall have used its reasonable best effort to fill
the positions relating to such employees with other employees of FTD having
similar qualifications.
(o) Immediately prior to the effectiveness of the Merger, FTD and the
Subsidiaries will have in the aggregate of least $6.0 million of NOLs available,
subject to Code Section 382 utilization limitations, to be carried forward to
offset income of the Surviving Corporation or the respective Subsidiary in which
such loss arose.
(p) At least sixty (60) days prior to the Closing Date, FTD shall have
provided the notice contemplated by Section 14.4.
10.2 FTD. All FTD's obligations under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
(a) FTD shall have received all of the documents and certificates
required to be delivered by Buyer and/or Buyer Sub under Article XII.
(b) The representations and warranties and agreements of Buyer and
Buyer Sub set forth in Article VIII shall be true and correct in all material
respects as of the date of this Agreement and shall be deemed to have been made
again at and as of the Closing and shall then be true and correct in all
material respects.
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(c) Buyer and Buyer Sub shall have performed and satisfied their
respective obligations then to be performed under this Agreement in all material
respects.
(d) FTD, FTDA, Buyer, and Buyer Sub shall have received all permits,
waivers, authorizations, consents, and approvals of all third parties or as
required by the laws of all applicable jurisdictions which are necessary or
desirable for consummating the transactions contemplated by this Agreement.
(e) The waiting period required in connection with the Antitrust
Filing, if any, shall have expired or been terminated.
(f) There shall not be any injunction, judgment, order, decree,
ruling, or other legal restraint or prohibition in effect from any court of
competent jurisdiction expressly preventing consummation of any transactions
contemplated by this Agreement and no proceeding brought by any governmental
authority shall be in effect, pending or threatened which seeks an injunction,
restraining order, of other order which would prohibit the consummation of the
Merger.
(g) FTD shall have received all authorizations and consents of the
Members required to be obtained in connection with FTD performing its
obligations under this Agreement, including the Merger and the Pre-Merger
Amendments.
(h) The certificates of merger to be filed in connection with the
Merger with the Michigan Department of Commerce and with the Secretary of State
of the State of Delaware shall have been delivered and accepted for filing.
ARTICLE XI
OBLIGATIONS OF FTD AT THE CLOSING
At the Closing, FTD shall deliver to Buyers:
11.1 FTD'S DELIVERIES AND DOCUMENTS. Evidence that FTD has executed the
certificates of merger, this Agreement, and such other instruments of assignment
or conveyance (such instruments in form reasonably satisfactory to Buyer), as
shall be necessary to effect the Merger pursuant to this Agreement and
consummate the transactions contemplated hereby and in the Exhibits hereto.
11.2 OPINIONS OF COUNSEL FOR FTD. An opinion of Dickinson, Wright, Moon,
Van Dusen & Freeman, counsel for FTD, dated the Closing Date, substantially in
the form attached as Exhibit C hereto. The following additional opinions of
counsel of FTD shall be delivered to Buyer, in each case in form and substance
reasonably satisfactory to Buyer: (i) Osler, Hoskin & Harcort with respect to
Florists' Transworld Delivery Association of Canada Limited; (ii) Maine counsel
reasonably satisfactory to Buyer with respect to Renaissance Greeting Cards,
Inc.; (iii) Michigan counsel reasonably satisfactory to Buyer with respect to
that matter identified in that certain letter to Buyer's counsel; and (iv)
counsel reasonably satisfactory to Buyer with respect to FTDA.
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11.3 Certificate of FTD. A certificate of the president or a vice
president and the secretary or assistant secretary of FTD, dated the Closing
Date, to the effect that, to the best of the knowledge of each such officer, all
of the conditions specified in this Section have been fulfilled and all of the
representations, warranties and agreements of FTD set forth in Article VII are
true and correct in all material respects.
11.4 Certified Resolutions. Certified copies of the resolutions adopted by
FTD's Board of Directors (and any committees thereof) and the FTD Record Members
entitled to vote thereon authorizing and approving this Agreement, the Related
Agreements and the transactions contemplated herein, therein and in the exhibits
hereto and thereto.
11.5 Certificates of good standing and incumbency. Certificates of good
standing with respect to FTD and each of the Subsidiaries executed by the proper
officials of their respective states of incorporation, and a certificate
relating to the incumbency of FTD's officers executed by FTD's secretary.
11.6 Return of Deposit. Seller shall have surrendered the Deposit to
Buyer.
11.7 Resignations. The written resignation of each director and officer of
FTD requested by Buyer, each effective as of the Effective Time, provided that
such resignation(s) shall not effect the contractual or employee benefit rights
of any such officer who is an employee of FTD.
11.8 Certificate of Independent Accountants. A Certificate of Deloitte &
Touche, reasonably satisfactory to Buyer, with respect to FTD's compliance with
the Private Letter Ruling.
ARTICLE XII
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OBLIGATIONS OF BUYER AND BUYER SUB AT CLOSING
At the Closing, Buyer and Buyer Sub shall deliver to FTD:
12.1 Buyer's and Buyer Sub's Deliveries and Documents. Evidence of
delivery by Buyer Sub of the Cash Merger Consideration to the Disbursing Agent,
and the execution by Buyer, Buyer Sub and the Surviving Corporation of this
Agreement, the certificates of merger, the Trademark License Agreement, the
Mutual Support Agreement, the Leaseback Agreement, as applicable, and such other
instruments (in form reasonably satisfactory to FTD) as shall be necessary to
effect the Merger pursuant to this Agreement and consummate the transactions
contemplated hereby and in the Exhibits hereto.
12.2 Opinion of Counsel for Buyer and Buyer Sub. An opinion of Skadden,
Arps, Slate, Meagher & Flom, counsel for Buyer and Buyer Sub, substantially in
the form attached as Exhibit D hereto.
12.3 Certificate of Buyer and Buyer Sub. A certificate, dated the Closing
Date, of the president or a vice president and the secretary or assistant
secretary of each of Buyer and
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Buyer Sub to the effect that, to the best of the knowledge of each such officer,
all of the conditions specified in this Section have been fulfilled and all of
the representations, warranties and agreements of Buyer and Buyer Sub set forth
in Article VIII are true and correct in all material respects.
12.4 CERTIFIED RESOLUTIONS. Certified copies of the resolutions adopted by
Buyer's, Buyer Sub's and Surviving Corporation's Board of Directors in
connection with this Agreement, the Related Agreements and the transactions
contemplated herein, therein and in the Exhibits hereto and thereto.
12.5 CERTIFICATES OF GOOD STANDING AND INCUMBENCY. Certificates of good
standing with respect to Buyer and Buyer Sub executed by the proper officials of
the State of Delaware, and a certificate relating to the incumbency of Buyer's
and Buyer Sub's officers executed by Buyer's and Buyer Sub's respective
secretary.
ARTICLE XIII
ANTITRUST FILING
FILING. As soon as practicable following the execution of this Agreement,
if required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act"), both Buyer and FTD shall file an Antitrust Improvements Act
Notification and Report Form (the "Antitrust Filing") relating to the
transaction contemplated by this Agreement with the Federal Trade Commission and
the Department of Justice. If such Antitrust Filing is required, Buyer and FTD
shall use their best efforts to take all action necessary, proper and advisable
under applicable laws and regulations to cause the expiration or termination of
the waiting periods under the HSR Act as soon as practicable.
ARTICLE XIV
EMPLOYEES
14.1 CERTAIN EMPLOYMENT OBLIGATIONS. The Surviving Corporation agrees to
satisfy prior contractual obligations, if any, of FTD to former FTD officers,
all of which are listed on Schedule 14.1.
14.2 SEVERANCE ARRANGEMENTS. The Buyer agrees to cause the Surviving
Corporation to pay severance benefits as set forth on Schedule 14.2, provided
that no severance benefits shall be payable by Buyer or the Surviving
Corporation with respect to any employees of FTD who have received an offer of
employment contemplated by Section 10.1(n).
14.3 POST-MERGER TRANSFERRED EMPLOYEES. Transferred Employees and any
other employees of FTD offered employment contemplated by Section 10.1(n) shall
be deemed terminated by FTD immediately prior to the Effective Time of the
Merger for all purposes, including for the purposes of any ERISA Employee
Benefit Plan maintained by FTD after the Merger unless FTDA becomes a
participating employer in such Plan effective as of the date of the Merger.
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14.4 TERMINATION NOTICE. At least sixty (60) days prior to the Closing
Date, FTD shall provide to those employees identified by Buyer pursuant to
Section 10.1(n) a notice, in form and substance reasonably satisfactory to
Buyer, setting forth a notice of termination of employment with FTD, and the
proposed terms of any applicable offer of employment of such persons, after the
Closing.
ARTICLE XV
ARBITRATION
ARBITRATION. Any dispute as to any claims under this Agreement shall be
resolved exclusively by arbitration in Chicago, Illinois, by three arbitrators,
one of whom shall be appointed by Buyer, one of whom shall be appointed by FTD
or FTDA (as the case may be) and the third of whom shall be appointed by the
first two arbitrators. If either Buyer or FTD or FTDA (as the case may be) fails
to appoint an arbitrator within twenty (20) days of a request in writing by the
other to do so, or if the first two arbitrators cannot agree on the appointment
of a third arbitrator within 20 days after the second arbitrator is designated,
then such arbitrator shall be appointed by the Chief Judge of the United Stares
District Court located in the City of Chicago or by the American Arbitration
Association so as to enable the arbitrators to render an award within ninety
(90) days after the three arbitrators have been appointed. Following the
selection of arbitrators as set forth above, the arbitration shall be conducted
promptly and expeditiously and in accordance with the rules of the American
Arbitration Association. The arbitrators shall award to the prevailing party
interest for the period from the date that the loss or damage occurred to the
date of payment to the prevailing party. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction therefor. Each party
shall bear the expenses of the arbitrator it selects and shall jointly and
equally share with the other expenses for the third arbitrator and the
arbitration proceeding, including, without limitation, any expenses of the
arbitrators but excluding legal, expert, accountant and other professional fees
of the other side.
ARTICLE XV
TERMINATION
16.1 TERMINATION EVENTS. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing:
(a) By mutual written consent of Buyer, Buyer Sub and FTD;
(b) By Buyer, Buyer Sub or FTD if this Agreement and the transactions
contemplated hereby are not approved by the affirmative vote of the FTD Record
Members as required by law prior to the close of business on March 15, 1995; or
(c) By Buyer or FTD following written notice to the other at any time prior
to the Closing of any material breach by the other of a representation, warranty
or covenant contained in this Agreement, and the breach continues for a period
of thirty (30) days after such notification; or
(d) [Reserved]; or
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(e) By Buyer or FTD if FTD executes an agreement with respect to an
Acquisition Proposal in furtherance of exercising its fiduciary duties as
described in the penultimate sentence of Section 17.1; or
(f) By Buyer if the Board of Directors of FTD withdraws or modifies its
recommendation referred to in Section 3.1; or
(g) By Buyer or FTD if the Michigan Department of Commerce or the Secretary
of State of the State of Delaware refuses to accept the filing of the
Certificate of Merger; or
(h) By Buyer or FTD if the transactions contemplated by this Agreement have
not been consummated by March 31, 1995; or
(i) By Buyer if any of the conditions to Closing with respect to FTDA as
set forth in Section 10.1 (d), (j), (m) or (n) have not been satisfied.
16.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 16.1, the Merger shall be abandoned and this Agreement shall become void
and of no effect with no liability on the part of any party, except that the
agreements contained in Sections 17.3, 17.6 and 17.8 shall survive the
termination hereof, and the Deposit shall be returned to Buyer; provided,
however, that, in the event FTD terminates this Agreement under subsection
16.1(c) due to Buyer's material breach of a representation, warranty, or
covenant contained herein (including without limitation Buyer's failure to
obtain adequate financing) and provided neither FTD nor any Subsidiary is in
material breach of any representation, warranty or covenant in this Agreement
FTD shall be entitled to receive the Deposit from the Escrow Agent and retain
the amount so received as payment in full and complete satisfaction and
discharge of all liabilities of Buyer to FTD with respect to this Agreement, the
transactions anticipated hereby, or otherwise; provided further, in the event of
a termination of this Agreement under subsection 16.1(b), (e), (f), (g) or (i)
or by Buyer under subsection 16.1(c) due to FTD's material breach of a
representation, warranty or covenant contained herein, and provided neither
Buyer nor Buyer Sub is in material breach of any representation, warranty or
covenant contained in this Agreement, FTD shall promptly pay to Buyer $1.5
million as payment in full and complete satisfaction and discharge of all
liabilities of FTD to Buyer with respect to this Agreement, the transactions
anticipated hereby or otherwise (other than the return of the Deposit described
above and the topping fee described below); provided further, in the event of a
termination of this Agreement by FTD under subsection 16.1(e), FTD shall also
pay to Buyer a topping fee (not to exceed $9.5 million) in an amount equal to
the greater of (i) fifty percent (50%) of the excess of the greater of the
stated value or the fair market value of the consideration in such Acquisition
Proposal over the Cash Merger Consideration, or (ii) Buyer's actual out-of-
pocket expenses paid or accrued with respect to the transactions contemplated
hereby, including but not limited to, legal and accounting services, proxy
solicitation fees and expenses and financing commitment fees and expenses. The
Deposit shall be returned to Buyer in the event the Closing does not occur other
than as a result of a material breach by Buyer of a representation, warranty or
covenant contained in this Agreement.
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<PAGE>
ARTICLE XVII
MISCELLANEOUS
17.1 OTHER OFFERS. From the date hereof until the termination hereof, FTD,
its Affiliates and their respective officers, directors, employees, or other
agents will immediately cease any existing discussions or negotiations with any
Person conducted heretofore with respect to any Acquisition Proposal and will
not directly or indirectly, (a) engage in discussions or negotiations with or
take any action to solicit, initiate, or encourage any offer or indication of
interest from any Person with respect to any Acquisition Proposal, (b) propose,
authorize, recommend, or enter into any agreement with respect to any
Acquisition Proposal, or (c) disclose any nonpublic information relating to FTD
or afford access to its properties, books, or records to any Person who might be
considering making, or has made, an offer with respect to an Acquisition
Proposal. FTD will promptly notify Buyer after receiving any offer or
solicitation with respect to an Acquisition Proposal or any request for
nonpublic information relating to it or for access to its properties, books, or
records by any Person that may be considering making, or has made, an offer with
respect to an Acquisition Proposal, and will keep Buyer fully informed of the
status and details of any such offer, indication, or request and provide Buyer
with a copy thereof. Notwithstanding anything herein to the contrary, FTD may
respond to, negotiate with, disclose information and provide access to its
properties, books and records pursuant to confidentiality agreements, and enter
into any agreement with any Person with respect to an unsolicited written
Acquisition Proposal if the Board of Directors of FTD by a majority vote
determines in its good faith judgment based as to legal matters on the written
opinion of outside counsel that failing to take such action would constitute a
breach of the Board's fiduciary duties. For purposes of this Section 17.1,
"Acquisition Proposal" means any proposal for a merger or other business
combination involving FTD or any of the Subsidiaries, or to acquire any material
assets of FTD or any of the Subsidiaries, other than (a) the transactions
contemplated by this Agreement and (b) any such transaction among FTD, FTDA,
and/or any of the Subsidiaries.
17.2 SALES AND TRANSFER TAXES. All sales and transfer taxes imposed by
federal, state or local government authorities upon the Merger or otherwise upon
the transactions contemplated by this Agreement shall be paid by Surviving
Corporation.
17.3 BROKERS AND FINDERS. Except for fees and expenses payable by FTD to
W. Y. Campbell & Company in accordance with Section 9.2 and except for a fee
payable by Buyer and Buyer Sub but not FTD or any affiliate thereof, each Party
represents and warrants to the other Party that it has not incurred any
obligation or liability, contingent or otherwise, for brokerage or finders'
fees, or agents' commissions or other like payment in connection with this
Agreement or the transactions contemplated hereby. Except as contemplated by
Section 17.6, each party agrees to indemnify and hold the other harmless from
and against any obligation or liability for brokers' or finders' fees or agents'
commissions or other like payment based in any way on agreements, arrangements
or understandings claimed to have been made by such indemnifying party with any
third party.
17.4 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each Party hereto
covenants and agrees that its representations and warranties contained in this
Agreement and in any document delivered or to be delivered pursuant to this
Agreement shall not survive the Closing Date but in all other respects this
Agreement, including all covenants and undertakings,
A-41
<PAGE>
shall continue in full force and effect. No action shall be commenced for any
alleged breach of any such representations or warranties after the Closing Date
except an action based on fraud.
