<PAGE>
As filed with the Securities and Exchange Commission on July 12, 1999
Registration No. 333-78857
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
AMENDMENT NO. 3
TO
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)
-----------------
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
-----------------
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. [_]
-----------------
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 JULY 12, 1999
PROSPECTUS
5,500,000 Shares
[LOGO]
FTD.COM INC.
Class A Common Stock
-------------
We anticipate that the initial public offering price for our Class A common
stock will be between $13.00 and $15.00 per share. We have applied to have our
Class A common stock approved for quotation on the Nasdaq National Market under
the symbol "EFTD."
Investing in our Class A common stock involves a high degree of risk. See "Risk
Factors" beginning on page 9 to read about 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.
-------------
<TABLE>
<CAPTION>
Per
Share Total
--------- ---------
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discounts and commission...................... $ $
Proceeds, before expenses, to us........................... $ $
</TABLE>
-------------
The underwriters may, under some circumstances, purchase up to an additional
825,000 shares of Class A common stock from us at the initial public offering
price less the underwriting discount. The underwriters expect to deliver the
shares against payment in New York, New York on , 1999.
-------------
Bear, Stearns & Co. Inc.
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
E*TRADE Securities, Inc.
The date of this prospectus is , 1999.
<PAGE>
[Graphics]
[Outside front cover and outside back cover - across the outside front cover and
outside back cover is a picture of a daisy. Front inside cover - FTD.COM logo
and four pictures of flowers. Back inside cover - five pictures of products
offered by FTD.COM. In the bottom left-hand corner are the words "FTD conducts
extensive research to offer consumers a wide selection of floral designs and
speecialty gifts." Gatefold-left side - FTD.COM logo, two pictures of products
offered by FTD.COM, one picture of a flower and a picture of a couple with
flowers. Gatefold-right side - one picture of a product offered by FTD.COM, one
picture of flowers and three pictures of screen shots from FTD.COM's Web site.
Above the picture of the screen shots from FTD.COM's Web site are the words
"Broad selection of flowers and gifts;" "Easy search and order capabilities;"
and "Individual accounts with personalized reminder service."]
------------------
We are not incorporating the information on our Web site into this
prospectus and we do not intend to make our Web site 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 an Internet and telephone marketer of flowers and specialty
gifts. We were founded by FTD to sell directly to consumers through our
www.ftd.com Web site and our 1-800-SEND-FTD toll-free telephone number. We
utilize a group of approximately 6,500 FTD florists who adhere to our quality
guarantee and service standards. Through this network, 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, such as 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 three months ended March 31,
1999, our total revenues were $12.4 million and we received a total of 208,845
orders. Internet orders represented 57% of total customer orders during this
period.
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 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 flower and specialty gift markets are
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.
3
<PAGE>
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 plan to achieve this objective by capitalizing
on the FTD brand, which is among the most recognized consumer brands in
America, and significantly expanding our online and traditional
advertising, direct marketing/affinity and retention marketing efforts.
We believe that the www.ftd.com URL is commercially advantageous because
of the strength and simplicity of the FTD brand name.
. 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.
. Continue to strengthen our fulfilling florist network. Nearly all of our
floral orders are filled by a group of approximately 6,500 FTD florists
known as our "fulfilling florists." Our fulfilling florists are required
to adhere to our program rules and service standards, including our 100%
satisfaction guarantee and same-day delivery. Our ongoing quality control
efforts include randomly placing test orders with our fulfilling florists
and monitoring customer feedback to ensure customer satisfaction.
. 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 currently offer a variety of products
that incorporate 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), Vermont Teddy Bears(R) and Crabtree & Evelyn(R). We
will seek to expand our product offerings to provide our customers with
the best selection of flowers and specialty gifts.
. Provide quality 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 customer
service.
. Capitalize on FTD's international fulfillment capability. The 6,500
fulfilling florists who have agreed to our service standards are a subset
of the approximately 20,000 FTD florists located in North America.
Because of our relationship with FTD, we also have access to a network of
approximately 32,000 florists located outside North America to fulfill
our orders abroad. We intend to market our international fulfillment
capabilities to North American consumers who wish to send flowers abroad.
4
<PAGE>
Ownership of ftd.com
FTD.COM, formed in May 1999, is a subsidiary of Florists' Transworld
Delivery, Inc., or FTDI. Shortly after the formation of FTD.COM, Buena Vista
Internet Group and DBV Investments, L.P., one of MSD Capital, L.P.'s investment
partnerships, made investments in FTD.COM. Buena Vista Internet Group is a
wholly owned subsidiary of The Walt Disney Company and MSD Capital is the
private investment firm for Michael S. Dell.
The following chart illustrates the ownership structure of FTD.COM prior to
this offering:
[FTD CHART]
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.
5
<PAGE>
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. We
are not incorporating the information on our Web site into this prospectus and
we do not intend to make our Web site a part of this prospectus.
------------------
Unless otherwise indicated, all information in this prospectus (1) reflects
the conversion of all outstanding shares of our Series A 8% Cumulative
Redeemable Convertible Preferred Stock into an aggregate of 1,080,000 shares of
Class A common stock, (2) gives effect to a 12-for-1 split of our Class B
common stock and (3) assumes no exercise of the underwriters' option to
purchase additional shares of Class A common stock.
6
<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
by FTD.COM................... 5,500,000 shares
Common stock to be outstanding
after the offering:
Class A common stock........ 6,580,000 shares
Class B common stock........ 40,920,000 shares
Proposed Nasdaq National
Market symbol................ EFTD
Use of proceeds............... We intend to use between $50.0 million and
$65.0 million of the net proceeds from the
offering for advertising, promotion and other
marketing activities. We will use approximately
$3.0 million for capital expenditures and the
remaining net proceeds for other general
corporate purposes, including working capital.
In the event that we identify suitable
acquisition candidates or investment
opportunities, we may also use a portion of the
net proceeds to acquire or invest in
complementary businesses, services or products.
We currently have no commitments or agreements
with respect to any acquisition or investment
transactions.
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>
7
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Nine months
Year ended June 30, ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(in thousands, except order and per
share 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)
Pro forma basic and diluted net
loss per share................... $ (.10) $ (.09)
Pro forma shares used in the
calculation of basic and diluted
net loss per share (1)........... 40,920 40,920
Other Data:
Total orders...................... 377,665 513,198 602,396 376,202 538,188
Average order value (2)........... $48.96 $51.11 $50.50 $50.70 $52.99
Percentage Internet orders........ 10.6% 17.0% 33.8% 29.3% 48.9%
</TABLE>
- ----------
(1) Pro forma shares used in the calculation of basic and diluted net loss per
share reflects shares outstanding as of May 19, 1999, giving retroactive
effect to the 12-for-1 split of our Class B common stock discussed in note
6 of the notes to our financial statements.
(2) Average order value represents order revenues and service fees, net of
discounts divided by total orders.
<TABLE>
<CAPTION>
June 30, March 31, 1999
---------------- -------------------------------------
Pro Forma
As
1997 1998 Actual Pro Forma(1) Adjusted(2)
------- ------- ------- ------------ -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................. $ -- $ -- $ -- $ 9,000 $78,800
Working capital
(deficit)............ (2,018) (2,130) (2,904) 6,096 75,896
Total assets.......... 247 2,212 1,711 10,711 80,511
Total stockholders'
equity (deficit)..... (2,018) (151) (1,369) (1,369) 77,431
</TABLE>
- ----------
(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 60,000 shares and 30,000 shares of our Series
A 8% Cumulative Redeemable Convertible Preferred Stock to Buena Vista
Internet Group and DBV Investments, L.P. for consideration of $6.0
million and $3.0 million, respectively.
(2) On a pro forma as adjusted basis giving effect to:
(a) the sale of the 5,500,000 shares of Class A common stock offered by
this prospectus at an assumed initial public offering price of $14.00
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;
(b) the automatic conversion of each share of Series A preferred stock into
12 shares of Class A common stock upon the closing of this offering;
and
(c) the 12-for-1 split of the Class B common stock discussed in note 6 of
the notes to our financial statements.
8
<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.
Investing in Our Class A Common Stock May Expose You to the
Following Risks Inherent in Our Business.
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.
In the event our actual costs as an independent company are significantly
higher than the costs reflected in our historical financial statements, our
business, results of operations and financial condition will be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
We currently are not profitable and expect to record significant losses for
the foreseeable future.
We have incurred net losses in each of the past three years. We incurred an
aggregate net loss of $10.8 million for the three year period ended June 30,
1998, including net losses of $3.3 million, $3.6 million and $3.9 million for
the years ended June 30, 1996, 1997 and 1998, respectively. We expect to record
significantly greater 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.
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 and customer service. We
9
<PAGE>
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.
We do not own the FTD trademark and associated logos that we use to promote
our brand.
The FTD trademark and associated logos, which we use to promote the FTD.COM
brand, 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.
Market competition among our existing and potential competitors may
adversely affect our business.
Increased competition may result in lower revenues due to 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, other Web sites, telephone order originators and catalogs, including
1-800-FLOWERS.COM, INC., Gerald Stevens, Inc. and PC Flowers & Gifts.com Inc.
In addition, competitors who are FTD florists in good standing 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.
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. We have a number of
relationships with these Web sites that expire at various times over the next
three years. There is intense competition for placement of advertising on
10
<PAGE>
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.
Consumers may reduce discretionary purchases of flowers and specialty gifts.
We believe that consumer spending on flowers and specialty gifts is
influenced by general economic conditions and the availability of discretionary
income. Accordingly, companies that compete in these businesses, including us,
may experience sustained periods of declines in sales during future economic
downturns. Any material decline in the amount of discretionary spending could
adversely affect our business, results of operations and financial condition.
Consumers may not regularly purchase the products we offer over the Internet
or telephone.
There are many other channels through which consumers are able to purchase
flowers and specialty gifts, including retail floral shops, catalogs and
supermarkets and other mass merchants that have floral shops. The success of
our business depends to a large extent on consumers purchasing flowers and
specialty gifts over the Internet or telephone instead of through these other
channels. Our business, results of operations and financial condition would be
adversely affected if consumers purchase these products over the Internet one
or two times because of the novelty of Internet commerce, but then elect to
make future flower and specialty gift purchases through more traditional
channels.
Our business could be adversely affected if we are unable to expand our
business through our marketing arrangements.
We intend to expand our marketing various licensed products, such as
products that incorporate M&M/Mars, Inc.'s M&M's(R) characters and The Walt
Disney Company's Winnie the Pooh.(R) We believe that our business will benefit
when we have the right to market products that incorporate popular consumer
brands. These arrangements typically involve a non-exclusive license between us
or FTDI and the owner of the brand and typically last for periods of one to
four years. We expect to rely on FTDI to develop some of these licensed
products. In addition, in order to maintain these marketing 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 expand
these marketing arrangements with third parties.
11
<PAGE>
Our quarterly operating results are subject to fluctuations and seasonality.
Our revenues and operating results may vary from quarter to quarter due to
factors beyond our control. For example, our revenues and operating results
tend to be lower for the quarter that ends on September 30 because none of the
most popular floral holidays, which include Valentine's Day, Easter, Mother's
Day, Thanksgiving and Christmas, falls within that quarter. In addition, the
popular floral holiday of Easter sometimes falls within the quarter that ends
on March 31 and sometimes falls within the quarter that ends on June 30.
For fiscal 1998, our last completed fiscal year, we recorded 11%, 26%, 25%
and 38% of our total revenues in the quarters ended September 30, December 31,
March 31 and June 30, respectively.
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.
Our business could be adversely affected if consumers increase the frequency
of their purchases from FTD florist Web sites that are accessible through our
Web site.
FTDI's Florists Online(TM) business unit offers FTD florists the opportunity
to establish Web sites that enable consumers to place orders directly with an
FTD florist. Through an agreement with FTDI, 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 June 30, 2000.
FTDI's relationship with the FTD Association limits the way we can operate
and expand our business.
Our operations are materially restricted by the following provisions of the
Mutual Support Agreement and Trademark License Agreement between FTDI and FTD
Association. 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 by prohibiting us from
using the FTD name and associated logos in the operation of a retail flower
shop. Accordingly, we may be restricted from expanding our existing business
into areas where we might otherwise wish to compete, such as owning and
operating FTD.COM retail flower shops.
12
<PAGE>
Our business operations depend on the continuing contribution of our key
personnel and our ability to 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,
Frederick K. Johnson, our Chief Information Officer, or Brian G. Chapman, our
Vice President of Strategy and Development, could have an adverse effect on our
business, results of operations and financial condition.
Mr. Poli and Mr. Chapman 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. In addition, we currently anticipate
hiring at least two additional key employees in the marketing and operations
areas.
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 in the
event that we lose any of our key personnel. 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. Richard C. Perry, Habib Y. Gorgi, Veronica K. Ho
and Gary K. Silberberg are each directors of FTD.COM, FTDI and FTD Corporation.
In addition, Frederick K. Johnson, our Chief Information Officer, is and will
continue to be employed by FTDI.
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, our
intercompany agreements with FTDI, competition, the issuance or disposition of
securities, the election of new or additional directors, the payment of
dividends by FTD.COM and other matters.
Mr. Johnson, our Chief Information Officer, 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 instances may be
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.
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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. Historically, during our peak usage periods, usage levels have been
approximately 70% of capacity. Each year, we evaluate our capacity limitations
and reengineer our Web site based on projected order growth. Using this
approach, we have been able to accommodate an increase of approximately 140% in
the number of orders handled by our Web site during the 12 months ended March
31, 1999 compared to the number of orders handled during the 12 months ended
March 31, 1998. If the number of orders handled by our Web site increases in
excess of available capacity, we may be unable to add additional hardware and
software in time to process the increased orders. Our inability to add
additional hardware and software to upgrade our existing technology or network
infrastructure to accommodate increased traffic as a result of unanticipated
rapid growth in user demand, 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.
If we fail to continuously improve our Web site, we may be unable to attract
or retain customers.
We intend to introduce additional or enhanced features and services to
retain current users and attract new users to our Web site. The enhancements
under consideration include modifications to the appearance of our Web site and
the manner in which customers would purchase products and access our services.
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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The failure of computer systems on which our operations are dependent could
adversely affect us.
Our operations depend on the ability of FTDI to maintain its computer
systems and equipment in effective working order. We must also rely on FTDI's
ability to protect its computer systems against damage from fire, power loss,
water, telecommunications failures, vandalism and other malicious acts, and
similar unexpected adverse events. The continuing and uninterrupted performance
of these systems is critical to our success. Unanticipated problems affecting
those systems 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.
In addition, FTDI is in the process of implementing various software upgrades,
which are expected to be completed in the third quarter of 1999. If FTDI
experiences delays in implementing these software upgrades, we may experience
interruptions or delays that may dissatisfy our customers and could adversely
affect our business, results of operations and financial condition.
These systems, which include the Mercury Network and a Hewlett-Packard
system, are located at FTDI's Downers Grove, Illinois facility and provide
communication to our fulfilling florists and consumer order services. We may
experience disruptions or interruptions in service due to failures by this
system. 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, to a lesser extent, systems of other third parties such as our fulfilling
florists and Sprint Communications, L.P., our telecommunications provider. 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. We have not yet developed a contingency plan to address Year 2000
issues in the event that Year 2000 compliance is not timely achieved.
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
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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, the vast majority 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.
Our dependence on third parties who fulfill our orders and deliver goods
and services to our customers may adversely affect our business operations.
Our business depends, in large part, on the ability of the network of
independent FTD florists who fulfill the majority of 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. Since 1994, FTDI has applied for the registration of and been granted
registration rights in more than 175 trademarks and service marks used in
FTDI's and our businesses in the U.S. and various foreign countries. Under our
Trademark License Agreement with FTDI, FTDI has the sole right to protect our
rights in the intellectual property that we license from FTDI. 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.
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
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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.
We may be unable to effectively market our international fulfillment
capabilities to U.S. consumers and our business may be adversely affected if
the quality of orders sent abroad suffers.
Although less than 5% of our sales for the three months ended March 31, 1999
were orders that were delivered to consumers who live outside North America, we
intend to market FTD's affiliation with 32,000 florists outside of North
America to North American consumers who may be interested in sending flowers to
relatives, friends and business associates living abroad. This international
aspect of our business is subject to the risk of inconsistent quality of
merchandise and disruptions or delays in delivery because these florists do not
necessarily adhere to the same quality control standards as the FTD florists
who fulfill our orders domestically. Our business could also be adversely
affected if North American consumers choose not to place subsequent domestic
orders with us because they were not satisfied with the results of an order
they sent to someone living abroad.
Our Business May Be Adversely Affected by the Following 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.
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 98.4% 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. Perry Acquisition
Partners and Bain Capital and its affiliates currently own 60.2% and 21.6%,
respectively, of the voting power of FTD Corporation. Pursuant to an agreement
among FTD Corporation's primary stockholders, Perry Acquisition Partners and
Bain Capital and its affiliates have the right to designate six and two
members, respectively, of the boards of directors of FTDI and ftd.com. In
addition, under this agreement, the directors appointed by the Bain Capital
entities have the right to approve the following actions that are submitted to
our board of directors:
. amendments to our certificate of incorporation or bylaws;
. increases or decreases in the number of our directors;
. issuances or sales of our securities;
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. mergers, consolidations or other significant business combination
transactions involving us;
. repurchases, exchanges or redemptions of our securities; and
. other transactions outside the ordinary course of business.
As a result of their stock ownership of FTD Corporation and the provisions of
that stockholders' agreement, Perry Acquisition Partners and the Bain Capital
entities will be able to control FTD.COM in the same manner that FTDI is able
to control us. See "Transactions with Management--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 FTDI currently owns nearly all of
our stock, 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 "Transactions
with Management and Others--Intercompany Agreements."
We have a non-exclusive license from FTDI to use trademarks and logos that
are material to our business.
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
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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.
FTDI can terminate the Trademark License Agreement between FTDI and us in
some circumstances if 20% or more of the voting control of FTD.COM is acquired
by a person or group.
In the event 20% or more of the voting control of FTD.COM is acquired by any
person, other than an affiliate of FTD Corporation, 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. In addition, these provisions are likely to
have the effect of delaying, deferring or preventing a non-consensual change in
control or may adversely affect the market price of our Class A common stock.
If FTDI fails to adequately perform services for us or we are unable to
satisfactorily perform these services, our business could be adversely
affected.