17.5 WAIVERS. No action taken pursuant to this Agreement, including
without limitation any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained herein. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
17.6 EXPENSES. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expenses of its respective counsel, accountants and other experts, and all other
expenses incurred by such party incident to the negotiations, preparation and
execution of this Agreement. FTD will pay all such fees and expenses accrued
prior to the Closing in accordance with Section 9.2.
17.7 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given upon the earlier of delivery if
delivered personally, or upon receipt if sent by registered or certified mail,
return receipt requested, postage prepaid, or on the second next business day
after deposit if sent by recognized overnight delivery service, or upon
transmission if sent by telecopy or facsimile transaction (with request of
assurance of receipt in a manner customary for communications of such type) as
follows:
(a) If to Buyer:
Mr. Richard C. Perry
President
Perry Capital Corp.
245 Park Avenue
New York, New York 10167
with a copy to:
Gary P. Cullen, Esq.
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Fax: (312) 407-0411
(b) If to FTD:
Mr. John A. Borden
Executive Vice President and Secretary
Florists' Transworld Delivery Association
29200 Northwestern Highway
Southfield, Michigan 48034
Fax: (810) 355-4141
A-42
<PAGE>
with a copy to:
John A. Krsul, Jr., Esq.
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Ave.
Suite 4000
Detroit, Michigan 48226
Fax: (313) 223-3598
17.8 CONFIDENTIALITY. Buyer, Buyer Sub and FTD each agree that each of
their respective officers, directors, employees and other representatives shall
hold in strict confidence and shall use data and information obtained from the
others in connection with this Agreement solely in connection with the
transactions herein contemplated, except to the extent such data and information
may be publicly available through no fault of either of them or required by law
to be disclosed. Should the Merger and related transactions not be consummated,
Buyer or FTD, as the case may be, shall return to the other such data and
information and all copies thereof, or certification confirming its destruction,
and shall continue to hold all of the same in confidence and not use it for any
purpose whatsoever. Promptly after the date of this Agreement, but in no event
later than five business days from such date, FTD shall request and use its good
faith efforts to obtain any data or information provided to any third parties
(including any of their employees, advisors or agents) pursuant to the terms of
any applicable confidentiality agreement or otherwise in connection with their
review of FTD.
17.9 BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer on any
Person other than the Parties hereto and their successors and assigns, as the
case may be, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
17.10 NON-ASSIGNABILITY. This Agreement shall not be assignable by any
Party without the prior written consent of the other party; provided, however,
that Buyer may assign its rights and obligations hereunder to Buyer Sub or
another subsidiary with the consent of FTD which consent shall not be
unreasonably withheld; provided, that Buyer executes an agreement fully
guaranteeing the obligations of Buyer Sub or such other subsidiary in form and
substance reasonably satisfactory to FTD and FTDA, provided further, that Buyer
and Buyer Sub may assign their respective rights but not their obligations to
any lender providing financing to Buyer Sub or the Surviving Corporation.
17.11 SECTION AND OTHER HEADINGS. The section and other headings contained
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
17.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
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<PAGE>
17.13 PUBLICITY. Prior to the Merger, except as contemplated by this
Agreement or in accordance with law, neither FTD nor Buyer shall issue or
release any publicity of any kind relating to the transactions contemplated by
this Agreement without obtaining the prior written approval of the other.
17.14 ENTIRE AGREEMENT. This Agreement and the other agreements and
documents referred to herein constitute the entire agreement between the Parties
with respect to the transactions described in this Agreement. This Agreement may
not be changed, waived or terminated except by a written instrument signed by
the party against whom enforcement of the change, waiver or termination is
sought.
17.15 BEST EFFORTS. The Parties hereto shall use their respective best
efforts to perform all of the obligations and satisfy all of the conditions to
which such Party is subject pursuant to this Agreement. Each party shall keep
the others apprised of any inquiries made of such Party by any governmental
agency or authority or members of their respective staffs with respect to this
Agreement of the transactions contemplated hereby.
17.16 GOVERNING LAW. This Agreement shall be construed according to the
laws of the State of Michigan, without giving effect to any choice of law
provisions.
17.17 SEVERABILITY. In case any one or more of the obligations of any
party hereto under this Agreement or any related document shall be invalid,
illegal, or unenforceable in any jurisdiction, the validity, legality, and
enforceability of the party's remaining obligations shall not in any way be
affected or impaired thereby, and such invalidity, illegality, or
unenforceability in one jurisdiction shall not affect the validity, legality, or
enforceability of the party's obligations under this Agreement and each related
document in any other jurisdiction.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, Buyer, Buyer Sub and FTD have caused this Agreement to
be duly executed as of the day and year first above written.
PERRY CAPITAL CORP.
By: /s/ Richard C. Perry
-------------------------------
Its: President
-------------------------------
IRIS ACQUISITION CORP.
By: /s/ Richard C. Perry
-------------------------------
Its: President
-------------------------------
FLORISTS' TRANSWORLD DELIVERY ASSOCIATION
By: /s/ Kenneth Coley
-------------------------------
Its: Chairman of the Board
-------------------------------
And: /s/ Mary Knox
-------------------------------
Its: President
-------------------------------
A-45
<PAGE>
Exhibit 10.10
MUTUAL SUPPORT AGREEMENT
between
FLORISTS'
TRANSWORLD DELIVERY ASSOCIATION
and
FTD ASSOCIATION
December 18, 1994
<PAGE>
MUTUAL SUPPORT AGREEMENT
------------------------
This Mutual Support Agreement ("Agreement") dated December 18, 1994,
between Florists' Transworld Delivery Association, a Michigan non-profit
corporation ("FTD"), and FTD Association, an Ohio nonprofit corporation
organized on a membership basis ("FTDA").
RECITALS:
WHEREAS, FTD Acquisition Corporation (formerly known as IRIS Acquisition
Corp.) ("Iris") anticipates merging with and into FTD (the "Merger"), pursuant
to an Agreement and Plan of Merger dated August 2, 1994 by and among Perry
Capital Corp., FTD and Iris ("Merger Agreement") with FTD being the surviving
corporation in the Merger, and with its name being changed to "Florists'
Transworld Delivery, Inc." by the filing of a post-Merger amendment to its
Articles of Association (the surviving corporation being referred to as "FTDI");
WHEREAS, FTDA is a trade association organized by and operated on behalf of
the Members; and,
WHEREAS, FTD now owns, and FTDI will own following the Merger, either
directly or through subsidiaries the operations known as Floral Network,
Marketplace, Clearing House, Publications, Renaissance Greeting Cards, Inc. and
Direct Access (collectively, the "Businesses"); and,
WHEREAS, it is a condition of the Merger that the Retail/Professional
Florists who were FTD Members and FTD International Members immediately prior to
the Merger will continue to have the right after the Merger to use the Member
Used Intellectual Property owned by FTDI on the same basis as FTD permitted such
use immediately prior to the Merger, subject to their becoming FTDA Members and
FTDA International Members, executing the Trademark Membership License
<PAGE>
Agreement, and complying with such additional terms and conditions as are
provided in this Agreement for the retention of such membership and right; and,
WHEREAS, FTD and FTDA recognize that, following the Merger, there will be a
continuing need for the exchange of information, and mutual support in
connection with their respective operations, all as described below.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, the parties agree as follows.
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. Terms set forth below shall have the following meanings:
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by, or is under common control
with such Person. As used in this definition, "control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Person, whether through owning voting securities,
by contract, or otherwise.
"AFMC" means the American Florists' Marketing Council which is the
marketing branch of The Society of American Florists headquartered in
Alexandria, Virginia and which includes representatives of the
Retail/Professional Florists Industry.
"Benevolent Fund" means that fund created by voluntary member payments to
provide benevolent assistance to the families of deceased members of FTDA and
which includes the accounts known as the benefit account and the administrative
account.
"Businesses" has the meaning set forth in the Recitals.
"Claimant" has the meaning set forth in Section 6.3.
2
<PAGE>
"Clearing House Statement" means that member activity statement sent on a
regular basis to members setting forth the status of the members' account with
FTDI.
"CPI Index" means the percentage increase (or decrease) in the U.S. City
Average consumer price index for All Urban Consumers, All Items ("CPI-U"),
calculated by the United States Department of Labor, Bureau of Labor Statistics,
for the period from the date of execution of this Agreement through the date to
which the adjustment is to be made. The CPI-U for March, 1994, is 147.2, as
reported in the CPI Detailed Report (March, 1994) (1982-84 = 100). Any amount to
be adjusted by the CPI Index for a particular period shall be calculated by
multiplying such amount by the CPI Index, and adding the product (rounded up to
the nearest whole cent) to the amount to be adjusted. For example, if the date
of execution of this Agreement occurred in August, 1994, the CPI-U for August
1994 was 150, the amount to be adjusted was $15, and the CPI-U for the month
including the adjustment date was 160, then the amount as adjusted would be ($15
x 10/150) + $15, or $16.
"Constituent Groups of Interflora" means the Constituent Groups, as defined
in the Bylaws of Interflora, but excluding FTDI and FTDA.
"Convention Savings Fund" means that fund created by voluntary member
payments to provide a prepayment mechanism for the costs of the FTDA annual
members meeting.
"Damages" has the meaning set forth in Section 6.1.
"Direct Access" means FTD Direct Access, Inc., a Delaware corporation and
wholly-owned subsidiary of Holdings.
"Direct Orders" means retail orders which consist principally of fresh
flowers or other floral products which are generated directly by FTDA or any
Affiliate using the Logo, the marks "FTD", "FTDA" or "FLORISTS' TRANSWORLD
DELIVERY" (e.g., through Direct Access).
3
<PAGE>
"Dues and Fees Reimbursement" means the amount of Membership Dues, Fees and
Member Voluntary Payments as may be collected by FTDI for the benefit of FTDA as
part of the Clearing House Statement after the execution of this Agreement.
"Education Savings Plan Fund" means that fund created by voluntary member
payments to provide a prepayment mechanism for the costs of FTDA educational
programs.
"Foreign Tours Fund" means that fund created by voluntary member payments
to provide a prepayment mechanism for the costs of FTDA sponsored or conducted
tours of foreign countries.
"FTDA Bylaws" means the duly adopted Bylaws of FTDA.
"FTDA Handbook" means the FTDA Member/Owner Handbook adopted by FTDA.
"FTDA International Members" means those Retail/Professional Florists who
are International Members of FTDA as defined in the provisions of the FTDA
Articles of Incorporation and Bylaws.
"FTDA Membership Interests" means the membership interest of each Member in
FTDA.
"FTDA Members" has the same meaning as Members.
"FTD Member Voluntary Payments" means those voluntary payments by FTD
members equivalent to Member Voluntary Payments which immediately prior to the
Merger were held by FTD for and on behalf of FTD members.
"FTDA Non-Voting Membership Interests" means the membership interests of
members of FTDA which do not have the right to vote under the applicable
Articles of Incorporation and Bylaws of FTDA, including Honorary Members,
Associate Members, International Members, Student Members and Retired Florist
Members, each as defined in the provisions of the FTDA Bylaws, but not including
Affiliate Members as defined in the provisions of the FTDA Bylaws.
"FTDA Non-Voting Members" means those members of FTD with FTDA Non-Voting
Membership Interests.
4
<PAGE>
"FTDA Parties" has the meaning set forth in Section 6.2.
"FTDA Standards" means FTD's minimum standards for membership as in effect
on the Merger Date, as contained in the FTD Handbook under the heading "General
Requirements" at pages 6 through 15, and, with respect to matters relating to
using the Logo, (i) Bylaw XIII, Section 4 of FTD's Bylaws, (ii) guidelines for
the use of the FTD emblem and FTD trademarks contained in the FTD Handbook at
pages 42 through 43 and (iii) Membership Rule 2 contained in the FTD Handbook at
pages 118 through 120, all as such FTD minimum standards as adopted by FTDA may
be amended or supplemented by FTDA from time to time after the Merger pursuant
to the FTDA Bylaws and this Agreement.
"FTD Bylaws" means the duly adopted Bylaws of FTD in effect immediately
prior to the Merger.
"FTD Handbook" means the FTD Member/Owner Handbook issued by FTD and
containing the Articles of Association, Bylaws, rules, regulations, and policies
of FTD (all as described in the FTD Handbook) effective as of April 14, 1993,
and, subject to the terms of the Merger Agreement, as the same may have been
amended by the Members or FTD's Board of Directors thereafter.
"FTD International Members" means those Retail/Professional Florists who
were Foreign/International Members of FTD as defined in the provisions of the
FTD Articles of Association and Bylaws.
"FTD Member(s)" means those Retail/Professional Florists who were Active
Members or Affiliate Members or FTD, each as defined in the provisions of the
FTD Bylaws.
"FTD Member Voluntary Payments" means those voluntary payments by FTD
members equivalent to Member Voluntary Payments which immediately prior to the
Merger were held by FTD for and on behalf of FTD members.
"FTDI" has the meaning set forth in the recitals.
5
<PAGE>
"FTDI Parties" has the meaning set forth in Section 6.1.
"FTDI Standards" means the standards, rules, regulations, and policies of
FTDI governing the use of its clearinghouse, communications system, and other
operations, and any Trademarks or other Intellectual Property relating thereto,
initially in form and substance substantially equivalent to the Membership Rules
and the Clearinghouse Rules contained in the FTD Handbook at pages 118 through
129 and pages 144 through 149, respectively, and as may be amended or
supplemented by FTDI from time to time on or after the date of the Merger.
"Fees" means the subscription fees for publications, and such other fees,
assessments, and service and administrative charges (i) as may be charged by
FTDA from time to time to members pursuant to FTDA's Bylaws as a condition of
admission to or retaining membership under FTDA's Standards, as the same may be
changed in accordance with the provisions of the FTDA Bylaws, subject to the
provisions of this Agreement, provided that on the date of this Agreement the
following shall constitute such fees, assessments, and service and
administrative charges: (a) a membership fee of $100 to be charged to
Provisional Members (as defined below, but excluding Affiliate Members) which
held memberships in FTD as Active Members on the date of the Merger and which
are eligible to become Active Members as defined in the provisions of the FTDA
Bylaws, provided that such $100 membership fee shall be returnable upon the
termination of an Active Member's membership in FTDA; (b) a membership fee of
$250 to be charged to applicants which did not hold memberships in FTD as Active
Members on the date of the Merger and which are eligible to become Active
Members as defined in the provisions of the FTDA Bylaws, subject only to CPI
Index increases by the FTDA Board of Trustees without any action by the Members,
provided that any increase in the membership fee in excess of the CPI Index by
the FTDA Board of Trustees or Members shall be subject to the prior written
approval of FTDI, which approval shall not be unreasonably withheld; (c) a one
time processing fee to be charged to applicants of $375 for Active
6
<PAGE>
Members and $225 for Affiliate Members, subject only to CPI Index increases by
the FTDA Board of Trustees without any action by the Members, provided that any
increase in the processing fee in excess of the CPI Index by the FTDA Board of
Trustees or Members shall be subject to the prior written approval of FTDI,
which approval shall not be unreasonably withheld; (d) a fee of $100 to be
charged for a second inspection of an applicant, as required, subject only to
CPI Index increases by the FTDA Board of Trustees without any action by the
Members, provided that any increase in the second inspection fee in excess of
the CPI Index by the FTDA Board of Trustees or Members shall be subject to the
prior written approval of FTDI, which approval shall not be unreasonably
withheld; (e) a subscription fee totaling $26 for FTDA publications which may be
increased by the FTDA Board of Trustees in its sole discretion, but in no event
in an amount greater than increases in the CPI Index without the prior written
approval of FTDI, which approval shall not be unreasonably withheld; (f)
district dues to be charged to Members and FTDA International Members in the
amount of $35 per year and as may be increased to an amount not greater than $50
per year by resolution duly adopted at a meeting of a district and approved by a
majority of the Members at a district voting in a mail ballot conducted by FTDA;
(g) a catastrophe fee assessment upon FTDA Members in an amount not to exceed $5
per Member, subject only to CPI Index increases by the FTDA Board of Trustees
without any action by the Members; and (h) dues, fees, assessments, and charges
to FTDA Non-Voting Members which may be established by the FTDA Board of
Trustees in its sole discretion, provided that such dues, fees, assessments and
charges to FTDA International Members shall be no greater than charged to Active
Members; and (ii) as Members may otherwise agree to pay to FTDA and
corresponding amounts payable after the Merger under the FTDA Bylaws, but (a) in
no event shall such charges include or represent an access fee, assessment or
charge relating to the Floral Network, and (b) in no event shall such charges
include fees, assessments and charges to applicants other than the membership
fee, the processing fee and the second inspection
7
<PAGE>
fee referred to above without the prior written approval of FTDI, which approval
shall not be unreasonably withheld.