Pursuant to the Intercompany Services Agreement between FTDI and us, we 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. In addition, FTDI
can terminate the Intercompany Services Agreement in the event FTDI ceases to
own any of our stock.
Contingent liability for tax and pension obligations resulting from our
relationship with FTDI and FTD Corporation 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
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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
"Transactions with Management and Others--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 May 31, 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 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.
If the transfer of assets by FTDI to us in connection with our formation by
FTDI was considered a fraudulent conveyance, our business and financial
condition could be adversely affected.
Pursuant to the Formation Agreement between FTDI and us, and in exchange for
an ownership interest in us, FTDI transferred to us all of its assets and
liabilities associated with its business of selling flowers and specialty gifts
directly to consumers over the Internet and through the toll-free telephone
number 1-800-SEND-FTD. If, as a result of a lawsuit filed against us, a court
were to find under applicable provisions of federal bankruptcy law and state
fraudulent conveyance statutes that, pursuant
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to the formation of FTD.COM or the transfer of assets to FTD.COM under the
Formation Agreement, FTD Corporation or FTDI:
.intended to hinder, delay or defraud any present or future creditor; or
. received less than reasonably equivalent value in exchange for the debt
incurred or the distribution made,
and that FTD Corporation or FTDI:
. was insolvent at the time of the transaction;
. was rendered insolvent by reason of the transaction;
. was engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they matured,
the court could void the transactions effected pursuant to the Formation
Agreement as a fraudulent transfer, conveyance or obligation. If these
transactions are voided, the court could order the return of the property
received or the fair value of the property received in connection with the
formation transaction. As a result, our assets could be used to satisfy
obligations of FTDI and FTD Corporation.
Potential competition with FTD Corporation or FTDI may adversely affect our
business.
FTDI currently is in the business of providing subscribing florists with
the ability to send and receive floral orders and transaction clearing
services. FTDI also has an extensive product development department, the FTD
Marketplace, that develops branded floral and gift products that florists can
purchase at wholesale from FTDI for resale to consumers. 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 but including FTD
Corporation and its other subsidiaries, 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 or otherwise dispose of that business or
the competitive component. 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. As a result, our business could
be adversely affected if FTDI or FTD Corporation engages in any activity that
is similar to our business but is not otherwise prohibited by the Trademark
License Agreement or Delaware law.
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The ability of FTDI and FTD Corporation to utilize potential FTD.COM
corporate opportunities could adversely affect our business.
Pursuant to the terms of our certificate of incorporation:
. 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.
A "corporate opportunity" is the chance for a business to expand, strengthen
or otherwise improve the business it is conducting or proposes to conduct at
the time the opportunity arises and for which it has the financial resources.
For example, if a third party offered one of our directors the opportunity to
acquire a business that markets gardening tools directly to consumers over the
Internet, that potential acquisition could be considered a "corporate
opportunity" to us. Under Delaware law, that director could be obligated to
offer the acquisition opportunity to us before the director could engage in the
potential business. The provisions of our certificate of incorporation
summarized above, however, provide that that director would have no liability
to us or our stockholders if he or she was also a director or officer of FTDI
or FTD Corporation and offered the "corporate opportunity" to FTDI or FTD
Corporation instead of FTD.COM.
Any loss of a "corporate opportunity" of this sort to FTDI or FTD
Corporation could adversely affect our business and our stock price.
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The Following Risks Inherent in Doing Business Over the Internet
Could Adversely Affect Our Business.
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 is designed to collect personal identifying information
obtained from individuals who access our Web site. The Federal Trade Commission
has proposed regulations regarding the collection and use of personal
identifying information obtained from individuals when accessing Web sites,
with particular emphasis on access by minors. In addition, other governmental
authorities have proposed regulations to govern the collection and use of
personal information that may be obtained from customers or visitors to Web
sites. These regulations may include requirements that we establish procedures
to disclose and notify users of privacy and security policies, obtain consent
from users for collection and use of information and provide users with the
ability to access, correct or delete personal information stored by us. These
regulations may also include enforcement and redress provisions. Moreover, even
in the absence of these regulations, the Federal Trade Commission has begun
investigations into the privacy practices of other companies that collect
information on the Internet. One investigation resulted in a consent decree
pursuant to which an Internet company agreed to establish programs to implement
the principles discussed above. We may become subject to a similar
investigation, or the Federal Trade Commission's regulatory and enforcement
efforts may adversely affect our ability to collect demographic and personal
information from users, which could adversely affect our marketing efforts.
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. While we have not experienced any security
breaches, any penetration of our network security or
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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.
Because the liabilities that may arise out of the operation of an Internet
commerce business are uncertain, our insurance policies may not provide
coverage for some potential losses.
Although we maintain insurance coverage of the types and scope that we
believe to be adequate for our business, the liabilities that may arise out of
the operation of an Internet commerce business are uncertain. As a result, our
insurance policies may not provide adequate coverage for losses that arise out
of the operation of our business.
Our operating results could be adversely affected if we experience
significant credit card fraud.
A failure to adequately control fraudulent credit card transactions would
reduce our net sales and gross margins because we do not carry insurance
against this risk. We have suffered losses previously as a result of orders
placed with fraudulent credit card data even though the associated financial
institution approved payment for the orders. The losses that we have suffered
to date have not had a material effect on our business, results of operations
or financial condition, however, we would be adversely affected if we
experience significant credit card fraud in the future.
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
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Internet. 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 www.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
25
<PAGE>
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.
Investors in Our Class A Common Stock are Subject to the Following Risks
Associated with this Offering.
The market price for our Class A common stock is likely to be highly
volatile because 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 between $50.0
million and $65.0 million 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 for capital expenditures. We expect that the
remaining net proceeds will be available for general corporate purposes,
26
<PAGE>
including working capital. We may, however, 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."
A substantial number of our shares will be available for sale in the public
market after the offering and sales of those shares could adversely affect our
stock price.
Sales of a substantial number of shares of Class A common stock into the
public market after this offering, or the perception that those sales could
occur, could adversely affect our stock price or could impair our ability to
obtain capital through an offering of equity securities. After the offering, we
will have outstanding 6,580,000 shares of Class A common stock (7,405,000
shares if the underwriters' option to purchase additional shares is exercised
in full). We will also have outstanding 40,920,000 shares of Class B common
stock that are convertible into shares of Class A common stock on a one-for-one
basis, all of which shares are owned by FTDI. Of these shares, the shares sold
in this offering will be freely transferable without restriction or further
registration under the Securities Act, except for any shares purchased by our
affiliates as defined in Rule 144 under the Securities Act.
We have entered into registration rights agreements with FTDI, DBV
Investments, L.P. and Buena Vista Internet Group that enables those parties to
require us to register an aggregate of 42,000,000 shares of our Class A common
stock, including shares of Class B common stock that are convertible into Class
A common stock on a one-for-one basis. These registration rights agreements
also require us to include those shares in registrations of common stock made
by us in the future.
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 $14.00 per share,
purchasers of Class A common stock offered hereby will experience an immediate
dilution in net tangible book value of $12.40 per share of Class A common stock
purchased or $12.21 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."
Provisions in our corporate documents may make it more difficult for a third
party to acquire us.
Our certificate of incorporation and bylaws contain several provisions that
may be deemed to have anti-takeover effects and may discourage, delay or
prevent a takeover attempt that a stockholder might consider in its best
interest. These provisions include a requirement that:
. the number of directors shall not be more than 14; and
. with respect to annual stockholders' meetings, stockholders must comply
with the timing and procedural requirements of the federal proxy rules in
order for a stockholder proposal to be included in our proxy statement.
27
<PAGE>
Our board of directors has the authority to authorize the issuance of
preferred stock. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of our company, and may
adversely affect the voting and other rights of the holders of our capital
stock.
Investors should not purchase our Class A common stock with the expectation
of receiving cash dividends.
We currently intend to retain any future earnings for funding growth and, as
a result, do not expect to pay any cash dividends in the foreseeable future.
See "Dividend Policy."
28
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 5,500,000
shares of Class A common stock offered by this prospectus will be approximately
$69.8 million. This estimate is based on an assumed initial public offering
price of $14.00 per share, the mid-point of the offering range ($80.6 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 between
$50.0 million and $65.0 million of the net proceeds for advertising, promotion
and other marketing activities. We also intend to use approximately $3.0
million 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. In the event that we
identify suitable acquisition candidates or investment opportunities in
complementary businesses, services or products, we may use a portion of the net
proceeds for transactions of that type. We currently have no commitments or
agreements with respect to any possible acquisitions or investments.
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 cash dividends.
29
<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 60,000 shares and 30,000 shares of our
Series A 8% Cumulative Redeemable Convertible Preferred Stock to
Buena Vista Internet Group and DBV Investments, L.P. for
consideration of $6.0 million and $3.0 million, respectively; and
(2) on a pro forma as adjusted basis giving effect to:
(a) the sale of the 5,500,000 shares of Class A common stock offered by
this prospectus at an assumed initial public offering price of
$14.00 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;
(b) the automatic conversion of each share of Series A preferred stock
into 12 shares of Class A common stock upon the closing of this
offering; and
(c) the 12-for-1 split of the Class B common stock discussed in note 6
of the notes to our financial statements.