"Flora1 Network" means the system of computer terminals and central
processing units and related peripheral equipment, software, computer programs,
electronic data storage mechanisms, and systems, regardless of the software
architecture employed, that is used in the provision of (i) a specialized
electronic network that is currently used in the Businesses for, among other
functions, floral order transmission and processing, computer network
communications services, Member support and telemarketing services, (ii) depot
maintenance, and (iii) PC-based business management application software to the
Members, and all documentation and resource material related to any of the
foregoing.
"Floral Network Litigation" means the patent litigation currently pending
in the federal court for the Southern District of Florida, brought by
Memorylink, Inc. and Floral Communications, Inc. against Florists' Transworld
Delivery Association, FTD. Holdings, Inc. and FTD Direct Access, Inc., Case
Number 94-8154.
"Florists' Mutual Insurance Programs" means those Insurance Programs
referred to in clause (b) of the definition of Insurance Programs.
"Grandfathered Stores" shall mean those Active Members of FTD which were
additional retail stores of an Active Member of FTD prior to the adjournment of
the 1977 FTD annual members' meeting and which continued to be Active Members of
FTD after the adjournment of that meeting.
"Group Insurance Programs" means those Insurance Programs referred to in
clause (a) of the definition of Insurance Programs.
"Holdings" means FTD Holdings, Incorporated, a Delaware corporation and
wholly-owned subsidiary of FTDI.
8
<PAGE>
"Indemnitor" has the meaning set forth in Section 6.3.
"Insurance Programs" means the following insurance programs offered to FTD
Members immediately prior to the Merger with billing to Members as part of the
Clearing House Statement: (a) Life Insurance, Long-Term Disability, Hospital
Indemnity and Comprehensive Major Medical offered to Members through the
Florists' Transworld Delivery Association Group Insurance Agreement of Trust
established July 17, 1979; and (b) Workers' Compensation and Property/Casualty
sponsored by FTD and offered by Florists' Mutual Insurance Company.
"Interflora" means Interflora, Inc., a Michigan corporation.
"Iris" has the meaning set forth in the Recitals.
"Licensee" means any Person licensed by FTDI to use the Member Used
Intellectual Property in the Retail/Professional Florists Industry, provided
that such Persons shall be FTDA Members or FTDA International Members entitled
to use the Member Used Intellectual Property.
"Licensed Intellectual Property" means the registered and unregistered
Trademarks owned and used by FTD as of the date of this Agreement, including
without limitation the Logo and the marks "FTD", "FTDA", "FLORISTS' TRANSWORLD
DELIVERY", "FLORIST" and "FTD FAMILY" (all as set forth in Exhibit TL-A to the
Trademark License Agreement), and any other Trademarks used in connection with
the Retail/Professional Florists Industry acquired by FTDI at any time after the
date of the Merger and including or otherwise incorporating the Logo and/or the
marks "FTD", "FTDA", "FLORISTS' TRANSWORLD DELIVERY", "FLORIST" and/or "FTD
FAMILY", but shall not include such Trademarks as are used solely in connection
with the Floral Network, such Trademarks as require an additional fee or royalty
if FTDA is licensed therefor, unless FTDA promptly agrees to pay such fee or
royalty, any Software which FTD owns or has the right to use pursuant to a
license or other agreement, the marks "Interflora" and "Fleurin" licensed to FTD
under the Interflora/FTD License Agreements dated December 7, 1987 between
Interflora
9
<PAGE>
and FTD or any trademarks owned by RGC. In addition, Licensed
Intellectual Property shall not include any Intellectual Property (as defined in
section 7.9(a) of the Merger Agreement) which was used by FTD prior to the
Merger pursuant to agreement, which agreement restricts or otherwise prevents
FTDI's ability to license to FTDA, or use on FTDA's behalf, said Intellectual
Property, unless the necessary consents from third parties have been duly
obtained pursuant to Section 3.3 of the Merger Agreement.
"Logo" means the stylized Mercury man emblem shown in Exhibit TL-B to the
Trademark License Agreement.
"Marketing Expenditures" means expenditures for print, television, radio,
and other consumer advertising promoting the Member Used Intellectual Property
and the Retail/Professional Florists Industry generally.
"Member" means an Active Member and an Affiliate Member of FTDA, each as
defined in the provisions of the FTDA Bylaws.
"Member Incentive Program" means a program which provides cash or other
incentives to FTDA Members to encourage the use of the clearinghouse operations
of FTDI.
"Member Used Intellectual Property" means the Logo, the marks "FTD", "FTDA"
and "FLORISTS' TRANSWORLD DELIVERY", and such other Trademarks which are
collective marks for the names of floral arrangements, gourmet foods baskets,
and related floral gift arrangements, but Member Used Intellectual Property
shall not include any Intellectual Property (as defined in section 7.9(a) of the
Merger Agreement) which was used by FTD prior to the Merger pursuant to
agreement, which agreement restricts or otherwise prevents FTDI's ability to
license to Members, or use on Members' behalf, said Intellectual Property,
unless the necessary consents from third parties have been duly obtained,
pursuant to Section 3.3 of the Merger Agreement.
10
<PAGE>
"Member Voluntary Payments" means those payments made to FTDA on a
voluntary basis by members to pay for the costs of FTDA programs and activities
including the Benevolent Fund, the Convention Savings Fund, the Education
Savings Plan Fund, the Foreign Tours Fund and the Insurance Programs.
"Membership Dues" means the monthly membership dues of $15 currently
charged by FTD pursuant to Bylaw II. Section 2 of FTD's Bylaws, and the
corresponding amounts payable by FTDA Members of $15 per month after the date of
the Merger under the FTDA Bylaws, as may be adjusted (i) by FTDA's Board of
Directors, without any action by the Members, for any increase in the CPI Index
occurring after the date of the Merger, and (ii) by action of the Members.
"Merger" has the meaning set forth in the Recitals.
"Memorabilia" has the meaning set forth in Section 3.1(q).
"Nonprofit Act" means the Ohio Nonprofit Corporation Law, as amended,
O.R.C.A. Sec. 1702.01 et seq.
"Person" means an individual, a corporation, a partnership, an association,
a trust, or any other entity or organization, including a governmental or
political subdivision or an agency or instrumentality thereof.
"PromoFlor Council" means the council which has been provided for in the
Fresh Cut Flowers and Fresh Cut Greens Promotion and Information Act of 1993 and
which will include representatives of traditional retail florist organizations.
"Provisional Member" has the meaning set forth in Section 2.2(b) (i).
"Reference Period" has the meaning set forth in Section 3.1(1).
"RGC" means Renaissance Greeting Cards, Inc., a Maine corporation formerly
known as "Renaissance Acquisition Company", and majority-owned subsidiary of
Holdings.
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"Retail Professional Florists" means those Persons who operate and maintain
a retail florist shop and who are part of the Retail Professional Florists
Industry.
"Retail/Professional Florists Industry" means the business of selling
products and performing services customarily associated with operating and
maintaining a retail/professional florist business.
"Software" means all computer software and databases, including all
embodiments or fixations thereof and related resource material and
documentation, and all additions, improvements, enhancements, updates and
accessions thereto, and including without limitation the Floral Network.
"Subsidiaries" means, collectively, Holdings, Direct Access, and RGC.
"Successor" has the meaning set forth in Section 3.3.
"Trademark License Agreement" means the License Agreement in substantially
the form attached as Exhibit MS-A hereto.
"Trademark Membership License Agreement" means the license agreement in
substantially the form attached as Exhibit MS-B hereto.
"Trademarks" means all trademarks, trade dress, trade names, trade styles,
logos or service marks, including all registrations thereof and applications
therefor, in the United States, any political subdivisions thereof, or any
foreign jurisdiction.
"Transferred Employees" has the meaning set forth in Section 2.5.
"Transferred Member Voluntary Payments" means FTD Member Voluntary Payments
which have been transferred to FTDA pursuant to authorization by FTD members,
Provisional Members or FTDA members.
1.2 Other Definitions; Rules of Construction.
(a) As used herein, the terms "Agreement", "FTD", and "FTDA" shall have the
respective meanings ascribed thereto in the introductory paragraph of this
Agreement. These terms, together
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with the terms defined in Section 1.1, shall include both the singular and the
plural forms thereof and shall be construed accordingly.
(b) As used herein, terms which are not separately defined in this
Agreement shall have the respective meanings ascribed thereto in the Merger
Agreement.
(c) References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided.
ARTICLE II
ORGANIZATION OF FTDA; GOVERNANCE RELATIONSHIPS
----------------------------------------------
2.1 Organization of FTDA. FTDA has been organized on a membership basis
with a single voting class of membership under the Nonprofit Act to be known as
"Active Members" and other non-voting classes of members, each as defined in the
provisions of the FTDA Bylaws. The Articles of Incorporation and Bylaws of FTDA
are substantially in the form approved by Buyer at the time of the organization
of FTDA and contained in the Information Statement sent to each former member of
FTD in connection with the Special Membership Meeting called to approve the
Merger.
2.2 Membership Fee and Admission of Members.
---------------------------------------
(a) Any Person who shall apply for membership and who held a membership in
FTD as an Active Member on the date of the Merger (other than Grandfathered
Stores) shall be immediately eligible for admission to FTDA as an Active Member
and each additional retail store of such Active Member which held a membership
in FTD as an Affiliate Member or was a Grandfathered Store on the date of the
Merger shall be eligible for admission to FTDA as an Affiliate Member. The FTDA
Bylaws require that each applicant who held a membership in FTD as an Active
Member on the date of the Merger shall pay a membership fee to FTDA upon
admission in the amount of $100. Upon receipt of such payment and an executed
Trademark Membership License Agreement, each applicant shall be admitted as an
Active Member of FTDA with a single Active membership interest in FTDA.
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Each additional retail store of such Active Member which was an Affiliate Member
of FTD or was a Grandfathered Store on the date of the Merger shall be admitted
without any membership fee as an Affiliate Member upon the admission of the
Active Member with a single Affiliate Membership interest in FTDA, subject to
receipt of an executed Trademark Membership License Agreement.
(b) With respect to former FTD Members entitled to receive a distribution
of cash as a Member Equity Merger Distribution with respect to their FTD
membership interests pursuant to the Merger, the following special
classifications and procedures shall apply:
(i) Notwithstanding subsection (a), each such Member shall become a
provisional member ("Provisional Member") for a period of up to three (3) months
beginning with the effectiveness of the Merger. During such period each
Provisional Member shall be entitled to participate in and receive the benefits
of membership (including the right to continue to utilize the Member Used
Intellectual Property) as though such Provisional Member had been duly admitted
to Active or Affiliate FTDA membership pursuant to subsection (a) without the
payment by the Provisional Member of the $100 membership fee referred to in
subsection (a) above and/or execution of a Trademark Membership License
Agreement. The period of provisional membership for any former FTD Member
entitled to such status shall terminate on the earliest to occur of: (A)
admission as an Active or Affiliate Member of FTDA and payment of the membership
fee by an Active Member and execution of a Trademark Membership License
Agreement by an Active Member or an Affiliate Member pursuant to subsection (a);
(B) FTDA's receipt of written notice that such Provisional Member does not
desire to have such status; or (C) expiration of the provisional membership
period.
(ii) Each Provisional Member who seeks Active Member status shall have the
opportunity to satisfy payment of its $100 membership fee by means of the
special procedure set forth in this subsection. Immediately before receiving
the distribution to which each such former
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Active Member of FTD is entitled pursuant to Section 2.5(b) (iii) (A) of the
Merger Agreement, the Disbursing Agent shall be instructed to withhold from the
amount otherwise distributable to such Member and pay over to FTDA on behalf of
each former Active Member of FTD who elects to become an Active Member and who
executes the Trademark Membership License Agreement the amount of $100 which
amount shall constitute such Member's membership fee and which shall entitle the
Provisional Member and each of its additional retail stores which were Affiliate
Members of FTD to Active Member status and Affiliate Member status respectively.
(c) Each person who was, before the Merger, the holder of a membership
interest in FTD similar to the FTDA Non-Voting Membership Interest, including
Honorary Members, Associate Members, Foreign/International Members, Student
Members and Retired Florist Members, but not including Affiliate Members, shall
be automatically and without further action or the making of any additional
payment admitted to the corresponding category of membership in FTDA.
2.3 Representation on Boards of Directors; Voting.
(a) FTDA Directors. No less than twenty percent (20%), but not fewer than
two (2), of the members of the Board of Directors of FTDA shall be designated by
the Board of Directors of FTDI. The balance of the members of the Board of
Directors of FTDA shall be elected by the Active Members voting on the basis of
one vote for each such membership interest, provided that regional
representation by, and election of, such directors may be established in
accordance with applicable law.
(b) Voting. Each Active Member shall be entitled to one vote with respect
to all matters.
2.4 Representation on FTDI Board of Directors. FTD agrees that, following
the Merger, no less than twenty percent (20%), but no fewer than two (2), of the
members of FTDI's Board of Directors and the boards of directors of any
controlled Affiliates (other than RGC) of FTDI which
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may operate any portion of the Businesses shall be designated for appointment by
FTDA's Board of Directors.
2.5 Transferred Employees. If a Transferred Employee (as defined in the
Merger Agreement) becomes a participant in any employee benefit plan, program,
practice or policy of FTDA or any Affiliate thereof, such Transferred Employee
shall be given credit thereunder for all service prior to the Merger with FTD
and its Subsidiaries, or any predecessor employer (to the extent such credit was
given by FTD), for purposes of eligibility and vesting and for all other
purposes for which such service is either taken into account or recognized,
provided, however, that such service need not be credited to the extent it would
result in a duplication of benefits, including, without limitation, benefit
accrual service under defined benefit plans.
2.6 Interflora Relationship. As soon as practicable after the Merger,
FTDI will appoint two individuals selected by FTDA to serve as two (2) of the
four (4) individuals appointed by FTDI as members of the Board of Directors of
Interflora. FTDI and FTDA shall enter into a voting agreement in form and
substance reasonably acceptable to FTDI regarding the voting procedures to be
observed by their respective representatives on the Interflora Board of
Directors.
2.7 Required Consents. To the extent that any License, contract, Real
Property Lease, Lease, FTD Permit (as such terms may be defined in the Merger
Agreement), or other asset used in conducting any of the Businesses is subject
to restrictions which may require that FTD may not effect or be a party to the
Merger without the consent of a third party, or which impair the ability of FTDI
to perform its obligations under this Agreement or the Trademark License
Agreement, and FTD has not been able to obtain the third party's consent to the
Merger and deliver such consent at the Closing, FTDA shall (i) continue,
following the Closing Date, to exercise reasonable best efforts to assist the
Surviving Corporation in obtaining the delivery of such consent to the Surviving
Corporation as soon as possible following the Closing Date; (ii) either (a) upon
the expiration of
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sixty (60) days following the Closing Date if such consent has not been obtained
by that time, or (b) immediately upon FTDI reasonably concluding that such
consent will not be granted by the third party, exercise reasonable best efforts
to obtain alternate sources of the functionality currently provided pursuant to
any License; and (iii) perform any action and execute any document requested by
Perry Capital Corp. and reasonably necessary to obtain such consent or
functionality as long as it imposes no material financial obligation or
liability on FTDA.
2.8 Consent Order. Each of FTDA, FTD and, following the Merger, FTDI
shall be bound by the terms of the Consent Order (as defined in the Merger
Agreement), to the extent and for the time period required, and to execute all
reasonable undertakings to formalize such consent, if necessary.
ARTICLE III
MUTUAL SUPPORT RELATIONSHIPS
----------------------------
3.1 Relationships between FTDI and FTDA.
(a) Continued Operation. FTDA acknowledges and agrees that FTDA, its
successors and assigns, will continue for the duration of the term of this
Agreement and the Trademark License Agreement to operate solely as a trade
association of retail florists in accordance with applicable law (including, but
not limited to the Consent Order as defined in the Merger Agreement), with the
power and authority to collect Membership Dues and Fees from Members. FTDA's on-
going trade association activities shall include without limitation educational,
public service, governmental, membership, publicity, research, publications and
administrative matters to the extent its financial resources permit such
activities to continue. FTDA agrees that it shall use its best efforts,
consistent with its financial resources, to maintain and enhance its membership
and its trade association activities, including the prompt processing of
applications for membership.
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(b) License to FTDA. Simultaneously with the execution of this Agreement,
FTD shall enter into the Trademark License Agreement with FTDA granting to FTDA
a 99-year, renewable, nonassignable, nonexclusive (except as set forth therein)
license to use the Licensed Intellectual Property in the Retail/Professional
Florists Industry, only in conjunction with FTDA's ongoing activities as a trade
association, which license shall be exclusive for such trade association use in
the Retail/Professional Florists Industry. FTDA acknowledges that neither FTD
nor FTDI makes no representation or warranty of ownership of any rights in and
to the Licensed Intellectual Property for trade association services or
associated products, with the exception of the Logo and the marks "FTD", "FTDA",
"FLORISTS' TRANSWORLD DELIVERY", "FLORIST" and "FTD FAMILY", it being understood
that such marks were valid and owned by FTDI immediately after the date of the
Merger. FTDA shall not be required to make any actual royalty payments under
such license, but FTDA shall be deemed to make royalty payments to FTDI, and
FTDI shall be deemed to make payments to FTDA (in consideration of FTDA's
agreement not to compete under Section 3.1(o) hereof) in equal amounts and at
the same time over the term of the license.
(c) FTDI Licenses to FTDA Members. (i) FTD hereby appoints FTDA as FTDI's
exclusive licensing agent after the Merger with the right to approve or
disapprove a Member's or applicant's right to a license from FTDI of the Member
Used Intellectual Property for use in Retail/Professional Florist Industry
operations in the United States, Canada, and other countries in which FTDI owns
the Member Used Intellectual Property. FTDI shall retain the right to veto a
decision by FTDA permitting or denying a Member's or applicant's right to such a
license, provided that FTDI agrees that it shall not exercise this right so long
as FTDA's decision is based on a Member's or applicant's compliance, or failure
to comply, with the FTDA Standards and provided further that, in the event FTDA
reasonably believes that it has taken appropriate action regarding the Member or
applicant, FTDA may submit such matter to a neutral arbitrator who shall apply
the
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arbitration procedures referred to in Section 7.8 of this Agreement. All
licenses to Members for use of the Member Used Intellectual Property shall be
substantially in the form of the Trademark Membership License Agreement.
Licensees shall have the right to use the Member Used Intellectual Property on
the same basis as FTD permitted such use immediately prior to the Merger. FTDA
warrants that, except as provided in subsection (ii) with respect to Provisional
Members, it shall require all Members to sign, or designate in writing an
authorized representative to sign on their behalf, and return to FTDA the
Trademark Membership License Agreement as a condition of Membership or to
maintain an existing Membership. FTDA shall preserve for FTDI's benefit such
Trademark Membership License Agreement(s) in its membership files, but only for
then current Members.
(ii) FTD agrees that any Retail/Professional Florist to which FTDI licenses
Member Used Intellectual Property must be an FTDA Member or an FTDA
International Member entitled to use the Member Used Intellectual property and
shall pay to, or for, FTDA's benefit the Membership Dues and Fees as a condition
of obtaining from FTDI, and maintaining the right to use, the Member Used
Intellectual Property, provided however, that with respect to Provisional
Members, FTDI shall continue to recognize for the period during which a former
FTD Member maintains Provisional Member status the oral license pursuant to
which such persons were entitled to use the Member Used Intellectual Property on
the same basis as when they were Members of FTD, such continuation being
subject, however, to such Provisional Members' compliance with the FTDA
Standards during such transitional period. FTDA agrees that, during the term of
this Agreement, FTDA shall use the Licensed Intellectual Property, as
appropriate, in connection with the activities conducted in accordance with this
Agreement and the Trademark License Agreement sufficiently so that the Licensed
Intellectual Property will not be deemed abandoned in whole or in part.
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(iii) FTD agrees that, during the term of this Agreement and without FTDA's
prior written consent, FTDI shall not itself use or display, nor permit any
other Person to use or display the Licensed Intellectual Property: including but
not limited to the Logo, the marks "FTD", "FTDA", "FLORISTS' TRANSWORLD
DELIVERY" and "FTD FAMILY": (A) in the legal, assumed or trade name of, and
(except as to Members) on or in connection with, any staffed retail operation in
a public area which is accessible to a customer and provides a customer with the
opportunity to order flowers or other floral products, or (B) on or in
connection with any unstaffed retail operation in a public area which is
accessible to a customer and provides a customer with the opportunity to order
flowers or other floral products and is within one hundred and fifty (150) yards
of any Member' s preexisting retail floral operations (without such Member's
written consent).
(d) Discipline.
(1) Under FTDA Standards. FTDA agrees that it shall enforce the FTDA
Standards and the other rules and regulations contained in the FTDA Handbook, to
the full extent necessary to maintain and protect the goodwill associated with
the Member Used Intellectual Property, and FTDI hereby acknowledges that the
extent to which FTD enforced its standards prior to the Merger was sufficient
for this purpose. Notwithstanding the foregoing, in the event a Member's
violation pertains to the FTDA Standards and FTDA fails in the reasonable
opinion of FTDI to discipline said Member as required, FTDI shall have the right
to take whatever action FTDI deems necessary to enforce the FTDA Standards
against said Member, including seeking termination of membership, provided that
in the event FTDA reasonably believes that it has taken appropriate action
regarding the Member, FTDA may submit such matter to a neutral arbitrator
selected by FTDI and FTDA who shall apply the procedures in Section 7.8 of this
Agreement. In the event the arbitrator requires more than thirty days in which
to render his or her decision, FTDI shall have the right during the pendency of
the decision to take whatever steps it deems reasonably necessary to maintain
the goodwill
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associated with the Member Used Intellectual Property used by said Members. The
decision of the arbitrator shall be deemed to constitute action by FTDI to
maintain the goodwill associated with the Member Used Intellectual Property.
(2) Under FTDI Standards. FTDA agrees that FTDI shall have the right to
discipline Members for violating the FTDI Standards that shall be adopted by
FTDI for the use of its clearinghouse, communications system, and other business
operations only to the extent necessary to ensure proper usage thereof and
payment therefor by Members associated with the Member Used Intellectual
Property, provided that a Member terminated by FTDI for violating the FTDI
Standards shall have a right of appeal to a neutral arbitrator selected by FTDI
and FTDA who shall apply the arbitration procedures referred to in Section 7.8.
In the event the arbitrator determines upon such appeal that a Member's right to
use the clearinghouse, communications system, and other business operations
should be reinstated, and in the event that the Member has met its financial
obligations to FTDI, FTDI shall reinstate the Member, In the event the
arbitrator requires more than thirty days in which to render his or her
decision, FTDI shall have the right during the pendency of the decision to take
whatever steps it deems reasonably necessary to maintain the goodwill associated
with the Member Used Intellectual Property used by said Member. The decision of
the arbitrator shall be deemed to constitute action by FTDI to maintain the
goodwill associated with the Member Used Intellectual Property.
(e) Trade Association Billing Support. Not less than monthly, beginning
with the first full month following the execution of this Agreement, FTDI will
submit to all Licensees as part of the Clearing House Statement a statement for
the Dues and Fees Reimbursement and Member Voluntary Payments and to promptly
remit to FTDA all Dues and Fees Reimbursement and Member Voluntary Payments
collected thereunder but in no event less than three days after receipt.
Commencing with the statement containing the first billing for FTDA of the Dues
and Fees
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Reimbursement and the Member Voluntary Payments after the date of the Merger,
FTDI shall debit the account of each Provisional Member or member of FTDA with
the full amount of FTD Member Voluntary Payments held by FTDI for and on behalf
of the Provisional Member or members pursuant to authorizations obtained from
members, and to promptly remit such Transferred Member Voluntary Payments to
FTDA to be held and/or applied for and on behalf of such members. FTDA retains
the right, at its discretion, to bill and collect directly from the Members and
applicants for membership any and all Membership Dues, Fees and Member Voluntary
Payments.
(f) Reimbursement Mechanics. FTDI shall bill, collect, and transmit the
Membership Dues and Fees and Member Voluntary Payments to FTDA at FTDI's
expense, provided that FTDI is permitted to charge FTDA for the reasonable cost
of billing, collecting and transmitting Member Voluntary Payments. In all
statements delivered to Licensees by FTDI, each component of the Dues and Fees
Reimbursement and Member Voluntary Payments shall be separately and clearly
designated as being charged and collected on FTDA's behalf. It is understood for
purposes of the above agreement that statements will be enclosed with or
incorporated by FTDI into its own Clearing House Statements to Members. In the
event Members pay less than the full amount billed, such partial amount shall be
remitted to FTDA for application by FTDA to each component of the statement as
FTDA determines in its sole discretion. Sanctions equivalent to those imposed by
FTD on Licensees for failure to pay any amounts owed to it (as adjusted for
increases in the CPI Index, provided that any increases in excess of the CPI
Index shall be subject to the approval of FTDA, which approval shall not be
unreasonably withheld) shall be imposed by FTDI on Licensees which fail to
promptly pay the Dues and Fees Reimbursement for the account of FTDI as
reasonable reimbursement for its collection efforts.
(g) Direct Orders. After the Merger, FTDI and its Affiliates will fill all
Direct Orders only through FTDI Licensees and will distribute all Direct Orders
through procedures reasonably
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established by FTDA from time to time, such procedures as in existence on the
date hereof being set forth on Schedule 3.1(g) hereto. Any proposed changes to
the procedures set forth in such schedule shall be jointly agreed to by FTDI and
FTDA and if FTDA and FTDI shall fail to reach agreement, any dispute shall be
resolved by the arbitration procedures provided in Section 7.8; provided,
however, that the parties undertake to consider in good faith appropriate
changes to the distribution procedure with respect to Direct Orders. In the
event that FTDI reasonably should conclude that the procedures established by
FTDA are in violation of any third-party patent rights, then: (i) FTDI shall
have no obligation under this or any other agreement to employ or implement such
procedures, and (ii) FTDA and FTDI shall cooperate to establish and implement
replacement procedures in accordance with the provisions of Section (p) below.
(h) Access to Interflora. From and after the Merger, FTDI shall provide
access through its clearinghouse operation and its communications system
operation to the Constituent Groups of Interflora, their national units and
retail florist members, pursuant to the rules, regulations, and policies of
Interflora and on the same basis FTD provided such access prior to the Merger
and/or in a manner consistent therewith.
(i) Additional Funding. FTDI will compensate FTDA for the services to be
performed pursuant to this Agreement by providing FTDA an amount equal to one-
eighth of one percent (.125%) of the value of every floral order that is cleared
or otherwise processed through FTDI's clearinghouse operations, such amount to
be payable to FTDA monthly within ten (10) days after the end of the prior month
in which floral orders are reported to, and collected by, the clearinghouse.
(j) Information Exchange and Usage. FTDI and FTDA will provide to each
other information in hard copy or magnetic disc form (if reasonably available)
from their respective databases and other sources regarding membership data and
the use of the clearinghouse and communications system by Members, provided,
however, that FTDI will not use (a) in its Direct
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Orders or other direct marketing operations (including without limitation the
sale of mailing lists, telemarketing, etc.) in the Retail/Professional Florists
Industry and in competition with FTDA (for so long as FTDA complies with the
provisions of this Agreement and the Trademark License Agreement) or in
competition with Members generally or (b) in conjunction with the Logo, the
marks "FTD", "FTDA", or "FLORISTS' TRANSWORLD DELIVERY": (i) any of the
information provided by FTDA relating to the names, addresses, and other
information regarding sending or receiving customers of Members, and (ii) any of
the information generated by or accessible to FTDI after the execution of this
Agreement relating to the names, addresses and other information regarding
sending or receiving customers of Members as a result of the Members' using
FTDI's clearinghouse, communications system, credit card, and other operations.
(k) Continued Access to Books and Records. FTDI and FTDA will provide to
each other, during normal business hours and upon reasonable notice, access to
all books and records of the other as is required for a period of up to five (5)
years as either party may reasonably request.
(1) Marketing. For the period of three (3) years after the Merger, FTDI
will maintain annual national time and space Marketing Expenditures at a minimum
level of $11.7 million (so long as the actual clearing transactions for any 12-
month period immediately prior to the date of determination (the "Reference
Period") are at least ninety-five percent (95%) of clearing transactions for the
12-month period immediately prior to the Reference Period), provided, however,
that FTDI shall maintain annual national time and space Marketing Expenditures
at a minimum level of $11.7 million for at least the one-year period after the
Merger.
(m) FTDA Standards. FTDI shall at all times control the nature and quality
of the Licensees' products and services identified by the Member Used
Intellectual Property. For this purpose FTD hereby appoints FTDA as FTDI's
exclusive agent after the Merger for purposes of establishing and enforcing the
FTDA Standards which shall govern the activities of the Members
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and their use of the Member Used Intellectual Property under their respective
Trademark Membership License Agreements with FTDI. FTDA agrees to establish and
enforce quality control standards for Licensees consistent with the quality
control standards enforced by FTD prior to the Merger and FTD finds on behalf of
FTDI that such standards and the quality to be enforced by FTDA are sufficient
to adequately protect the goodwill associated with the Member Used Intellectual
Property and the Members' products and services. FTDI will have the right to
review and approve the FTDA Standards on a yearly basis, or more frequently if
they are materially modified during each year. FTDA agrees that the FTDA
Standards shall at all times be sufficient to protect the goodwill associated
with the Member Used Intellectual Property, and in deference to the considerable
experience available to FTDA in the Retail/Professional Florist Industry, FTDI
shall not arbitrarily or unreasonably withhold its approval of any of FTDA's
proposed changes to the FTDA Standards.
(n) FTDI Standards. FTDI shall retain the exclusive right and authority to
establish and maintain the FTDI Standards, but agrees to enforce such standards
only to the extent necessary to ensure proper usage thereof and payment therefor
by Members.
(o) Non-Competition. (i) FTDA agrees that during the term of the Trademark
License Agreement, it will not carry on, directly or indirectly, whether alone
or in conjunction with any Person, as a holder of an equity interest exceeding
five percent (5%) of the combined equity interest of any corporation or
partnership, or as a principal, agent, or otherwise, or have a material interest
in, advise, lend money (other than in connection with the purchase of public
debt securities or commercial paper) to, guarantee debts or obligations of or
otherwise provide material support or material assistance to any Person that,
directly or indirectly, carries on any business activity which is in competition
with the Businesses in the United States of America, in Canada and Mexico, in
the
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countries of the European Union or any other place in the world where the
Businesses are currently conducted.
(ii) FTDA shall not disclose or make accessible to anyone or make use of
(other than in the regular course of the business and operations of FTDA
consistent with the past business practices of FTD prior to the Merger) any
confidential information relating to FTDI or any of the Subsidiaries which FTDA
possesses with respect to confidential or secret processes, inventions,
machinery, plans, customers, trade secrets, business procedures and methods,
handbooks, manuals, catalogs and other data or information (in whatever form),
pricing policies, product markets and uses (both present and potential), details
or contracts, devices or matters of any kind relating to or with respect to any
confidential research or developmental work, programs or projects of FTDI or any
of its Subsidiaries.
(p) Certain Litigation. Following the Closing Date, FTDA will cooperate to
the extent reasonably practical and without unreasonable expense to FTDA in the
defense of the Floral Network Litigation and, if necessary, in the procurement
of license rights from the plaintiff or the development (or procurement) and
implementation of replacement functionality. If, following the Merger, as a
result of this litigation, FTDI is unable to provide in whole or in part any
service to Members in accordance with this Agreement, such failure will not
constitute a breach of this Agreement or the Merger Agreement, provided that
FTDI shall take all reasonable steps in cooperation with FTDA to establish and
implement replacement procedures, including if required, the procurement of
license rights from the plaintiff without unreasonable expense to FTDI.
(q) Memorabilia. Upon execution of this Agreement and subject to the
effectiveness of the Merger, FTDI shall sell to FTDA certain objects,
commemorative plaques and other similar items, photographs, trophies and other
organizational or historical memorabilia owned by FTDI and identified on
Schedule 3.1(q) to this Agreement ("Memorabilia") in consideration of a cash
payment
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of one thousand dollars ($1,000) by FTDA and FTDA's grant to FTDI of a
reasonable right of access to, and use (without compensation therefor) of, such
Memorabilia for advertising and promotional purposes.