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; 90,000 shares issued and
outstanding pro forma; none issued and outstanding pro
forma as adjusted....................................... $ 9,000 $ --
------- -------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares
authorized; 90,000 shares issued and outstanding as
Series A 8% Cumulative Redeemable Convertible Preferred
Stock 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;
6,580,000 shares issued and outstanding pro forma as
adjusted (2)............................................ -- 66
Class B common stock, $.01 par value; 100,000,000 shares
authorized; 3,410,000 shares issued and outstanding pro
forma; 40,920,000 shares issued and outstanding pro
forma as adjusted....................................... 34 409
Retained deficit......................................... (1,403) (1,403)
------- -------
Additional paid-in capital............................... -- 78,359
Total stockholders' equity (deficit)................... (1,369) 77,431
------- -------
Total capitalization................................. $ 7,631 $77,431
======= =======
</TABLE>
- ----------
(1) Pursuant to the terms of the outstanding shares of preferred stock, each
share will automatically convert into 12 shares 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 as of the close of the offering with a weighted average
exercise price of $ per share. Assumes the conversion of the outstanding
shares of preferred stock into Class A common stock.
30
<PAGE>
DILUTION
The following 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 1,080,000 shares of Class A common stock upon the closing
of this offering. As of the close of this offering, options to purchase a total
of 1,636,800 shares of Class A common stock at a weighted average exercise
price of $ per share will be outstanding.
The pro forma net tangible book value of FTD.COM as of March 31, 1999 was
approximately $6.1 million, or $0.15 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 $14.00 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 $75.9
million, or $1.60 per share. This represents an immediate increase in pro forma
net tangible book value of $1.45 per share to existing stockholders and an
immediate dilution of $12.40 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> <C>
Initial public offering price per share........................... $14.00
Pro forma net tangible book value per share at March 31, 1999..... $0.15
Increase in pro forma net tangible book value per share
attributable to new investors.................................... 1.45
Pro forma net tangible book value per share after offering........ 1.60
------
Dilution per share to new investors............................... $12.40
======
</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, except per share data)
--------------------------------------------
Shares Total
Purchased Consideration
-------------- --------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 42,000 88.4% $ 9,000 10.5% $ 0.21
New investors...................... 5,500 11.6 77,000 89.5 14.00
------ ----- ------- -----
Total.......................... 47,500 100.0% $86,000 100.0%
====== ===== ======= =====
</TABLE>
31
<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.
32
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company
------------------------ Nine months ended March
Year ended June 30, 31,
--------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(in thousands, except per share data)
<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
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest expense........ 263 245 226 267 177 170 131
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations.... (2,502) (2,037) (5,284) (5,705) (6,315) (4,454) (5,755)
Income tax benefit...... 1,106 913 2,204 2,389 2,597 1,850 2,354
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before income
taxes.................. (2,765) (2,282) (5,510) (5,972) (6,492) (4,624) (5,886)
Net loss................ $(1,659) $(1,369) $(3,306) $(3,583) $(3,895) $(2,774) $(3,532)
=========== =========== =========== =========== =========== =========== ===========
Pro forma basic and
diluted net loss per
share.................. $(.10) $(.09)
=========== ===========
Pro forma shares used in
the calculation of
basic and diluted net
loss per share (1)..... 40,920 40,920
=========== ===========
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>
- ---------
(1)Gives effect to the 12-for-1 split of our Class B common stock discussed in
note 6 of the notes to our financial statements.
33
<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 Internet and telephone business
was previously operated by 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.
34
<PAGE>
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 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 on June 30, 2002.
Effective June 30, 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.
We have a 100% customer satisfaction guarantee. This means that if any of
our customers are unhappy with a purchase, we will credit the customer for the
full amount of the purchase, send a replacement floral arrangement or specialty
gift or give the customer a gift certificate for the full amount of the
purchase. For the nine months ended March 31, 1999 and the year ended June 30,
1998, total refunds as a percentage of total revenues were 1.4% and 1.7%,
respectively.
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 June 30, 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
35
<PAGE>
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 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.
36
<PAGE>
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.
37
<PAGE>
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 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.
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<PAGE>
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.
39
<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, in thousands except per share data)
<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)
====== ====== ======= ======= ======= ====== ======= =======
Pro forma basic and
diluted net loss per
share.................. $(.02) $(.01) $(.03) $(.03) $(.03) $(.02) $(.03) $(.04)
====== ====== ======= ======= ======= ====== ======= =======
Pro forma shares used in
the calculation of
basic and diluted net
loss per share (1)..... 40,920 40,920 40,920 40,920 40,920 40,920 40,920 40,920
====== ====== ======= ======= ======= ====== ======= =======
<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%
Other................... 0.0 0.0 0.1 0.0 2.0 0.0 0.5 0.0
------ ------ ------- ------- ------- ------ ------- -------
Commissions from FTDI... 0.0 0.0 0.0 0.0 0.0 8.7 8.3 8.2
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
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
------ ------ ------- ------- ------- ------ ------- -------
Technology development.. 3.5 10.8 4.9 3.4 3.5 7.8 3.1 4.6
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>
- ---------
(1) Gives effect to the 12-for-1 split of our Class B common stock discussed in
note 6 of the notes to our financial statements.
40
<PAGE>
Liquidity and Capital Resources
Our liquidity requirements primarily are 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 through
fiscal 2001.
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.
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 meet our liquidity requirements. Upon completion of this offering, we
intend to 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.
41
<PAGE>
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.
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
42
<PAGE>
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, the vast majority of purchases of merchandise from FTD.COM 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 advised FTD.COM that it will
complete its efforts to test these systems by the end of the third quarter of
1999 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
September 30, 1999 and implement, if necessary, appropriate contingency plans
to mitigate, to the extent possible, any significant Year 2000 areas of
noncompliance. We will also assess the scope of Year 2000 issues relating to
our Web site by September 30, 1999 and, if necessary, we will implement
appropriate contingency plans to mitigate any significant Year 2000 areas of
noncompliance.
43
<PAGE>
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 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.
------------------
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.
44
<PAGE>
BUSINESS
FTD.COM is an 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. The majority of our floral orders
are fulfilled by a group of approximately 6,500 FTD florists who adhere to our
quality guarantee and service standards. 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 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. We believe the strength of the FTD brand, our easy-to-remember URL,
our fulfilling florist network and our marketing relationships with The Walt
Disney Company, M&M/Mars, Inc., Hickory Farms, Inc., The Vermont Teddy Bear
Company and Crabtree & Evelyn, Ltd. will enable us to significantly grow our
business and build market share.
FTD was founded in 1910, and we believe that 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 three months ended March 31, 1999, our total revenues were
$12.4 million and we received a total of 208,845 orders. Internet orders
represented 57% of total customer orders during this period.
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.
45
<PAGE>
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.
Competitive Strengths
We benefit from our ability to utilize the FTD brand. According to an April
1999 Market Facts, Inc. research study commissioned for FTD, 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. Our URL, www.ftd.com, is commercially attractive and
easy to access. To stimulate brand awareness and increase traffic to our Web
site, we advertise on several high-traffic Web sites, such as Yahoo!, the Go
NetworkTM, Netscape Netcenter, MSN.com and others. We also sell a number of
floral and specialty gift products utilizing other popular consumer brands such
as Winnie The Pooh(R), M&M's(R), Vermont Teddy Bear(R), Hickory Farms(R) and
Crabtree & Evelyn(R).
We believe that our fulfilling florist network and quality control standards
are a significant competitive strength. Through a network of approximately
6,500 FTD florists, who fill the majority of our orders, we can provide same-
day delivery of flowers to 97% of the U.S. population, if the order is received
by 1:00 p.m. in the recipient's time zone. To fulfill our customers' orders,
florists must adhere to our service standards, including our 100% satisfaction
guarantee. We continuously monitor our fulfilling florists by placing random
test orders and monitoring customer feedback to ensure customer satisfaction.
We provide customer service through our call centers and online.
The technologies integrated in our Web site allow us to retain and analyze
customer, sales and Web site activity. Our Web site provides our customers with
a fast and convenient way to shop. It also allows our customers to obtain
detailed information about our products and to be personally reminded of
upcoming purchasing occasions.
Business Strategy
We intend to build further brand awareness and increase our customer base
and purchasing frequency by significantly expanding our advertising, direct
marketing/affinity and retention marketing efforts. We plan to implement a
targeted television, radio and print advertising campaign focused on increasing
customer usage of FTD.COM. In addition, we
46
<PAGE>
intend to increase our advertising presence on highly-trafficked Web sites to
encourage consumers to visit our Web site. We will also continue to utilize a
direct marketing campaign designed to acquire new customers. To date, we have
developed affinity programs with a variety of companies, including Citibank,
MBNA and United Airlines. These programs involve monthly statement inserts, e-
mails and catalogs that market our products to their customers and often offer
discounts or frequent flier mileage awards for purchases of our products.
We also intend to strengthen our retention marketing programs. We currently
utilize our customer information to provide a personalized e-mail reminder
service. This voluntary reminder service enables customers to choose to be
reminded of significant flower or gift purchasing occasions, including events
identified by the particular customer such as birthdays and anniversaries. We
also send printed catalogs and offer other incentives designed to increase
purchasing frequency.
We plan 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
complement 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 popular consumer brands.
We intend to provide quality customer service by continuing to offer our
100% satisfaction guarantee and by investing in our technology platforms. Under
our 100% satisfaction guarantee policy, customers are entitled to a full refund
or a replacement at no additional cost if they are unsatisfied for any reason.