(r) PromoFlor Council. Representation on the Promoflor Council shall be
designated by FTDA following the Merger, subject to the approval of FTDI which
approval shall not be unreasonably withheld.
(s) AFMC. After the Merger, FTDI shall continue to collect from Members as
part of the Clearing House Statement their contribution to AFMC, and remit such
contribution to AFMC, and as between FTDI and FTDA, representation on AFMC shall
be by a Member recommended by FTDA subject to the approval of FTDI, which
approval shall not be unreasonably withheld.
(t) Districts. After the Merger, FTDI shall collect from Members as part
of the Clearing House Statement district dues as provided for in the FTDA
Bylaws, that it will remit district dues to FTDA or to districts at FTDA's
direction and FTDI shall have no claim against the assets of any districts of
FTD or FTDA prior or subsequent to the Merger.
(u) Publications. After the Merger, FTDA shall publish the publications
known as "FLORIST" and "FTD FAMILY" and FTDA shall be entitled to all
subscription fees for such publications. In exchange for the lease of such
publications as set forth in the Leaseback Agreement, FTDA shall provide
advertising space to FTDI in such publications, with a value of $10,000 per
year, subject to increases based upon the CPI Index.
(v) Member Insurance Programs. The Group Insurance Programs will be
administered after the Merger by FTDA to such extent as may be appropriate
pursuant to the July 17, 1979 Agreement of Trust and the Florists' Mutual
Insurance Programs will be administered by FTDI unless FTDA, FTDI and Florists
Mutual Insurance Company mutually agree to a transfer of the said programs to
FTDA. FTDI and FTDA shall cooperate with each other, the insurance companies
27
<PAGE>
involved and said trust to effect the transfer to FTDA of responsibility for the
Insurance Programs to the extent contemplated herein.
(w) Credit Responsibility; Processing Fees. After the Merger, FTDI shall
be responsible for reviewing and determining the credit responsibility of
applicants for Active Member status in FTDA and, in consideration for this
service, FTDA agrees that it will remit to FTDI the reasonable cost of such
credit responsibility determination, provided that such cost shall not exceed
the amount of $50 (subject only to CPI Index increases, which may be applied
only to the extent the processing fee charged to applicants for Active Member
status is increased) and, provided further, that FTDI shall share with FTDA its
findings regarding the credit responsibility of the applicant under review.
3.2 Post-Sale Relationships Among FTDI and Members.
(a) Use of Facilities. After the Merger, any Member in good standing with
FTDA and with FTDI and which is in compliance with the FTDA and FTDI Standards
shall be entitled to have access to FTD's clearinghouse, communications system,
and other operations of the Floral Network on the same basis FTD provided such
access prior to the Merger and/or in a manner substantially consistent
therewith.
(b) Restrictions on FTDI's Charges. After the Merger, FTDI will not charge
the Members any fees, prices, or other charges for products or services which
are greater than the lowest charges levied by FTDI to any other customer in the
Retail/Professional Florists Industry for equivalent (including type, quality
and quantity) products or services (after giving effect to all applicable
rebates, refunds, credits, and other discounts). For three (3) years after the
Merger, the fees, prices or other charges charged by FTDI to Members for any
products or services provided to them by FTDI, its successors or assigns, which
are equivalent to those products and services set forth on Schedule 3.2(b),
shall not be greater than the lowest charges levied by FTD for such product or
service during the period immediately prior to July 1, 1994 (after giving effect
to all rebates, refunds,
28
<PAGE>
credits, and other discounts), as adjusted for any increase in the CPI Index
occurring after the execution of this Agreement, provided that, in the event the
Value Plus Program is discontinued by FTDI and not replaced with a substantially
equivalent Member Incentive Program, the one percent (1%) charge on advances to
be used for the Value Plus Program shall also be discontinued for the balance of
the three year period.
(c) Amending Post-Sale Provisions. Upon the written request of FTDI to
amend any provision of this Article III and any related defined terms and any
Exhibit or Schedules hereto, FTDA shall respond to such request upon only the
authorization of its Board of Trustees, without the necessity of obtaining the
consent of its Members existing as of the date of the amendment except to the
extent consent of the Members is required pursuant to the Articles of
Incorporation, the FTDA Bylaws or the Nonprofit Act (or the applicable
equivalent), provided, however, that the Membership Dues may be changed only in
accordance with the procedures established in FTDA's Bylaws which procedures
shall be substantially in accord with Bylaw XV of the FTD Bylaws. FTDA's Board
of Trustees shall approve any proposed amendment unless the Board, acting in
good faith, determines that the proposed amendment is not in the best interests
of FTDA and/or the Members then existing.
3.3 FTDI Successors. After the Merger, FTDI covenants and undertakes to
require that any legal successor to FTDI or any Subsidiary or any person which
acquires any Subsidiary or obtains any material part of the assets used in
connection with the Businesses or acquires the stock of Interflora owned by FTDI
("Successor") shall, as a condition to the transaction pursuant to which such
person becomes a legal successor or purchases or otherwise acquires such
material part of the assets used in connection with the Businesses or the stock
of Interflora, agree to accede to and become bound to perform all obligations of
FTDI pursuant to this Agreement, as such obligations are related to such
Subsidiary or assets, as the case may be, and including specifically but without
29
<PAGE>
limitation those obligations relating to such assets the benefit of which will
principally inure to FTDA and/or FTDA Members; provided however, if that is not
practicable, the parties agree to negotiate in good faith so as to thereafter
execute and deliver amendments or supplements hereto or additional agreements to
provide FTDA substantially similar or equivalent benefits and protection as are
sought to be provided hereunder. Notwithstanding anything herein to the
contrary, this Section 3.3 shall not apply with respect to RGC.
ARTICLE IV
EQUITY OFFERINGS TO MEMBERS
---------------------------
4.1 First Equity Offering to Members. FTDI or Buyer shall file a
registration statement or statements under the Securities Act of 1933, as
amended, no later than two hundred (200) days after the effectiveness of the
Merger for the purpose of offering in the United States to all Members who are
Active Members of FTDA at such time ("Offerees"), shares of common stock of FTDI
or Buyer, as the case may be, representing not less than twelve and one-half
percent (12-1/2%) of the FTDI's outstanding common stock capitalization
immediately following the date of this Agreement ("Initial Common Equity"), and
to use all reasonable efforts to cause the registration statements to be
declared effective and conclude the offering as soon as practicable.
4.2 Follow-on Equity Offering to Members. In addition to the first equity
offering described in Section 4.1, within three (3) years from the effectiveness
of the Merger, the same entity making the offering described in Section 4.1
shall commence to offer in the United States to all Members who are Active
Members of FTDA at such time equity securities in an aggregate amount equal to
an additional seven and one-half percent (7-l/2%) of the then-outstanding common
stock of such entity.
4.3 Certain Other Conditions. The following conditions will be applicable
to the offerings described in Sections 4.1 and 4.2:
30
<PAGE>
(a) The offerings will be registered offerings only in the United States,
and will be available to all Members who are Active Members of FTDA at such
time.
(b) FTDI may require that such shares be nontransferable except to other
FTDA Members, their respective immediate family members or estates, or FTDI,
which restrictions will cease two hundred and seventy (270) days after FTDI's
first underwritten public offering available to people other than FTDA Members.
(c) The aggregate offering price for the shares subject to such offerings
shall not exceed the then-existing fair market value of the shares based upon
the opinion of an independent investment banking firm mutually acceptable to
FTDI and FTDA; provided that in the event that the aggregate offering price for
such shares in such offering does not exceed an amount equal to (i) a fraction
represented by the aggregate percentage of the outstanding common stock offered
to the FTDA Members as referred to above, multiplied by (ii) the equity portion
of the capitalization of the business of FTDI immediately subsequent to the
Merger contributed by Buyer and its financing partners, then the opinion of an
investment banking firm shall not be required; provided, further, that in the
event that such shares are listed on a national securities exchange or quoted on
a national securities quotation system at the time of such offering, the price
per share shall be no greater than the trading price of such shares, and no
investment banking firm opinion shall be required.
(d) Such shares will be offered to Offerees in such manner and at such
price as Buyer shall determine, in its sole discretion, provided that Offerees
shall be able to participate on a fair and equitable basis as determined solely
by Buyer.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Organization, Good Standing, and Power of FTDA. FTDA represents,
warrants and agrees with FTD that FTDA is a corporation duly organized and
validly existing and in good
31
<PAGE>
standing under the laws of the United States jurisdiction in which it is
incorporated, and is qualified and in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business conducted by it requires such qualification, except where failure to so
qualify or be in good standing would not individually or in the aggregate have a
material adverse effect on the business, properties or financial condition of
FTDI. FTDA has all requisite power to own or lease its properties and to carry
on its business in the manner and in the place where such properties are owned
or leased and its business as now being conducted. FTDA has made available its
Articles of Incorporation and Bylaws. Such Articles of Incorporation are in full
force and effect. FTDA is not in violation of any provision of its Articles of
Association or Bylaws.
5.2 Organization, Good Standing, and Power of FTD and FTDI. FTD
represents, warrants and agrees with FTDA that FTD is a non-profit corporation
and, following the effectiveness of the Restated Articles of Association
identified below, FTDI will be a corporation, each at such respective times duly
organized and validly existing and in good standing under the laws of Michigan,
and FTDI will be qualified and in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted by it requires such qualification, except where failure to so qualify
or be in good standing would not individually or in the aggregate have a
material adverse effect on the business, properties, or financial condition of
FTDI. As of the date of execution hereof, FTD has, and, following the Merger,
FTDI will have, all requisite power to own or lease its properties and to carry
on its business in the manner and in the place where such properties are owned
or leased and its business is now being conducted. FTD has heretofore provided
to FTDA copies of the Articles of Association and Bylaws as in effect prior to
the Merger and copies of FTDI's Restated Articles of Incorporation and Bylaws as
such will be in effect after the Merger. Such Articles of Association of FTD are
in full force and effect. FTDI will
32
<PAGE>
not be in violation of any provision of its Articles of Association or, when
effective, the Restated Articles of Incorporation or Bylaws.
ARTICLE VI
INDEMNIFICATION
---------------
6.1 Indemnification of FTDI by FTDA. From and after the execution of this
Agreement, FTDA shall indemnify defend and save FTD, FTDI and its directors,
officers, directors, employees, affiliates, successors and assigns ("FTDI
Parties"), against any and all loss, damage, liability, or expense, (including
attorneys' fees and costs of litigation) whatsoever ("Damages") arising out of
claims made by third parties (including governmental authorities) in connection
with the business of FTDA, including the collection by FTDI for FTDA of Member
Voluntary Payments and the remittance by FTDI to FTDA of FTD Member Voluntary
Payments as described in Section 3.1(e).
6.2 Indemnification of FTDA by FTDI. From and after the execution of this
Agreement, FTDI shall indemnify, defend, and save FTDA and its officers,
directors, employees, affiliates, successors and assigns ("FTDA Parties")
against any and all Damages arising out of claims made by third parties
(including governmental authorities) in connection with FTDI's operation of the
Businesses from and after the Merger.
6.3 Indemnification Procedures. In the event that any FTDI Party or FTDA
Party, as the case may be (the "Claimant"), desires to make a claim against an
indemnifying party (the "Indemnitor") under this Article, the Claimant shall
give the Indemnitor prompt written notice of any claims, actions, suits, or
proceedings and demands being instituted against or made upon the Claimant in
connection with which the Claimant claims indemnification hereunder. The
Claimant, at the time of giving such notice and if the Indemnitor agrees that it
is to indemnify the Claimant hereunder, shall give the Indemnitor full authority
to defend, adjust, compromise, or settle the matter in the Claimant's name or
otherwise as the Indemnitor shall elect unless, in the Claimant's reasonable
33
<PAGE>
discretion, there is a conflict or potential conflict of interest between the
Claimant and the Indemnitor in the matter or the matter involves a remedy other
than monetary damages. The Claimant shall promptly advise the Indemnitor in
writing of the amount and circumstances surrounding the matter and shall
cooperate with the Indemnitor in defending the matter. If the Indemnitor does
not assume defense of the matter in a reasonable period of time, the Claimant
may defend, adjust, compromise or settle such matter in place of the Indemnitor,
but without in any way reducing Indemnitor's indemnification liability
hereunder. In addition, if the Claimant reasonably determines that a conflict or
potential conflict of interest exists between the Claimant and the Indemnitor,
the Indemnitor shall be responsible for reimbursing the reasonable attorneys'
fees and expenses (but only for one firm) of the Claimant in connection with the
defense of such matter. With respect to liquidated claims, if Indemnitor has not
contested the claim within thirty (30) days after being given notice of the
claim by the Claimant, Indemnitor shall pay the full amount thereof in cash
within ten (10) days after the thirty-day period has expired.
ARTICLE VII
MISCELLANEOUS
-------------
7.1 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given upon the earlier of delivery if
delivered personally or upon receipt sent by registered or certified mail,
return receipt requested, postage prepaid or on the second next business day
after deposit if sent by recognized overnight delivery service, or upon
transmission if sent by telecopy or facsimile transaction (with request of
assurance of receipt in a manner customary for communications of such type) as
follows:
34
<PAGE>
(a) If to FTDI:
Mr. Richard C. Perry
President
Perry Capital Corp.
245 Park Avenue
New York, New York 10167
with a copy to:
Gary P. Cullen, Esq.
Skadden, Arps, Slate, Meagher & Flom
333 W. Wacker Drive
Chicago, Illinois 60606
Fax: (312) 407-0411
(b) If to FTDA:
Mr. James W. Jordan
Secretary
FTD Association
29200 Northwestern Highway
Southfield, Michigan 48034
with a copy to:
James A. Samborn, Esq.
Dickinson, Wright, Moon, Van Dusen & Freeman
500 Woodward Ave.
Suite 4000
Detroit, Michigan 48226
Fax: (313) 223-3598
7.2 Confidentiality. FTD (on its behalf and on behalf of FTDI) and FTDA
each agree that each of their respective officers, directors, employees and
other representatives shall hold in strict confidence and shall use data and
information obtained from the other only as contemplated in connection with this
Agreement, except to the extent such data and information may be publicly
available through no fault of either of them or required by law to be disclosed.
7.3 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto and their successors and
35
<PAGE>
assigns, as the case may be, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
7.4 Non-Assignability. This Agreement shall not be assignable by either
party without the prior written consent of the other party, provided, however,
that, without such prior written consent, FTDI may assign (i) its rights but not
its obligations to any lender providing financing to Buyer or FTDI and (ii) its
rights and its obligations in connection with the sale of all or substantially
all of the assets of FTDI; provided further that, without such prior written
consent, FTDA may alter its form of organization or structure so long as it
remains an organization substantially owned by Retail/Professional Florists.
7.5 Section and Other Headings. The section and other headings contained
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
7.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.7 Governing Law. This Agreement shall be construed according to the laws
of the State of Michigan, without giving effect to any choice of law provisions.
7.8 Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement, shall be governed in accordance with the procedures
set forth in Article XV of the Merger Agreement.
7.9 Term. This Agreement shall continue for a term which shall be
coextensive with the term of the Trademark License Agreement.
7.10 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the transactions described in this
Agreement. This Agreement may not be
36
<PAGE>
changed, waived or terminated except by a written instrument signed by the party
against whom enforcement of the change, waiver or termination is sought.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
dates indicated below by their duly authorized representatives.
FLORISTS' TRANSWORLD DELIVERY ASSOCIATION
By: /s/ John Partridge
-------------------------------
Its: President
-------------------------------
Date: December 18, 1994
-------------------------------
FTD ASSOCIATION
By: /s/ Mark Knox
-------------------------------
Its: President
-------------------------------
Date: December 18, 1994
-------------------------------
Executed to ratify and conform this
Agreement, and to agree to cause
Florists' Transworld Delivery, Inc.,
to comply with this Agreement in all
respects following the Merger:
FTD ACQUISITION CORPORATION
By: /s/ Gary Silberberg
-------------------------
Its: Vice President
-------------------------
<PAGE>
Executed for the purpose of
evidencing its agreement to
be bound by Article IV only.
PERRY CAPITAL CORP.
By: /s/ Richard Perry
-------------------------
Its: President
-------------------------
39
<PAGE>
SCHEDULE 3.1(g)
to
MUTUAL SUPPORT AGREEMENT
EXISTING PROCEDURES FOR DIRECT ORDERS
-------------------------------------
Floral orders are distributed by FTD to FTD Member retail florists
according to a formula which is known as the "FTD Random Weighted Distribution"
formula.
Under this formula, FTD Member retail florists that elect to participate as
filling florists for FTD-generated floral orders are placed into one of eight
categories. The categories represent varying volumes of FTD floral wire orders
sent through the FTD clearing house over the most recent 12-month period. Every
month, every FTD Member's order volume for the most recent 12-month period is
calculated and every Member is placed into one of the eight sending volume
categories. Each category is assigned a weighting factor, with categories
representing higher volumes of orders having a higher weighting factor. A
computer program creates a list of FTD Members by city or town and Member zip
code, in random sequence. The number of times an FTD Member appears on the
random sequence list depends on the weighting factor of the sending volume
category assigned to the Member. Floral orders are distributed to FTD Members in
order utilizing the random sequence Member list created by the computer program
and maintained in a computer file. Floral orders to zip codes not represented by
any FTD Member florist are routed to another FTD florist serving that particular
zip code.
The eight sending volume categories and their respective weighting factors
are as follows:
<TABLE>
<CAPTION>
12-Month Sending Order Volume Weighting Factor
----------------------------- ----------------
<S> <C> <C>
23,500 and over 150
17,701 - 23,499 25
12,401 - 17,700 20
6,000 - 12,400 15
2,000 - 5,999 8
1,000 - 1,999 4
501 - 999 2
0 - 500 1
</TABLE>
The entire FTD random weighted distribution formula is maintained by FTD on
a computer program format at FTD Headquarters.
40
<PAGE>
MODIFICATIONS TO MUTUAL SUPPORT AGREEMENT
-----------------------------------------
1. Section 2.3(a) would be amended to read in its entirety as follows:
"(a) FTDA Directors. FTDI may designate up to twenty percent (20%),
but not fewer than two (2), of the members of the Board of Directors of
FTDA. The balance of the members of the Board of Directors of FTDA shall be
elected by the Active Members voting on the basis of one vote for each such
membership interest, provided that regional representation by, and election
of, such directors may be established in accordance with applicable law."
2. Section 2.4 would be amended to read in its entirety as follows:
"2.4 Representation on FTDI Board of Directors. FTDA may designate up
to twenty percent (20%), but no fewer than two (2), of the members of
FTDI's Board of Directors and the boards of directors of any controlled
Affiliates (other than RGC) of FTDI which may operate any portion of the
Businesses."
3. A new Section 2.4.1 (inserted between Sections 2.4 and 2.5) would be
added to the Mutual Support Agreement which would provide the following:
"2.4.1 No Overlap of Officers
----------------------
(a) No officer of FTDA shall be an officer of FTDI.
(b) No officer of FTDI shall be an officer of FTDA."
4. Section 3.1(d)(1) would be amended to read in its entirety as follows:
"(1) Under FTDA Standards. FTDA agrees that it shall enforce the FTDA
Standards and the other rules and regulations contained in the FTDA
Handbook, to the full extent necessary to maintain and protect the goodwill
associated with the Member Used Intellectual Property, and FTDI hereby
acknowledges that the extent to which FTD enforced its standards prior to
the Merger was sufficient for this purpose. Notwithstanding the foregoing,
in the event a Member's violation pertains to the FTDA Standards (other
than with respect to a FTDA Standard which pertains specifically to a
Member's participation in another wire association), and FTDA fails in the
reasonable opinion of FTDI to discipline said Member as required, FTDI
shall have the right to take whatever action FTDI deems necessary to
enforce the FTDA Standards against said Member, up to and including the
imposition of limitations upon or termination of a Member's access to
FTDI's clearinghouse, communications system and other business operations
and/or suspension or termination of such Member's Trademark Membership
License Agreement, it being understood that such discipline would not
extend to that Member's status in FTDA or access to or other benefits or
attributes of FTDA membership (other than with respect to such Member's
access to FTDI's business operations as referred to above or the use of the
Member Used Intellectual Property and the Trademark Membership License
Agreement), provided that in the event a Member's access to FTDI's
clearinghouse, communications system, and other business
41
<PAGE>
operations has been terminated by FTDI and/or the Trademark Membership
License Agreement has been terminated by FTDI, FTDA, at the request of the
Member (if FTDA agrees and reasonably determines that such termination was
unreasonable), may submit such matter to a neutral arbitrator selected by
FTDI and FTDA who shall apply the procedures in Section 7.8 of this
Agreement. In the event the arbitrator determines upon such appeal that a
Member's right to use the clearinghouse, communications system, other
business operations, the Member Used Intellectual Property and the
Trademark Membership License Agreement should be reinstated, and in the
event that the Member has met its financial obligations to FTDI, FTDI shall
reinstate the Member. The decision of the arbitrator shall be deemed to
constitute action by FTDI to maintain the goodwill associated with the
Member Used Intellectual Property."
5. Section 3.1(d)(2) would be amended to read in its entirety as follows:
"(2) Under FTDI Standards. FTDA agrees that FTDI shall have the right
to discipline Members for violating the FTDI Standards that shall be
adopted by FTDI for the use of its clearinghouse, communications system,
and other business operations to the extent necessary to ensure proper
usage thereof and payment therefor by Members associated with the Member
Used Intellectual Property, and such discipline may include the imposition
of limitations upon or termination of a Member's access to FTDI's
clearinghouse, communications system, and other business operations and/or
suspension or termination of such Member's Trademark Membership License
Agreement, it being understood that such discipline would not extend to
that Member's status in FTDA or access to or other benefits or attributes
of FTDA membership (other than with respect to such Member's access to
FTDI's business operations as referred to above or the use of the Member
Used Intellectual Property and the Trademark Membership License Agreement),
provided that a Member disciplined by FTDI for violating the FTDI
Standards, which discipline results in termination of a Member's access to
FTDI's clearinghouse, communications system, and other business operations
and/or termination of such Member's Trademark Membership License Agreement,
shall have a right of appeal to a neutral arbitrator selected by FTDI and
the Member who shall apply the arbitration procedures referred to in
Section 7.8; provided further, however, that a Member's right of appeal to
an arbitrator under this Section 3.1(d)(2) shall exist only if (i) FTDA
shall determine, in its good faith judgment, that such termination was
unreasonable, and (ii) such termination was not based, in whole or in part,
upon (x) the failure of such Member to meet its financial obligations to
FTDI for a period of 60 consecutive days, (y) the occurrence of three or
more bonafide customer complaints and/or test order failures within any
consecutive 12 month period or (z) the use of FTDI's clearinghouse,
communications system or other business operations or the Member Used
Intellectual Property in a manner determined by FTDI in its good faith
judgment to be inconsistent with FTDI's Standards or the Trademark
Membership License Agreement after delivery of notice thereof to such
Member not less than thirty (30) days prior to such termination and the
failure by such Member to cure such use in such thirty (30) day period. In
the event the arbitrator determines upon such appeal that a Member's right
to use the clearinghouse, communications system, other business operations,
the Member Used Intellectual Property and the Trademark Membership License
Agreement should be reinstated, and in the event that the Member has met
its financial obligations to FTDI, FTDI shall reinstate the Member. The
decision of the arbitrator shall be deemed to constitute action by FTDI to
maintain the goodwill associated with the Member Used Intellectual
42
<PAGE>
Property. FTDA agrees that it shall not invoke the procedures referred to
in Section 7.8 hereof to commence an arbitration proceeding against FTDI
with respect to any dispute, controversy or claim arising out of or
relating to this Section 3.1(d)(2) except to the extent that FTDA
determines that the FTDI Standards adopted by FTDI for the use of FTDI's
clearinghouse, communications system, and other business operations are not
necessary to ensure proper usage thereof and payment therefor by Members
associated with the Member Used Intellectual Property.
6. Section 3.1(m) would be amended to read in its entirety as follows:
"(m) FTDA Standards. FTDI shall at all times control the nature and
quality of the Licensees' products and services identified by the Member
Used Intellectual Property. For this purpose FTD hereby appoints FTDA as
FTDI's exclusive agent after the Merger for purposes of establishing and
enforcing the FTDA Standards which shall govern the activities of the
Members and their use of the Member Used Intellectual Property under their
respective Trademark Membership License Agreements with FTDI. FTDA agrees
to establish and enforce quality control standards for Licensees consistent
with the quality control standards enforced by FTD prior to the Merger and
FTD finds on behalf of FTDI that such standards and the quality to be
enforced by FTDA are sufficient to adequately protect the goodwill
associated with the Member Used Intellectual Property and the Members'
products and services. FTDA agrees that the FTDA Standards shall at all
times be sufficient to protect the goodwill associated with the Member Used
Intellectual Property. FTDA will notify FTDI of any proposed modification
(whether written or oral, through amendment, addition, deletion or
otherwise) of the FTDA Standards or any of the FTDA Standards not less than
sixty (60) days in advance of the earlier of the proposed notice,
announcement or implementation of such modification, provided that in the
event such modification involves a proposed amendment to FTDA's Code of
Regulations pursuant to Section 2(c) or Section 2(d) of Regulation XI
thereof, such notice shall be given within three (3) days after such
amendment has been proposed. In the event that FTDI determines in its good
faith judgment that any such proposed modification of the FTDA Standards
could violate FTDA's obligations as set forth in this Section 3.1(m), FTDI
shall be entitled to submit such matter to arbitration as contemplated by
Section 7.8 hereof, and implementation of any such modification shall be
delayed pending the resolution of such controversy pursuant to such Section
7.8."
7. Section 3.l(o)(i) will be amended to read in its entirety as follows:
"(o) Non-Competition. (i)(A) During the term of the Trademark License
Agreement, FTDA agrees it will not carry on, directly or indirectly,
whether alone or in conjunction with any Person, as a holder of an equity
interest exceeding five percent (5%) of the combined equity interest of any
corporation or partnership, or as a principal, agent, or otherwise, or have
a material interest in, advise, lend money (other than in connection with
the purchase of public debt securities or commercial paper) to, guarantee
debts or obligations of or otherwise provide material support or material
assistance to any Person that, directly or indirectly, carries on, any
business activity which is in competition with the Businesses in the United
States of America, in Canada and Mexico, in the countries of the European
Union or any other place in the world where the Businesses are currently
conducted, in the
3
<PAGE>
event that such business activity utilizes or proposes to utilize in any
way any portion of the Licensed Intellectual Property.
(B) For a period of fifteen (15) years from the date of this
Agreement, FTDA agrees it will not carry on, directly or indirectly,
whether alone or in conjunction with any Person, as a holder of any equity
interest exceeding five percent (5%) of the combined equity interest of any
corporation or partnership, or as a principal, an agent, or otherwise, or
have a material interest in, advise, lend money (other than in connection
with the purchase of public debt securities or commercial paper) to,
guarantee debts or obligations of or otherwise provide material support or
material assistance to any Person that, directly or indirectly, carries on,
any business activity which is in competition with the Businesses in the
United States of America, in Canada and Mexico, in the countries of the
European Union or any other place in the world where the Businesses are
currently conducted.
(C) In the event that FTDA engages in any of the activities
contemplated by clause (B) of this Section 3.l(o)(i) subsequent to the 15-
year period, (I) (x) FTDI shall be entitled in its sole discretion to
renegotiate with FTDA the bases upon which FTDI continues to provide
administrative and similar services to FTDA pursuant to the terms of this
Agreement and (y) the obligations of FTDI under Section 3.1(i) of this
Agreement will terminate immediately and (II) in the event such activities
are carried on within the floral industry, the obligations of FTDI under
Section 3.l(c)(ii) and (iii) will terminate immediately.
8. Section 3.1(g) would be amended to read in its entirety as follows:
"(g) Direct Orders. After the Merger, FTDI and its Affiliates will
fill all Direct Orders only through FTDI Licensees and will distribute all
Direct Orders through procedures reasonably established by FTDI from time
to time, such procedures in existence on the date hereof being set forth in
Schedule 3.1(g) hereto. Any changes to the procedures set forth in such
schedule shall be made on a reasonable basis and shall provide for an
allocation to FTDI Licensees of Direct Orders generated by FTDI and its
Affiliates on a reasonable and equitable basis so as to provide an
opportunity for all FTDI Licensees which are qualified under FTDI's Direct
Order eligibility qualifications to participate in filling such Direct
Orders. FTDI shall notify FTDA of changes in the schedule. In the event
FTDA believes that such changes are not reasonable and equitable, it may
submit such dispute to arbitration in accordance with the procedures
provided in Section 7.8. In the event the arbitrator determines that the
changes are not reasonable and equitable, the changes shall be discontinued
by FTDI. In the event that FTDI reasonably should conclude that the
procedures in effect are in violation of any third-party patent rights,
then: (i) FTDI shall have no obligation under this or any other agreement
to employ or implement such procedures, and (ii) FTDI shall establish and
implement replacement procedures in accordance with this Section and with
the provisions of Section (p) below to the extent applicable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
dates indicated below by their duly authorized representatives.
4
<PAGE>
EXHIBIT 10.11
SUPPLEMENTAL MUTUAL SUPPORT AGREEMENT
-------------------------------------
This Supplemental Agreement made as of this 11th day of January, 1996, by
and between Florists' Transworld Delivery, Inc., a Michigan corporation and the
survivor by merger with Florists' Transworld Delivery Association, a Michigan
non-profit corporation ("FTDI"), and FTD Association, an Ohio non-profit
corporation organized on a membership basis ("FTDA").
This Supplemental Agreement is made for the purpose of modifying the
original Mutual Support Agreement executed between the parties hereto as of
December 18, 1994. The original Mutual Support Agreement is modified as
follows:
1. Section 2.3(a) is amended to read in its entirety as follows:
"(a) FTDA Directors. FTDI may designate up to twenty
percent (20%), but not fewer than two (2), of the members of
the Board of Directors of FTDA. The balance of the members
of the Board of Directors of FTDA shall be elected by the
Active Members voting on the basis of one vote for each such
membership interest, provided that regional representation
by, and election of, such directors may be established in
accordance with applicable law."
2. Section 2.4 is amended to read in its entirety as follows:
"2.4 Representation on FTDI Board of Directors. FTDA
-----------------------------------------
may designate up to twenty percent (20%), but no fewer than
two (2), of the members of FTDI's Board of Directors and the
boards of directors of any controlled Affiliates (other than
RGC) of FTDI which may operate any portion of the
Businesses.
3. A new Section 2.4.1 (inserted between Sections 2.4 and 2.5) is added
to the Mutual Support Agreement which provides the following:
"2.4.1 No Overlap of Officers
----------------------
(a) No officer of FTDA shall be an officer of FTDI.
(b) No officer of FTDI shall be an officer of FTDA."
<PAGE>
4. Section 3.1(d)(1) is amended to read in its entirety a follows:
"(1) Under FTDA Standards. FTDA agrees that it shall
--------------------
enforce the FTDA Standards and the other rules and
regulations contained in the FTDA Handbook, to the full
extent necessary to maintain and protect the goodwill
associated with the Member Used Intellectual Property, and
FTDI hereby acknowledges that the extent to which FTD
enforced its standards prior to the Merger was sufficient
for this purpose. Notwithstanding the foregoing, in the
event a Member's violation pertains to the FTDA Standards
(other than with respect to a FTDA Standard which pertains
specifically to a Member's participation in another wire
association), and FTDA fails in the reasonable opinion of
FTDI to discipline said Member as required, FTDI shall have
the right to take whatever action FTDI deems necessary to
enforce the FTDA Standards against said Member, up to and
including the imposition of limitations upon or termination
of a Member's access to FTDI's clearinghouse, communications
system and other business operations and/or suspension or
termination of such Member's Trademark Membership License
Agreement, it being understood that such discipline would
not extend to that Member's status in FTDA or access to or
other benefits or attributes of FTDA membership (other than
with respect to such Member's access to FTDI's business
operations as referred to above or the use of the Member
Used Intellectual Property and the Trademark Membership
License Agreement), provided that in the event a Member's
access to FTDI's clearinghouse, communications system, and
other business operations has been terminated by FTDI and/or
the Trademark Membership License Agreement has been
terminated by FTDI, FTDA, at the request of the Member (if
FTDA agrees and reasonably determines that such termination
was unreasonable), may submit such matter to a neutral
arbitrator selected by FTDI and FTDA who shall apply the
procedures in Section 7.8 of this Agreement. In the event
the arbitrator determines upon such appeal that a Member's
right to use the clearinghouse, communications system, other
business operations, the Member Used Intellectual Property
and the Trademark Membership License Agreement should be
reinstated, and in the event that the Member has met its
financial obligations to FTDI, FTDI shall reinstate the
Member. The decision of the arbitrator shall be deemed to
constitute action by FTDI to maintain the goodwill
associated with the Member Used Intellectual Property."