By making additional investments in technology to share information between our
call centers and Web site environments, we believe that we will be able to
continue to enhance our reputation for customer service.
We plan to capitalize on our relationship with FTD. We believe that this
relationship provides us with significant advantages, including our access to
quality-tested fulfilling florists, our ability to use the FTD brand name and
the www.ftd.com URL and the substantial experience of FTD's management.
Our relationship with FTD also allows us access to FTD's international
fulfillment capability. One of FTD's unique capabilities is its affiliation
with approximately 32,000 florists outside North America. These florists,
through their membership in Interflora, a licensing partner of FTD, have agreed
to receive floral orders transmitted by FTD. There are many people living in
North America 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.
47
<PAGE>
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 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 $34.99 to $89.99
NFL(TM) gift baskets
Crabtree & Evelyn(R) products
</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. FTD begins
developing new products well in advance of their expected release dates. Each
component of these new products, including the container, the flower
arrangement and any other product enhancement, is designed by third party
professional floral designers who work in conjunction with employees of FTDI.
After the product design phase is completed, FTDI conducts extensive research
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, M&M/Mars, Inc., Hickory Farms, Inc., The Vermont Teddy Bear Company
and Crabtree & Evelyn, Ltd. We typically offer approximately four products in
this category at any one time and introduce new products for specific holidays.
To date, these arrangements have not resulted in a material portion of our
revenues.
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 50 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
48
<PAGE>
are developed in a relatively short period of time and are shipped directly
from the vendor's manufacturing facilities or the vendor's third party
distributor 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 enter a credit card number and provide other
relevant information, including the address of the recipient and any
special delivery instructions; this information is then transmitted
over the Internet to the servers that process our orders and
communicate with the Mercury Network.
. Telephone orders--A sales representative collects the relevant order
and credit card payment information; this information is then
transmitted to the servers that process our orders and communicate with
the Mercury Network.
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
traditional advertising.
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<PAGE>
Online advertising. We believe that we are one of the floral and specialty
gift industries' leaders in establishing a substantial online advertising
presence. We have established an advertising presence on several high-traffic
Web sites, including Yahoo!, the Go NetworkTM, Netscape Netcenter, MSN.com,
Disney.com, Infoseek, Excite, Hotbot and Lycos. The agreements governing those
advertising relationships expire at various times over the next three years. We
intend to continue to seek new opportunities to expand this presence within
top-tier portal sites and highly trafficked content sites.
Traditional advertising. We intend to actively pursue a variety of
traditional 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 traditional
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. 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. We intend to continue to expand these efforts.
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
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 use server technology in a fully redundant configuration to power our Web
site. Our hosting location has the ability to handle increases in usage levels
by utilizing data communication links that can add capacity in excess of
historical levels.
Our transaction system primarily is supported by fully redundant processors,
which FTDI owns. The term "redundant processors" means that we have back-up
servers that remain idle or run non-critical tasks when the system is working
properly. If one of the primary processors goes down, than a back-up processor
will start-up and begin to handle
50
<PAGE>
customer transactions. These processors 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 processors communicate with the
Mercury Network, which is a scalable, redundant network that facilitates
communication with and among FTD florists, manufacturers and third party
distributors. With respect to the Mercury Network, the term "redundant network"
means that several checks and balances exist to ensure that a customer order is
processed in a timely manner. The Mercury Network automatically routes an order
to a florist based on location and activity levels. The connection at the
florist's shop either electronically accepts, rejects or does not respond. If
no electronic response occurs then a manual call is placed to alert the florist
to the condition. If the florist cannot immediately rectify the problem, then
the order is automatically electronically routed to another suitable florist.
Orders generated through 1-800-SEND-FTD are processed by call centers
operated by APAC Teleservices, Inc. and, to a lesser degree, by us. The sales
representatives at these customer call centers in Cedar Rapids and Waterloo,
Iowa and LaCrosse, Wisconsin, 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 competing for consumers'
attention has increased rapidly during the past several years. We compete with
marketers of flowers and specialty gifts who
51
<PAGE>
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.COM, 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 an intercompany agreement with FTDI. 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.
52
<PAGE>
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.
53
<PAGE>
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 July 1, 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 other than Mr. Chapman has
served in his or her position within FTD.COM since May 19, 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
Brian G. Chapman..... 34 Vice President of Strategy and Development
Habib Y. Gorgi....... 42 Director
Veronica K. Ho....... 39 Director
Gary K. Silberberg... 39 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
"Transactions with Management and Others--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 is the President and Chief Executive Officer and a
director of FTD.COM. He 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. Mr. Soenen was not elected to our board
pursuant to an arrangement or understanding with any party.
54
<PAGE>
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 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.
Brian G. Chapman was named Vice President of Strategy and Development of
FTD.COM in June 1999. Prior to joining FTD.COM, Mr. Chapman was a director of
VIA International, a management consulting firm, from April 1997 to May 1999.
From March 1990 to April 1997, Mr. Chapman was a management consultant with
Towers Perrin, an international consulting firm. Mr. Chapman received a B.S.
from Northwestern University in 1986.
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
Within 90 days 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, FTD Corporation or any other party that has a right to designate
a member or members of our board of directors.
55
<PAGE>
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.
Executive Compensation
Prior to the offering, all compensation paid to our executive officers was
paid by FTDI and was attributable, at least in part, to services provided to
FTDI's Internet and telephone floral and specialty gift business.
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<PAGE>
The following table sets forth information concerning the compensation
during our fiscal year ended June 30, 1998 for our Chief Executive Officer and
the other most highly compensated executive officer of the Company whose total
salary and bonus (as determined in accordance with Securities and Exchange
Commission rule) exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
1998 Annual Long-Term
Compensation Compensation Awards
-------------------- ---------------------------
Restricted Securities
Name and Principal Stock Underlying All Other
Position Salary ($) Bonus ($) Awards ($) Options (#)(1) Compensation ($)
- ------------------ ---------- --------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Michael J. Soenen....... 115,177 9,839 -- 10,000 8,570(2)
President and Chief
Executive Officer
Frederick K. Johnson.... 172,384 15,130 155,000(3) 100,000 21,687(4)
Chief Information
Officer
</TABLE>
- ----------
(1) Represents options to purchase shares of Class A common stock of FTD
Corporation.
(2) Represents $7,402 in compensation for moving expenses and $1,168 in
flexible dollars for use in connection with FTD Corporation's benefit
plans.
(3) As of June 30, 1998, Mr. Johnson held 20,000 restricted shares of Class A
common stock of FTD Corporation with an aggregate value of $210,000. These
restricted shares vest in three equal installments beginning on June 30,
2000.
(4) Represents $19,831 in compensation for moving expenses and $1,856 in
flexible dollars for use in connection with FTD Corporation's benefit
plans.
FTD Corporation Option Grants in Last Fiscal Year
The following information sets forth information concerning grants of
options to purchase shares of Class A common stock of FTD Corporation to the
named executive officers during our fiscal year ended June 30, 1998.
FTD Corporation Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential
Realizable Value
at Assumed
Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term
Options Employees Exercise ----------------
Granted in Fiscal Price Expiration 5% 10%
Name (#) Year ($/sh) Date ($)(3) ($)(3)
- ---- ---------- ---------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Soenen....... 10,000(1) 4.8% 7.75 10/28/07 $48,739 $123,515
Frederick K. Johnson.... 50,000(2) 24.2% 7.75 10/28/07 243,697 617,575
50,000(2) 24.2% 15.00 10/28/07 -- 255,075
</TABLE>
- ----------
(1) Options vest in four equal installments beginning on January 1, 1998.
(2) Options vest in four equal installments beginning on July 1, 1998.
(3) The 5% and 10% rates of appreciation were set by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, of the Class A common stock of FTD Corporation.
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<PAGE>
FTD Corporation Option Exercises in Last Fiscal Year and Year-End Option Values
The following table sets forth information concerning option exercises with
respect to FTD Corporation Class A common stock by our executive officers named
in the table above during our fiscal year ended June 30, 1998.
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-The-Money Options at
Shares Acquired Value Year-End (#) Fiscal Year-End ($)
Name on Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- --------------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Michael J. Soenen....... 0 0 2,500/7,500 6,875/20,625
Frederick K. Johnson.... 0 0 0/100,000 0/275,000
</TABLE>
- ----------
(1) Value was calculated by subtracting the exercise price from the fair market
value, which was determined by the FTD Corporation board of directors to be
$10.50 as of June 30, 1998.
Employment Agreements
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 and as of the close of the offering, Mr. Poli will be granted
options to purchase 306,900 shares of our Class A common stock at an exercise
price per share equal to the initial public offering price and the same number
of shares at an exercise price of two times the initial public offering price.
See "--Stock Option Grants as of the Offering."
Pursuant to an offer of employment with substantially similar provisions as
Mr. Poli's, we agreed to pay Brian G. Chapman an annual salary of $150,000 to
serve as our Vice President of Strategy and Development, and as of the close of
the offering Mr. Chapman will be granted options to purchase 204,600 shares of
our Class A common stock at an exercise price per share equal to the initial
public offering price. See "--Stock Option Grants as of the Offering."
We intend to enter into an agreement governing the employment of Michael J.
Soenen, our President and Chief Executive Officer, following the closing of
this offering on terms substantially similar to those applicable to Messrs.