5. Section 3.1 (d)(2) is amended to read in its entirety as follows:
"(2) Under FTDI Standards. FTDA agrees that FTDI shall
--------------------
have the right to discipline Members for violating the FTDI
Standards that shall be adopted by FTDI for the use of its
clearinghouse,
2
<PAGE>
communications system, and other business operations to the
extent necessary to ensure proper usage thereof and payment
therefor by Members associated with the Member Used
Intellectual Property, and such discipline may include the
imposition of limitations upon or termination of a Member's
access to FTDI's clearinghouse, communications system, and
other business operations and/or suspension or termination
of such Member's Trademark Membership License Agreement, it
being understood that such discipline would not extend to
that Member's status in FTDA or access to or other benefits
or attributes of FTDA membership (other than with respect to
such Member's access to FTDI's business operations as
referred to above or the use of the Member Used Intellectual
Property and the Trademark Membership License Agreement),
provided that a Member disciplined by FTDI for violating the
FTDI Standards, which discipline results in termination of a
Member's access to FTDI's clearinghouse, communications
system, and other business operations and/or termination of
such Member's Trademark Membership License Agreement, shall
have a right of appeal to a neutral arbitrator selected by
FTDI and the Member who shall apply the arbitration
procedures referred to in Section 7.8; provided further,
however, that a Member's right of appeal to an arbitrator
under this Section 3.1 (d)(2) shall exist only if (i) FTDA
shall determine, in its good faith judgment, that such
termination was unreasonable, and (ii) such termination was
not based, in whole or in part, upon (x) the failure of such
Member to meet its financial obligations to FTDI for a
period of 60 consecutive days, (y) the occurrence of three
or more bonafide customer complaints and/or test order
failures within any consecutive 12 month period or (z) the
use of FTDI's clearinghouse, communications system or other
business operations or the Member Used Intellectual Property
in a manner determined by FTDI in its good faith judgment to
be inconsistent with FTDI's Standards or the Trademark
Membership License Agreement after delivery of notice
thereof to such Member not less than thirty (30) days prior
to such termination and the failure by such Member to cure
such use in such thirty (30) day period. In the event the
arbitrator determines upon such appeal that a Member's right
to use the clearinghouse, communications system, other
business operations, the Member Used Intellectual Property
and the Trademark Membership License Agreement should be
reinstated, and in the event that the Member has met its
financial obligations to FTDI, FTDI shall reinstate the
Member. The decision of the arbitrator shall be deemed to
constitute action by FTDI to maintain the goodwill
associated with the Member Used Intellectual Property. FTDA
agrees that it shall not invoke the procedures referred to
in Section 7.8 hereof to commence an arbitration proceeding
against FTDI with respect to any dispute, controversy or
claim arising out of or relating to this Section 3.1(d)(2)
except to the extent that FTDA determines that the FTDI
Standards adopted by
3
<PAGE>
FTDI for the use of FTDI's clearinghouse, communications
system, and other business operations are not necessary to
ensure proper usage thereof and payment therefor by Members
associated with the Member Used Intellectual Property."
6. Section 3.1 (m) is amended to read in its entirety as
follows:
"(m) FTDA Standards. FTDI shall at all times control
--------------
the nature and quality of the Licensees' products and
services identified by the Member Used Intellectual
Property. For this purpose FTD hereby appoints FTDA as
FTDI's exclusive agent after the Merger for purposes of
establishing and enforcing the FTDA Standards which shall
govern the activities of the Members and their use of the
Member Used Intellectual Property under their respective
Trademark Membership License Agreements with FTDI. FTDA
agrees to establish and enforce quality control standards
for Licensees consistent with the quality control standards
enforced by FTD prior to the Merger and FTD finds on behalf
of FTDI that such standards and the quality to be enforced
by FTDA are sufficient to adequately protect the goodwill
associated with the Member Used Intellectual Property and
the Members' products and services. FTDA agrees that the
FTDA Standards shall at all times be sufficient to protect
the goodwill associated with the Member Used Intellectual
Property. FTDA will notify FTDI of any proposed modification
(whether written or oral, through amendment, addition,
deletion or otherwise) of the FTDA Standards or any of the
FTDA Standards not less than sixty (60) days in advance of
the earlier of the proposed notice, announcement or
implementation of such modification, provided that in the
event such modification involves a proposed amendment to
FTDA's Code of Regulations pursuant to Section 2(c) or
Section 2(d) of Regulation XI thereof, such notice shall be
given within three (3) days after such amendment has been
proposed. In the event that FTDI determines in its good
faith judgment that any such proposed modification of the
FTDA Standards could violate FTDA's obligations as set forth
in this Section 3.1(m), FTDI shall be entitled to submit
such matter to arbitration as contemplated by Section 7.8
hereof, and implementation of any such modification shall be
delayed pending the resolution of such controversy pursuant
to such Section 7.8."
7. Section 3.1 (o)(i) is amended to read in its entirety as
follows:
"(o) Non-Competition. (i)(A) During the term of the
---------------
Trademark License Agreement, FTDA agrees it will not carry
on, directly or indirectly, whether alone or in conjunction
with any Person, as a holder of an equity interest exceeding
five percent (5%) of the combined equity interest of any
corporation or partnership, or
4
<PAGE>
as a principal, agent, or otherwise, or have a material
interest in, advise, lend money (other than in connection
with the purchase of public debt securities or commercial
paper) to, guarantee debts or obligations of or otherwise
provide material support or material assistant to any Person
that, directly or indirectly, carries on, any business
activity which is in competition with the Businesses in the
United States of America, in Canada and Mexico, in the
countries of the European Union or any other place in the
world where the Businesses are currently conducted, in the
event that such business activity utilizes or proposes to
utilize in any way any portion of the Licensed Intellectual
Property.
(B) For a period of fifteen (15) years from the date of
this Agreement, FTDA agrees it will not carry on, directly
or indirectly, whether alone or in conjunction with any
Person, as a holder of any equity interest exceeding five
percent (5%) of the combined equity interest of any
corporation or partnership, or as a principal, an agent, or
otherwise, or have a material interest in, advise, lend
money (other than in connection with the purchase of public
debt securities or commercial paper) to, guarantee debts or
obligations of or otherwise provide material support or
material assistance to any Person that, directly or
indirectly, carries on, any business activity which is in
competition with the Businesses in the United States of
America, in Canada and Mexico, in the countries of the
European Union or any other place in the world where the
Businesses are currently conducted.
(C) In the event that FTDA engages in any of the
activities contemplated by clause (B) of this Section 3.1
(o)(i) subsequent to the 15-year period, (I) (x) FTDI shall
be entitled in its sole discretion to renegotiate with FTDA
the bases upon which FTDI continues to provide
administrative and similar services to FTDA pursuant to the
terms of this Agreement and (y) the obligations of FTDI
under Section 3.1 (i) of this Agreement will terminate
immediately and (II) in the event such activities are
carried on within the floral industry, the obligations of
FTDI under Section 3.1(c)(ii) and (iii) will terminate
immediately."
8. Section 3.1 (g) is amended to read in its entirety as
follows:
"(g) Direct Orders. After the Merger, FTDI and its
-------------
Affiliates will fill all Direct Orders only through FTDI
Licensees and will distribute all Direct Orders through
procedures reasonably established by FTDI from time to time,
such procedures in existence on the date hereof being set
forth in Schedule 3.1 (g) hereto. Any changes to the
procedures set forth in such schedule shall be made on a
reasonable basis and shall provide for an allocation to FTDI
Licensees of Direct
5
<PAGE>
Orders generated by FTDI and its Affiliates on a reasonable and
equitable basis so as to provide an opportunity for all FTDI Licensees
which are qualified under FTDI's Direct Order eligibility
qualifications to participate in filling such Direct Orders. FTDI
shall notify FTDA of changes in the schedule. In the event FTDA
believes that such changes are not reasonable and equitable, it may
submit such dispute to arbitration in accordance with the procedures
provided in Section 7.8. In the event the arbitrator determines that
the changes are not reasonable and equitable, the changes shall be
discontinued by FTDI. In the event that FTDI reasonably should
conclude that the procedures in effect are in violation of any third-
party patent rights, then: (i) FTDI shall have no obligation under
this or any other agreement to employ or implement such procedures,
and (ii) FTDI shall establish and implement replacement procedures in
accordance with this Section and with the provisions of Section (p)
below to the extent applicable."
IN WITNESS WHEREOF, FTDI and FTDA have caused this Agreement to be duly
executed as of the day and year first above written.
FLORISTS' TRANSWORLD DELIVERY, INC.
By: /s/ Margaret C. Whitman
-------------------------
Its: President/CEO
-------------------------
FTD ASSOCIATION
By: /s/
-------------------------
Its: President Elect
-------------------------
6
<PAGE>
Exhibit 10.12
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement ("Agreement"), dated December 18, 1994, by
and between Florists' Transworld Delivery Association, a Michigan non-profit
corporation (hereinafter "Licensor"), located at 29300 Northwestern Highway,
Southfield, Michigan 48034 and FTD Association (hereinafter "FTDA" or
"Licensee"), an Ohio non-profit corporation, located at 29200 Northwestern
Highway, Southfield, Michigan 48034.
WITNESSETH
WHEREAS, Licensor is a party to the Agreement and Plan of Merger among
Licensor, Perry Capital Corp., and FTD Acquisition Corporation (formerly known
as IRIS Acquisition Corp.) ("Iris"), dated August 2, 1994 (the "Merger
Agreement"), whereby Iris is to be merged into Licensor and Licensor is to be
the Surviving Corporation ("Merger"), with the name of Licensor to be changed to
"Florists' Transworld Delivery, Inc." by the filing of a post-Merger amendment
to its Articles of Association; and
WHEREAS, Licensor now owns or otherwise has a valid right to license the
Licensed Intellectual Property (as defined in the Merger Agreement), including
all of the service marks, collective marks, trademarks, trade names, and trade
dress, listed on Exhibit TL-A; and
WHEREAS, the Licensed Intellectual Property has achieved widespread
recognition among members of the general public; and
WHEREAS, Licensee is desirous of using the Licensed Intellectual Property
in connection with its trade association activities and Licensor is desirous of
granting such a license all pursuant to the terms of a Mutual Support Agreement
between Licensor and Licensee of even date herewith ("Mutual Support
Agreement").
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties agree as follows:
1. GRANT OF LICENSE
(a) Subject to the terms and conditions of this Agreement and the
Mutual Support Agreement, Licensor hereby grants to Licensee, and
Licensee accepts, a non-exclusive (except as provided herein)
nonassignable, right, license and privilege to use the Licensed
Intellectual Property, and all marks subsequently used by Licensor
which include the Mercury Man Emblem ("Logo") (Exhibit TL-B), or the
marks "FTD", "FTDA", "FLORISTS' TRANSWORLD DELIVERY", "FTD FAMILY" and
"FLORIST", throughout the world (subject to the FTD/Fleurop-Interflora
Agreement, dated November 13, 1987) in the Retail/Professional Florist
Industry (as defined in the Merger Agreement), for use in connection
with Licensee's on-going trade association activities, including
without limitation, educational, public service, governmental,
membership, publicity, publications, research and administrative
matters, and any products bearing the Licensed Intellectual Property
created or
<PAGE>
offered by Licensee in association with such trade association
activities (hereinafter "the Licensed Products and Services").
Licensee acknowledges that Licensor makes no representation or
warranty of ownership of any rights in and to the Licensed
Intellectual Property for trade association services or associated
products, with the exception of the Logo and the marks "FTD", "FTDA",
"FLORISTS' TRANSWORLD DELIVERY", "FLORIST" and "FTD FAMILY". Licensee
shall not be required to make any actual royalty payments under such
license, but Licensee shall be deemed to make royalty payments to
Licensor, and Licensor shall be deemed to make payments to Licensee
(in consideration of Licensee's agreement not to compete under Section
3.1(o) of the Mutual Support Agreement) in equal amounts and at the
same time over the terms of the license.
(b) Licensor shall not, without Licensee's prior written consent,
permit any other person to use the Licensed Intellectual Property in
the Retail/Professional Florists Industry, except that Licensor shall
be permitted to license to FTDA Members, and to permit the use by FTDA
International Members (as defined in the Mutual Support Agreement) of,
that portion of the Licensed Intellectual Property which is defined in
the Mutual Support Agreement as "Member Used Intellectual Property",
subject to such FTDA Members' execution of the Trademark Membership
License Agreement and except in accordance with Section 1(c) (ii)
hereof.
(c) Licensor shall not, during the term of this Agreement and without
Licensee's prior written consent, license or otherwise permit any
person to use or display or itself use or display the Licensed
Intellectual Property, or any marks confusingly similar thereto: (i)
in the legal, assumed or tradename of, or (except as to FTDA Members
or FTDA International Members, as defined in the Mutual Support
Agreement) on or in connection with, any staffed retail operation in a
public area which is accessible to a customer and provides a customer
with the opportunity to order flowers or other floral products; or
(ii) on or in connection with any unstaffed retail operation in a
public area which is accessible to a customer and provides a customer
with the opportunity to order flowers or other floral products and is
within 150 yards of any Member's preexisting retail floral operation
(without such Member's written consent).
(d) Nothing contained in this Agreement shall be construed as an
assignment or grant to Licensee of any right, title, or interest in or
to the Licensed Intellectual Property, it being understood and
acknowledged by Licensee that all rights, except those granted
hereunder and all goodwill relating to the Licensed Intellectual
Property are reserved by Licensor, except for the license granted
hereunder. Further, nothing in this Agreement or the license shall
entitle Licensee, nor shall Licensee be entitled, to use the Licensed
Intellectual Property in connection with the sale or distribution of
any product or service except as specifically provided herein or in
the Mutual Support Agreement in connection with Licensee's activities
as a trade association.
(e) Licensee acknowledges and affirms Licensor's ownership and
exclusive right, title, and interest in and to the Licensed
Intellectual Property. Licensee agrees that it will not directly or
indirectly attack or impair the title of Licensor to the Licensed
2
<PAGE>
Intellectual Property and any of Licensor's registrations or
applications therefor or the validity of this Agreement. Licensee
further agrees not to file any state, federal, or foreign applications
for registration of any of the Licensed Intellectual Property or any
mark or other source-identifier confusingly similar thereto.
(f) Licensor agrees that it will do nothing directly or indirectly to
attack or impair the validity of this Agreement.
(g) Licensor agrees that, after the Merger, Licensee shall be
entitled to all subscription fees for the FTD FAMILY and FLORIST
publications and, in consideration for the license of these two marks,
Licensee shall provide advertising space to Licensor in such
publications, with a value of $10,000 per year, subject to increases
based upon the CPI Index (as defined in the Mutual Support Agreement).
2. TERM
(a) This Agreement shall continue in force and effect for a period of
ninety-nine years and be automatically renewable for like periods,
unless Licensee materially breaches the terms of this Agreement and
does not rectify such breach as provided in Section 8 herein, or
Licensee terminates the Agreement in writing, after providing Licensor
with ninety (90) days' written notice of its desire to terminate.
(b) Licensor shall in no event transfer or sell the Logo or the marks
"FTD", "FTDA", "FLORISTS' TRANSWORLD DELIVERY", "FLORIST" or "FTD
FAMILY", unless Licensor obligates the acquiring party and their
successors and assigns to acknowledge all of Licensee's rights and
privileges under this Agreement and to be bound by its terms in the
position of Licensor.
3. QUALITY CONTROL
(a) Licensee has proposed to Licensor standards of quality which
Licensee wishes to govern Licensee's trade association services and
related products during the term of this Agreement. Licensor has
reviewed such standards (hereinafter called the "Quality Standards")
and finds them to be sufficient to adequately maintain and protect the
goodwill associated with the Licensed Intellectual Property.
Accordingly, Licensee warrants that all Licensed Products and Services
bearing or offered in connection with the Licensed Intellectual
Property shall be of a quality at least equal with the Quality
Standards.
(b) In the event Licensee wishes to add a new product or service or
change the quality of an existing product or service, Licensee shall
advise Licensor of the description of such product or service or the
proposed revision to the Quality Standard for an existing product or
service and, where practicable, shall provide Licensor with a
representative sample. Unless Licensor shall have advised Licensee in
writing of Licensor's objections to such new product or service or
change to an existing product or service within thirty (30) days of
receipt of notice and, where applicable, a sample from Licensee,
Licensor shall be deemed to have approved such new product or service
or change to the Quality Standards.