Poli and Chapman.
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
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<PAGE>
stockholder with voting rights, 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 4,500,000
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.
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
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<PAGE>
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.
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.
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<PAGE>
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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<PAGE>
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 applicable deferral period. 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.
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 $100. Any grant of performance shares or performance units will specify
management objectives that, if
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<PAGE>
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.
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.
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<PAGE>
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 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
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<PAGE>
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 the date hereof. 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
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<PAGE>
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.
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.
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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 $1.0 million limitation on some executive compensation under Section 162(m)
of the Internal Revenue Code.
Plan benefits. The types of awards that may be granted in the future under
the plan are subject to the discretion of our board of directors and,
therefore, cannot be determined. It is not possible to determine all amounts
that may be awarded in the future under the plan.
Stock Option Grants as of the Offering
Effective as of the close of this offering, our board of directors has made
the following stock option grants to our executive officers under our 1999
Equity Incentive Plan:
Grants to Purchase Shares of Class A Common Stock of FTD.COM
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for
Options Employees or Base Option Term
Granted in Fiscal Price Expiration -----------------------
Name (#)(1) Year ($/sh) Date 5% ($)(2) 10% ($)(2)
- ---- ---------- ---------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Soenen.......
Peter K. Poli...........
Frederick K. Johnson....
Brian G. Chapman........
</TABLE>
- ----------
(1) These options will be granted as of the date the offering is completed and
will consist of non-qualified stock options.
(2) The 5% and 10% rates of appreciation were set by the Securities and
Exchange Commission and are not intended to forecast future appreciation,
if any, of our Class A common stock. If our Class A common stock does not
increase in value, then the option grants described in the table will be
valueless.
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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 86.1% of the economic interest
in FTD.COM and 98.4% 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 June 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. Each
person listed below disclaims beneficial ownership of their shares, except to
the extent of their pecuniary interests therein. Shares of common stock that an
individual or group has the right to acquire within 60 days of May 31, 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 Delivery, Inc. (1). 40,920,000 100.0% 100.0% 98.4% -- -- --
3113 Woodcreek Drive
Downers Grove, Illinois 60515
Bain Capital, Inc. (2).................. 0 0 0 0 2,679,616 17.5% 21.6%
Directors and Executive Officers:
Richard C. Perry (3).................... 0 0 0 0 7,508,862 48.6 60.2
Michael J. Soenen (4)................... 0 0 0 0 19,166 * *
Peter K. Poli........................... 0 0 0 0 0 0 0
Frederick K. Johnson (5)................ 0 0 0 0 51,450 * *
Habib Y. Gorgi (6)...................... 0 0 0 0 1,262,082 8.2 3.5
Veronica K. Ho.......................... 0 0 0 0 0 0 0
Gary K. Silberberg...................... 0 0 0 0 0 0 0
All Directors and Executive Officers
as a Group (8 persons) (7)............. 0 0 0 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.
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<PAGE>
(2) Represents shares of FTD Corporation common stock beneficially owned by
investment partnerships and other related persons and entities that are
affiliated with Bain Capital, Inc. The address for Bain Capital and its
affiliates is Two Copley Place, Boston, Massachusetts 02116.
(3) All shares of FTD.COM common stock outstanding prior to this offering are
owned by FTDI. Perry Acquisition Partners, L.P. has sole voting and
investment power with respect to 7,458,862 shares, or 60.2% of the voting
power, of FTD Corporation common stock. Because FTDI is a wholly owned
subsidiary of FTD Corporation, Perry Acquisition Partners may be deemed to
share voting power with respect to all the shares of FTD.COM common stock
owned by FTDI. As a result, Richard C. Perry, the managing member of the
sole general partner of Perry Acquisition Partners, may be deemed to
exercise control over FTD.COM. Mr. Perry also beneficially owns 50,000
additional shares of FTD Corporation common stock. Both Perry Acquisition
Partners and Mr. Perry disclaim beneficial ownership of those shares,
except to the extent of their pecuniary interest therein. The address for
each of Perry Acquisition Partners, L.P. and Mr. Perry is 599 Lexington
Avenue, New York, New York 10022.
(4) 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.
(5) 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 June 30,
2000.
(6) Represents shares of FTD Corporation common stock beneficially owned by
Fleet Growth Resources, Inc. and affiliated investment partnerships. Mr.
Gorgi is the President of Fleet Growth Resources. Mr. Gorgi disclaims
beneficial ownership of those shares, except to the extent of his pecuniary
interest therein.
(7) Shares of FTD Corporation common stock beneficially owned include 27,500
shares issuable upon the exercise of options and 30,000 restricted shares.
Shares of FTD Corporation common stock beneficially owned also include
shares that Mr. Perry owned by Perry Acquisition Partners with respect to
which may be deemed to have voting and investment power because he is the
managing member of the general partner of Perry Acquisition Partners.
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TRANSACTIONS WITH MANAGEMENT AND OTHERS
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:
. we will pay our proportionate share of FTD Corporation's tax liability
computed as if we were filing a separate return; and
. 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.
The following table sets forth, for each of our last three completed fiscal
years, allocations of various services rendered by FTDI to us:
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------
Expenses 1996 1997 1998
-------- ---------- ---------- ----------
<S> <C> <C> <C>
Marketing and promotion................. $1,542,990 $1,622,056 $1,853,945
Technology development.................. 1,171,987 1,292,546 1,153,469
General and administrative ............. 1,287,974 1,508,808 1,707,252
---------- ---------- ----------
Total............................... $4,002,951 $4,423,410 $4,714,666
========== ========== ==========
</TABLE>
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 received an aggregate of $12.3 million in contributions
from FTDI for the three-year period ended June 30, 1988, including
contributions of $3.4 million, $3.1 million and $5.8 million for the years
ended June 30, 1996, 1997 and 1998, respectively.
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
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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:
. 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
. 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 and returns.
The agreement has a 99-year term, however, FTDI may terminate the agreement if,
among other things, any person (other than an affiliate of FTD Corporation)
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 the terms and conditions
we decide. If we do not deliver to FTDI an offer to acquire the prohibited
business, FTDI must cease operating or dispose of 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:
. 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 neither FTD Corporation nor an affiliate
of FTD Corporation owning a greater percentage;
. one year after the trademark license terminates if FTDI terminates the
license as a result of an acquisition by a third party, other than FTD
Corporation or an affiliate of FTD Corporation, of 20% or more of the
voting control of FTD.COM;
. two years after the trademark license terminates if we terminate due to
material breach by FTDI or its bankruptcy, dissolution or insolvency; or
. when the trademark license terminates for any other reason.
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We agree not to enter into any business currently being conducted by FTDI.
FTDI currently is in the business of providing subscribing florists with the
ability to send and receive floral orders and transaction clearing services.
FTDI also has an extensive product development department, the FTD Marketplace,
that develops branded floral and gift products that florists can purchase at
wholesale from FTDI for resale to consumers. 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 must cease
operating or dispose of 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 or our bankruptcy,
dissolution or insolvency, 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 corporate services and space-sharing services to
us.
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 their
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 tax and pension
obligations resulting from our relationship with FTDI and FTD Corporation may
adversely affect our financial condition."
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Florists Online Hosting Agreement. We provide FTDI with hosting services for
its FTD 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 us a monthly service fee of $50.00 for each florist Web site
hosted on our Web site. This agreement expires on June 30, 2000.
Commission Agreement. We receive at least a $5.00 commission on, and at
least 20% of the order value of, 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 or percentage of order value, FTDI must adjust our commission or
percentage of order value paid to us to reflect the more favorable terms. If
the percentage of order value paid by FTDI to similarly situated parties is
less than 20%, then the percentage of order value paid by FTDI to us will
decrease to the most favorable economic terms given to any such third party.
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 affiliated with Bain Capital, Inc.
and a group of investment funds affiliated with Fleet Growth Resources, Inc.
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 right to designate six
members of our board of directors and Bain Capital has the right to designate
two members of our board of directors.
Perry Acquisition Partners has elected to designate Richard C. Perry,
Veronica K. Ho and Gary K. Silberberg as directors of FTD.COM. Perry
Acquisition Partners has elected not to designate the additional three
directors that it has the contractual right to designate under that
stockholders' agreement, however it may elect to designate any of those
additional directors in the future. Bain Capital has elected to designate Habib
Y. Gorgi to the board of directors of FTD.COM, but has elected not to designate
the additional director that it has the contractual right to designate under
that stockholders' agreement. Bain Capital may elect to designate that
additional director in the future.
Under this stockholders' agreement, the directors appointed by the Bain
Capital entities have the contractual right 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. This agreement provides
that the following actions cannot be taken without the approval of the
directors appointed by the Bain Capital entities:
. amendments to our certificate of incorporation or bylaws;
. increases or decreases in the number of our directors;
. issuances or sales of our securities;
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. mergers, consolidations or other significant business combination
transactions involving us;
. repurchases, exchanges or redemptions of our securities by us; and
. other transactions outside the ordinary course of our business.
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. FTD Association has not exercised this contractual right
to designate directors of FTD.COM, however, it may elect to designate one or
both of those directors in the future.
As discussed under the caption "Management," two independent directors will
be added to our board of directors. Neither of these directors will be
designated by Perry Acquisition Partners, Bain Capital or FTD Association.
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 $3.0
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 $1.0 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 if our board of directors determines that the
filing of the registration statement would impede, delay or interfere with any
financing, offer or sale of securities, acquisition, corporate reorganization
or other similar transaction, for not more than 120 days and, if FTDI is
requesting a registration on Form S-3, not more than once in any 12-month
period.
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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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 5,500,000 shares of Class A common stock being offered through
this prospectus (6,325,000 if the underwriters' option to purchase additional
shares is exercised) and 40,920,000 shares are reserved for issuance upon
conversion of Class B common stock into Class A common stock. There are
40,920,000 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
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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" 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.
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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 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
Effective as of the close of this offering, (1) options to purchase a total
of 1,636,800 shares of Class A common stock will be outstanding, none of which
will be vested; and (2) up to 2,863,200 additional shares of Class A common
stock may be subject to options granted in the future. All of the options
contain standard anti-dilution provisions. See "Management--Stock Option Grants
as of the Offering."
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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.
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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 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
various 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.
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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 not be enforceable against us if
someone challenges these provisions. Nonetheless, these provisions 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.
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 98.4% 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 have applied 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
General
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.
After this offering, we will have 6,580,000 shares of Class A common stock
outstanding. If the underwriters exercise their over-allotment option in full,
we will have a total of 7,405,000 shares of Class A common stock outstanding.
All of the Class A common stock sold in the offering will be freely
transferable without restriction or further registration under the Securities
Act, except for shares acquired by our affiliates. FTD.COM, FTDI and our
directors and officers have agreed not to sell, or enter into a derivative
transaction that is the equivalent of a sale of, shares of Class A common
stock, including shares of Class B common stock that are convertible into
shares of Class A common stock, for a period of 180 days after the date of this
prospectus, without Bear, Stearns & Co. Inc.'s prior written consent. DBV
Investments, L.P. has also entered into the same lock-up agreement except that
its restricted period ends the 90th day after the date of this prospectus. We
can give no assurance concerning how long these parties will continue to hold
their Class A common stock after the expiration of those restricted periods.
Shares of our common stock that are held by one of our affiliates will be
subject to the resale limitations of Rule 144 under the Securities Act. Rule
144 defines an affiliate as a person that directly or indirectly, through one
or more intermediaries, controls or is controlled by, or is under common
control with, an issuer.
After this offering, our affiliates may sell shares of our common stock:
. under an effective registration statement under the Securities Act;
. subject to the volume limitations, manner-of-sale provisions and other
conditions of Rule 144; or
. under another exemption from registration.
None of our affiliates, including FTDI, is under any contractual obligation
to retain our common stock, except during the 180-day period noted above.
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
81
<PAGE>
common stock) for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of Class A common stock then outstanding,
which will equal approximately 74,050 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.
Registration Rights
Prior to the closing of this offering, we will enter into an agreement with
FTDI entitling FTDI to require us to register our shares of Class B common
stock, or shares of Class A common stock into which the Class B common stock is
convertible, after the expiration of the 180-day period above. We have also
entered into registration rights agreements with each of DBV Investments, L.P.
and Buena Vista Internet Group. These registration rights agreements entitle
DBV Investments and Buena Vista Internet Group to require us to register the
shares of Class A common stock owned by them after the date that is 180 days
after the date of this prospectus. See "Transactions with Management and
Others--FTDI Registration Rights Agreement."
Stock Options
As of the close of the offering, we have granted options to purchase
approximately 1,636,800 shares of our Class A common stock. Within 90 days
after this offering, we intend to file a registration statement on Form S-8
covering all options granted under our Equity Incentive Plan. Shares of our
Class A common stock registered under this registration statement will be
available for sale in the open market, subject to vesting restrictions. Any
sales of these shares will be subject to the volume limitations, manner-of-sale
provisions and other conditions of Rule 144.
82
<PAGE>
UNDERWRITING
Underwriting Agreement
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., Thomas Weisel Partners LLC, Volpe
Brown Whelan & Company, LLC and E*TRADE Securities, Inc., 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.....................................
Thomas Weisel Partners LLC..................................
Volpe Brown Whelan & Company, LLC...........................
E*TRADE Securities, Inc. ...................................
---------
Total................................................... 5,500,000
=========
</TABLE>
The obligations of the underwriters under the underwriting agreement are
several and not joint. This means that each underwriter is obligated to
purchase from us only the number of shares of Class A common stock set forth
opposite its name in the table above. Except in limited circumstances set forth
in the underwriting agreement, an underwriter has no obligation in relation to
the shares of Class A common stock which any other underwriter has agreed to
purchase.
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 including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
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.
Public Offering Price
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.
83
<PAGE>
The following table summarizes the per share and total public offering price
of the shares of Class A common stock in the offering, the underwriting
compensation to be paid to the underwriters by us and the proceeds of the
offering, before expenses, to us. The information presented assumes either no
exercise or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Total
-----------------------
Without
Per Over- With Over-
Share allotment allotment
------ ----------- -----------
<S> <C> <C> <C>
Public offering price..................... $14.00 $77,000,000 $88,550,000
Underwriting discounts and commissions
payable by us............................ $ 0.98 $ 5,390,000 $ 6,198,500
Proceeds, before expenses, to us.......... $13.02 $71,610,000 $82,351,500
</TABLE>
The underwriting discount and commission per share is equal to the public
offering price per share of Class A common stock less the amount paid by the
underwriters to us per share of Class A common stock. The underwriting
commissions and fees are expected to represent 7.0% of the public offering
price per share of Class A common stock.
The following table indicates the expenses payable by us in the offering.
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............... $ 26,376
National Association of Securities Dealers, Inc. fee.......... 9,500
Nasdaq listing fee............................................ 95,000
Accounting fees and expenses.................................. 500,000
Legal fees and expenses....................................... 500,000
Printing and engraving........................................ 200,000
Transfer agent fees and expenses.............................. 1,000
Miscellaneous expenses........................................ 468,124
----------
Total..................................................... $1,800,000
==========
</TABLE>
Over-Allotment Option to Purchase Additional Shares
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.
Indemnification and Contribution
The underwriting agreement provides that we must indemnify the underwriters
against liabilities arising out of any alleged misstatements of fact or
omissions in this prospectus and the registration statement, including
liabilities under the Securities Act, and contribute to payments that the
underwriters may be required to make in respect of those liabilities.
84
<PAGE>
Lock-up Agreements
FTD.COM, FTDI and our directors and officers have agreed not to sell, or
enter into a derivative transaction that is the equivalent of a sale of, shares
of Class A common stock, including shares of Class B common stock that are
convertible into shares of Class A common stock, for a period of 180 days after
the date of this prospectus, without Bear, Stearns & Co. Inc.'s prior written
consent. DBV Investments, L.P. has also entered into the same lock-up agreement
except that its restricted period ends the 90th day after the date of this
prospectus.
Nasdaq National Market Quotation
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, the
primary factors will be our results of operations in recent periods, estimates
of our prospects and the industry in which we compete, an assessment 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.
Stabilization, Syndicate Short Position and Penalty Bids
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.
85
<PAGE>
Reserved Share Program
The underwriters have reserved for sale, at the initial public offering
price, up to 412,500 shares of Class A common stock for employees, directors
and officers of FTD.COM and FTDI and the 6,500 FTD florists who fulfill the
majority of our orders 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. Purchases of reserved shares are to be made
through an account at Bear, Stearns & Co. Inc. in accordance with Bear, Stearns
& Co. Inc.'s procedures for opening an account and transacting in securities.
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.
At our request, the underwriters will reserve at the initial public offering
price up to $5.0 million of Class A common stock for sale to DBV Investments,
L.P., one of MSD Capital, L.P.'s investment partnerships, which has expressed a
non-binding interest in acquiring these shares. MSD Capital, L.P. is the
private investment firm for Michael S. Dell. This sale would represent 357,142
shares of Class A common stock at an assumed initial public offering price of
$14.00, the mid-point of the offering range.
Internet Distribution
E*TRADE Securities, Inc. will distribute all shares of Class A common stock
allocated to it through the Internet. Those shares will be distributed to
clients of E*TRADE meeting its eligibility criteria. Shares will generally be
randomly allocated by E*TRADE among interested clients after a review of their
holding records in prior public offerings. Clients with a history of short
holding periods will receive a lesser allocation priority if demand for shares
exceeds the supply of shares available to E*TRADE to distribute.
Other Relationships
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., has a limited partnership
interest 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
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
42 filed public offerings of equity securities, of which 24 have been
completed, and has acted as a syndicate member in an additional 19 public
offerings of equity securities. Thomas Weisel Partners
86
<PAGE>
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
a limited partnership interest 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 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
87
<PAGE>
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.
88
<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>
When the transaction described in the fourth paragraph of Note 6 to the
Financial Statements has been consummated, we will be in a position to render
the following report.
/s/ KPMG LLP
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.