3
<PAGE>
(c) Licensor shall not during the term of this Agreement make any
material changes to the Quality Standards unless such changes are, in
Licensor's reasonable judgment, necessary to protect the goodwill
associated with the Licensed Intellectual Property. In the event that
Licensee disputes the action of Licensor, Licensee may submit the
dispute to arbitration subject to the procedures in Section 7.8 of the
Mutual Support Agreement. Licensor agrees not to require any
modifications to the Licensed Products and Services so long as they
are consistent with or higher than the Quality Standards without
obtaining Licensee's consent, which shall not be unreasonably
withheld.
(d) Licensee shall furnish or make available to Licensor at least
once a year or upon reasonable request, a reasonable number of
representative samples of the Licensed Products, or descriptions of
the Licensed Services, to permit Licensor to determine that such
Licensed Products and Services meet the Quality Standards. The
reasonable costs of the articles submitted, their shipment to Licensor
and testing by Licensor shall be borne by Licensor. If so notified in
writing by Licensor, Licensee shall not offer or provide any products
or services whose nature or quality does not in Licensor's reasonable
judgment, comply with Quality Standards.
4. DOCUMENTATION
Licensee agrees to keep adequate and complete records of the Members
of Licensee's association and to give Licensor the right to inspect
such records upon reasonable notice.
5. GOODWILL
(a) Licensee recognizes the value of the goodwill associated with the
Licensed Intellectual Property and acknowledges that the Licensed
Intellectual Property and all the rights therein, and goodwill
attached thereto, inure to, benefit and belong exclusively to
Licensor. Licensee shall at all times recognize the validity of the
Licensed Intellectual Property and Licensor's rights and title
therein. Licensee shall not, during the term of this Agreement or
thereafter, attack, impair or put in issue the title or any rights of
Licensor in and to the Licensed Intellectual Property or attack the
validity of the license granted herein.
(b) The parties understand and agree that Licensor's primary
objective in entering into this Agreement is the further protection
and enhancement of its Licensed Intellectual Property. Accordingly,
Licensee covenants and agrees that, notwithstanding any other
provision of this Agreement, it will never intentionally take or
continue any action which it knows or has reason to know would result
in or cause a boycott of any product or service bearing Licensor's
marks, including the Licensed Intellectual Property, or threaten to
injure or diminish the image or reputation of Licensor or any of its
marks, including the Licensed Intellectual Property, or products or
services (such as boycott, threatened injury, and diminishment
hereafter referred to as "Injury to Licensor"). In the event any
action taken or continued by Licensee results, or threatens to result,
in Injury to Licensor,
4
<PAGE>
Licensee agrees promptly to take steps necessary to avoid or stop the
occurrence of such Injury to Licensor after receiving written notice
thereof from Licensor.
6. PROTECTION OF RIGHTS
(a) Licensee agrees to assist Licensor in protecting and defending
any of Licensor's rights in the Licensed Intellectual Property, in the
filing and prosecution of any applications, renewals, and the like, in
the recording of this Agreement or any other relevant agreements, and
in the doing of any other acts with respect to the Licensed
Intellectual Property (above and beyond those required of Licensee by
Section 3 herein), including the prevention of the use thereof by any
unauthorized persons, that in the judgment of Licensor may be
necessary or desirable under any law, regulation or decree of the
United States, all at Licensor's expense.
(b) Licensee shall notify Licensor promptly in writing of any
infringements or imitations by others of the Licensed Intellectual
Property which come to Licensee's attention and Licensor covenants
that it shall take all action against such infringers or imitators
which Licensor believes, in its sound business judgment, to be
necessary to protect the goodwill of the Licensed Intellectual
Property and its enforceability, at Licensor's expense. Except as may
be provided in the Mutual Support Agreement, Licensor shall have the
exclusive right to initiate any action or proceeding to protect the
Licensed Intellectual Property, which action or proceeding Licensee
may join at Licensee's own expense. In the event that Licensor
declines to initiate any such action or proceeding, Licensee may do so
at its own expense, and Licensor shall joint in any such action at its
option or if necessary to confer standing. In no event shall Licensee
settle or discontinue any action or proceeding, or appeal any
judgment, without the written permission of Licensor. Any damages or
award recovered in such an action or proceeding shall first be used to
cover the costs and expenses of the party initiating the action, next
to the costs and expenses of the party which may have joined the
action, and any remainder shall belong exclusively to the Licensor.
7. INDEMNIFICATION
Licensee agrees to indemnify and hold harmless Licensor from any and
all third party allegations and claims directly or indirectly caused
by (i) Licensee's use of the Licensed Intellectual Property Outside
the scope of, or in violation of, this Agreement; or (ii) Licensee's
breach of the warranty contained in Section 10 herein.
8. ARBITRATION
In the event of breach by Licensee of any provision of this Agreement,
Licensor may give Licensee notice in writing to rectify the breach
within one (1) month and if the breach is not rectified within such
period, Licensor shall be entitled to exercise any remedies it may
have hereunder. In the event that there continues to be a dispute
regarding rectification, either party may submit the dispute to
arbitration and be subject to the procedures in Section 7.8 of the
Mutual Support Agreement. In the event the arbitrator requires more
than thirty days in which to render his or her decision, Licensor
shall have the right during the pendency of the decision to take
5
<PAGE>
whatever steps it deems reasonably necessary to maintain the goodwill
associated with the Licensed Intellectual Property. The decision of
the arbitrator shall be deemed to constitute action by Licensor to
maintain the goodwill associated with the Licensed Intellectual
Property. Notwithstanding the foregoing, Licensor reserves its rights
to seek injunctive relief in an appropriate judicial forum against any
actions by Licensee which are likely to cause irreparable harm to the
Licensed Intellectual Property.
9. MARKINGS
Subject to Licensor's instructions and approval, Licensee shall
periodically inform all persons from whom Licensee obtains Licensed
Products or Services of the appropriate trademark and copyright
notices to be used in connection with the advertising, promotion,
display and sale of the Licensed Products and Services and Licensee
shall take similar steps with respect to the Licensed Products and
Services it creates or offers.
10. COMPLIANCE WITH APPLICABLE LAWS AND STANDARDS
Licensee warrants and agrees that all Licensed Products and Services
offered by Licensee shall comply with all applicable federal, state
and local statutes, standards, regulations and guidelines pertaining
to such products or services.
11. NOTICES
All notices and statements to be given and all payments to be made
pursuant to this Agreement shall be sent by First Class Mail, Postage
Prepaid, if to Licensee, to:
Mr. James W. Jordan
Secretary
FTD Association
29200 Northwestern Highway
Southfield, MI 48034
Fax: (810) 355-4141
Copy to:
James A. Samborn, Esq.
Dickinson, Wright, Moon, Van Dusen
& Freeman
500 Woodward Avenue, Suite 4000
Detroit, MI 48226
Fax: (313) 223-3598
6
<PAGE>
and if to Licensor, to:
Mr. Richard C. Perry
President
Florists' Transworld Delivery, Inc.
Perry Capital Corp.
245 Park Avenue
New York, New York 10167
Copy to:
Gary P. Cullen, Esq.
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Fax: (312) 407-0411
12. CONTROLLING LAW
(a) This Agreement shall be construed according to the laws of the
State of Michigan, without giving effect to any choice of law
provisions.
(b) The parties agree that the jurisdiction and venue for any action
brought by either party shall be in any state or federal court within
the Eastern District of Michigan, Southern Division or the Northern
District of Illinois.
(c) This Agreement has been jointly drafted by both parties hereto
and shall be construed in accordance with its fair meaning, and not
strictly against any party.
13. NO IMPLIED WARRANTIES
Neither party makes any warranty or representation to the other except
as specifically set forth herein.
14. NO FRANCHISE OR JOINT VENTURE
Nothing contained herein shall be construed to place the parties in
the relationship of franchisor/franchisee, partners or joint
venturers, it being agreed and understood as well that each party is
an independent contractor and is not an agent or employee of the other
party.
15. FURTHER DOCUMENTS
Each party shall, upon request, make, execute and deliver such
documents as shall be reasonably necessary or take such action as may
be reasonably requested to fully implement and carry out the purposes
of this Agreement.
7
<PAGE>
16. BINDING EFFECT
In the event of acquisition or merger, all covenants, agreements,
representations, warranties and indemnifications in this Agreement by
and on behalf of either of the parties shall bind and inure to the
benefit of their respective successors and permitted assigns.
17. ASSIGNMENT
Except as provided in Section 2 (b), neither party shall assign or
sublicense its rights under this Agreement, in whole or in part,
without the prior written consent of the other party.
18. WAIVER
Silence, acquiescence or inaction shall not be deemed a waiver of any
right of either party hereunder, and a waiver shall only be effective
if in writing signed by the party to be charged and such waiver shall
not be construed to contain a continuing waiver of any other breaches
of a same or similar type of breach specifically set forth therein.
19. SEVERABILITY
In the event that any part or portion of this Agreement shall be
deemed to be invalid or illegal, then such invalid or illegal portion
shall, so far as possible, not affect the validity or legality of the
remainder of this Agreement, but the parties agree that they shall
meet and attempt to arrive at the modification of any illegal or
invalid part so as to render the same legal and valid and within the
keeping of the original tenor and spirit of the agreement of the
parties.
20. FORCE MAJEURE
Neither party shall be liable for any loss or damage caused by failure
or delay in the performance, observance or fulfillment of any terms,
obligations, provisions or conditions of this Agreement (including,
but not necessarily limited to, the failure to make any payments
specified herein) if such failure or delay arises either wholly or in
part from any cause reasonably beyond the control of such party.
21. ENTIRE AGREEMENT
This Agreement, the Merger Agreement, and the Mutual Support Agreement
constitute the entire agreement between the parties with respect to
the licensing of the Licensed Intellectual Property, and supersedes
all prior negotiations, understandings and agreements, if any, between
the parties. This Agreement may only be amended or modified by written
instrument signed by the parties.
8
<PAGE>
22. TITLES AND HEADINGS
Titles and headings herein are for convenient reference only and are
not part of this Agreement.
FLORISTS' TRANSWORLD DELIVERY ASSOCIATION
By: /s/ John Partridge
-------------------------------
Print Name: John Partridge
-------------------------------
Title: President
-------------------------------
Date: December 18, 1994
-------------------------------
FTD ASSOCIATION
By: /s/ Mark Knox
-------------------------------
Print Name: Mark Knox
-------------------------------
Title: President
-------------------------------
Date: December 18, 1994
-------------------------------
Executed to ratify and conform this
Agreement, and to agree to cause
Florists' Transworld Delivery, Inc.,
to comply with this Agreement in all
respects following the Merger:
FTD ACQUISITION CORPORATION
By: /s/ Gary Silberberg
-------------------------
Print Name: Gary Silberberg
-------------------------
Title: Vice President
-------------------------
9
<PAGE>
Exhibit 10.13
ftd.com
c/o FTD Corporation
3113 Woodcreek Drive
Downers Grove, Illinois 60515
Phone: 630/719-2504
Fax: 630/719-6183
April 27, 1999
Mr. Peter K. Poli
Discover Brokerage
333 Market Street
25th Floor
San Francisco, CA 94105
Dear Peter:
It is with great pleasure that I offer to you the position of Vice President and
Chief Financial Officer of the ftd.com business reporting to me. Your base
salary will be $150,000, paid at the bi-weekly rate of $5,769.23. You will
receive 3 weeks of paid vacation in 1999. As you are aware, we are considering
a transfer of the ftd.com business to a separate subsidiary. In the event that
transfer occurs, you will be employed by, and your options will be options to
purchase the stock of, ftd.com inc. (the "Company").
Upon your acceptance of this offer, you will be entitled to receive options to
purchase shares of Class A common stock of ftd.com inc. in an amount equal to
1.5% of the Class B common stock of ftd.com inc. outstanding immediately prior
to the Company's proposed initial public offering (the "IPO"). One-half of
these options will be granted at an exercise price equal to the IPO price and
one-half will be granted at an exercise price of twice the IPO price. These
options will be granted contemporaneously with the closing of the IPO. In the
event the IPO is not consummated by December 31, 1999, these stock options will
be granted on December 31, 1999 at the fair market value of Class A common stock
as determined by the Board of Directors of the Company. Vesting of these
options will begin on your start date and these options will vest in equal
amounts on each of the first five anniversaries of your start date. The other
terms of these options will be governed by the Company's stock option plan which
is expected to be adopted at an upcoming board meeting. Also, contingent upon
your acceptance of this offer, you will be entitled to participate in the
Company's Key Management Incentive Plan ("KMIP"), which entitles you to a bonus
of up to 50% of your base salary and is paid at the end of each fiscal year.
Furthermore, the Company will reimburse you for the reasonable expenses relating
to your move to its headquarters in Illinois. These expenses include all
reasonable and necessary moving, closing and relocation costs.
<PAGE>
Letter to Peter K. Poli
April 27, 1999
Page 2
You will be eligible to participate in a wide variety of benefits offered to all
FTD employees. Most benefits commence of the 1st day of the month following 90
days of employment. We will reimburse you for reasonable COBRA payments made by
you until you begin participation in our benefit programs. On your first day, a
representative from Human Resources will assist you in filling out the necessary
employment forms. Based on current legislation regarding hiring practices, you
are required to bring forms of identification. This offer is made contingent
upon producing these documents. In the event you are terminated from the
Company you will be entitled to one year severance with mitigation.
Peter, I look forward to you joining the FTD team and know that you will make a
valuable contribution. If you have any questions, please contact me at (630)
719-2504.
Sincerely,
/s/ Michael Soenen
Michael Soenen
President, ftd.com
<PAGE>
EXHIBIT 23.1
The Board of Directors
ftd.com inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/S/ KPMG LLP
Chicago, Illinois
May 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
audited financial statements as of June 30, 1997 and 1998 and for the three
years ended June 30, 1998, and the unaudited financial statements as of and for
the nine month periods ended March 31, 1998 and 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1996 JUN-30-1997
<PERIOD-END> JUN-30-1996 JUN-30-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 217,898
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 29,224
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 247,122
<CURRENT-LIABILITIES> 0 2,264,859
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 (2,017,737)
<TOTAL-LIABILITY-AND-EQUITY> 0 247,122
<SALES> 18,489,940 26,230,331
<TOTAL-REVENUES> 18,541,131 26,255,435
<CGS> 15,431,163 22,283,726
<TOTAL-COSTS> 23,825,033 31,960,982
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 225,577 266,633
<INCOME-PRETAX> (5,509,479) (5,972,180)
<INCOME-TAX> 2,203,792 2,388,872
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,305,687) (3,583,308)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
audited financial statements as of June 30, 1997 and 1998 and for the three
years ended June 30, 1998, and the unaudited financial statements as of and for
the nine month periods ended March 31, 1998 and 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> JUL-01-1997 JUL-01-1997
<PERIOD-END> JUN-30-1998 MAR-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 213,725 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 19,351 0
<PP&E> 2,500,000 0
<DEPRECIATION> (520,833) 0
<TOTAL-ASSETS> 2,212,243 0
<CURRENT-LIABILITIES> 2,362,859 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (150,616) 0
<TOTAL-LIABILITY-AND-EQUITY> 2,212,243 0
<SALES> 30,423,315 19,072,070
<TOTAL-REVENUES> 30,663,255 19,081,994
<CGS> 26,324,568 16,800,747
<TOTAL-COSTS> 36,978,603 23,535,793
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 176,287 169,811
<INCOME-PRETAX> (6,491,635) (4,623,610)
<INCOME-TAX> 2,596,654 1,849,444
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,894,981) (2,774,166)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
audited financial statements as of June 30, 1997 and 1998 and for the three
years ended June 30, 1998, and the unaudited financial statements as of and for
the nine month periods ended March 31, 1998 and 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 48,477
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 127,178
<PP&E> 3,188,750
<DEPRECIATION> (1,653,333)
<TOTAL-ASSETS> 1,711,072
<CURRENT-LIABILITIES> 3,079,840
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,368,768)
<TOTAL-LIABILITY-AND-EQUITY> 1,711,072
<SALES> 28,519,688
<TOTAL-REVENUES> 31,182,710
<CGS> 24,518,905
<TOTAL-COSTS> 36,937,926
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,046
<INCOME-PRETAX> (5,866,262)
<INCOME-TAX> 2,354,505
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,531,757)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