May 14, 1999, except as to note 6,which is as of , 1999
Chicago, Illinois
F-2
<PAGE>
FTD.COM INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(note 6)
June 30, March 31, March 31,
---------------------- ----------- ----------
ASSETS 1997 1998 1999 1999
------ ----------- --------- ----------- ----------
(Pro Forma
(Unaudited) unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash......................... $ -- -- -- 9,000,000
Accounts receivable.......... 217,898 213,725 48,477 48,477
Prepaid expenses............. 29,224 19,351 127,178 127,178
----------- --------- ---------- ----------
Total current assets..... 247,122 233,076 175,655 9,175,655
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 1,535,417
----------- --------- ---------- ----------
Total assets............. $ 247,122 2,212,243 1,711,072 10,711,072
=========== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS'
DEFICIT
- -----------------------------
Current liabilities:
Accounts payable............. $ 2,066,592 1,871,720 2,501,798 2,501,798
Unearned revenue............. -- -- 135,870 135,870
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................ 198,267 491,139 442,172 442,172
----------- --------- ---------- ----------
Total current
liabilities............. 2,264,859 2,362,859 3,079,840 3,079,840
----------- --------- ---------- ----------
Series A 8% Cumulative
Redeemable Convertible
Preferred Stock, $.01 par
value; 90,000 shares issued
and outstanding pro forma... -- -- -- 9,000,000
----------- --------- ---------- ----------
Stockholders' deficit:
Preferred stock, $.01 par
value; 5,000,000 shares
authorized; 90,000 shares
issued and outstanding as
Series A 8% Cumulative
Redeemable Convertible
Preferred Stock pro forma... -- -- -- --
Class A common stock, $.01
par value; 250,000,000
shares authorized; no shares
issued and outstanding pro
forma....................... -- -- -- --
Class B common stock, $.01
par value; 100,000,000
shares authorized;
40,920,000 shares issued and
outstanding pro forma....... -- -- -- 409,200
Additional paid-in capital... -- -- -- --
Stockholder's deficit........ (2,017,737) (150,616) (1,368,768) --
Retained deficit............. -- -- -- (1,777,968)
----------- --------- ---------- ----------
Total stockholders'
deficit................. (2,017,737) (150,616) (1,368,768) (1,368,768)
----------- --------- ---------- ----------
Total liabilities and
stockholders' deficit... $ 247,122 2,212,243 1,711,072 10,711,072
=========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
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
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
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
------------ ---------- ---------- ---------- ----------
Loss from operations.... (5,283,902) (5,705,547) (6,315,348) (4,453,799) (5,755,216)
Interest expense........ 225,577 266,633 176,287 169,811 131,046
------------ ---------- ---------- ---------- ----------
Loss before income
taxes.................. (5,509,479) (5,972,180) (6,491,635) (4,623,610) (5,886,262)
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)
============ ========== ========== ========== ==========
Pro forma basic and
diluted loss per share. $ (.10) $ (.09)
========== ==========
Pro forma shares used in
the calculations of
basic and diluted loss
per share.............. 40,920,000 40,920,000
========== ==========
</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.
F-7
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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 was 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.
Unaudited Pro Forma Basic and Diluted Loss Per Share
The Company computes net loss per share in accordance with the provisions of
SFAS No. 128, Earnings per Share. Under the provisions of SFAS No. 128, basic
and diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding for the
period. At June 30, 1998 and March 31, 1999, weighted average common shares
outstanding consist of 40,920,000 shares of common stock issued in conjunction
with the incorporation of the Company on May 19, 1999 as retroactively effected
for the stock split described in note 6. Dilutive securities have not been
included in the calculation of diluted loss per share in periods of net loss
because the effect of such securities would be antidilutive. At June 30, 1998
and March 31, 1999, potentially dilutive securities consist of 90,000 shares of
Series A 8% Cumulative Redeemable Convertible Preferred Stock.
F-8
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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
F-9
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
F-10
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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
F-11
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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.
F-12
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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 FTDA 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.
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. On
May 25, 1999, 60,000 shares of the Series A
F-13
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred Stock were issued and sold to an investor for consideration of
$6,000,000. Each share of Series A Preferred Stock will convert into a number
of shares of Class A common stock pursuant to the conversion ratio described in
the certificate of amendment to the Company's certificate of incorporation,
which is filed as an exhibit to the registration statement. The conversion will
occur 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.
On , 1999, the Company's Board of Directors approved a 12-for-1
stock split of the Company's outstanding Class B common stock. All share and
per share data have been retroactively adjusted to reflect the incorporation of
the Company on May 19, 1999 and the 12-for-1 stock split as if all shares were
outstanding for all periods presented.
The Company also entered 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 it. 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.
F-14
<PAGE>
FTD.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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-15
<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 United States 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 United States 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
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 28
Dividend Policy........................................................... 28
Capitalization............................................................ 29
Dilution.................................................................. 30
Selected Financial Data................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 33
Business.................................................................. 44
Management................................................................ 53
Principal Stockholders.................................................... 67
Transactions with Management and Others................................... 69
Description of Capital Stock.............................................. 74
Shares Eligible for Future Sale........................................... 80
Underwriting.............................................................. 82
Legal Matters............................................................. 86
Experts................................................................... 86
Where You Can Find More Information....................................... 86
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]
5,500,000 Shares
Class A Common Stock
------------
PROSPECTUS
------------
Bear, Stearns & Co. Inc.
Thomas Weisel
Partners LLC
Volpe Brown Whelan
& Company
E*TRADE Securities, Inc.
, 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............... $ 26,376
National Association of Securities Dealers, Inc. fee.......... 9,500
Nasdaq listing fee............................................ 95,000
Accounting fees and expenses.................................. 500,000
Legal fees and expenses....................................... 500,000
Printing and engraving........................................ 200,000
Transfer agent fees and expenses.............................. 1,000
Miscellaneous expenses........................................ 468,124
----------
Total..................................................... $1,800,000
==========
</TABLE>
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.
II-1
<PAGE>
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.
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 (40,920,000 shares after giving effect to the 12-for-1 stock
split discussed in note 6 of the notes to the financial statements included in
this registration statement) of Class B common stock to Florists' Transworld
Delivery, Inc. in connection with the formation of FTD.COM. This transaction
was exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof because it was a transaction by an issuer not involving
any public offering in accordance with Rule 152 under the Securities Act.
On May 20, 1999, we sold 30,000 shares of our Series A 8% Cumulative
Redeemable Convertible Preferred Stock to DBV Investments, L.P. for
consideration of $3.0 million in a
II-2
<PAGE>
transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 506 of Regulation D.
On May 25, 1999, we sold 60,000 shares of our Series A 8% Cumulative
Redeemable Convertible Preferred Stock to Buena Vista Internet Group for
consideration of $6.0 million in a transaction exempt from the registration
requirements of the Securities Act pursuant to Rule 506 of Regulation D.
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 Amendment to Certificate of Incorporation of
FTD.COM 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., the Co-Investors named
therein and FTD Corporation
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
4.5+ Registration Rights Agreement, dated as of May 25, 1999,
between FTD.COM and Buena Vista Internet Group
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+ Form of Intercompany Services Agreement between FTDI and
FTD.COM
10.3 Form of Trademark License Agreement between FTDI and FTD.COM
10.4+ Form of 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+ Form of First Amendment to Tax Sharing Agreement among FTD
Corporation, FTDI and FTD.COM
10.7+ Form of Florists Online Hosting Agreement between FTDI and
FTD.COM
10.8 Form of 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
10.15+ Form of Non-qualified Stock Option Agreement to be used in
connection with grants of stock options under the 1999 Equity
Incentive Plan
10.16+ Letter Agreement regarding employment of Brian G. Chapman
23.1 Consent of KPMG LLP
23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1+ Power of Attorney
</TABLE>
- ----------
+ Previously filed.
II-3
<PAGE>
(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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on July 9, 1999.
ftd.com inc.
/s/ Michael J. Soenen
By __________________________________
Michael J. Soenen
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities indicated and on the 9th day of July, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
* Chairman of the Board
____________________________________
Richard C. Perry
/s/ Michael J. Soenen President, Chief Executive
____________________________________ Officer and Director
Michael J. Soenen (Principal Executive
Officer)
/s/ Peter K. Poli Vice President and Chief
____________________________________ Financial Officer
Peter K. Poli (Principal Financial and
Accounting Officer)
* Director
____________________________________
Habib Y. Gorgi
* Director
____________________________________
Veronica K. Ho
* Director
____________________________________
Gary K. Silberberg
</TABLE>
* The undersigned by signing his name hereunto has hereby signed this
Amendment No. 3 to Registration Statement on behalf of the above-named
directors, on July 9, 1999, pursuant to a power of attorney executed on
behalf of each such director and filed with the Securities and Exchange
Commission.
/s/ Michael J. Soenen
By: ___________________________
Michael J. Soenen
II-5
<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 Amendment to Certificate of Incorporation of FTD.COM
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., the Co-Investors named therein and FTD
Corporation
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
4.5+ Registration Rights Agreement, dated as of May 25, 1999, between
FTD.COM and Buena Vista Internet Group
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+ Form of Intercompany Services Agreement between FTDI and FTD.COM
10.3 Form of Trademark License Agreement between FTDI and FTD.COM
10.4+ Form of 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+ Form of First Amendment to Tax Sharing Agreement among FTD
Corporation, FTDI and FTD.COM
10.7+ Form of Florists Online Hosting Agreement between FTDI and FTD.COM
10.8 Form of 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
10.15+ Form of Non-qualified Stock Option Agreement to be used in connection
with grants of stock options under the 1999 Equity Incentive Plan
10.16+ Letter Agreement regarding employment of Brian G. Chapman
23.1 Consent of KPMG LLP
23.2 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5.1)
24.1+ Power of Attorney
</TABLE>
- ----------
+ Previously filed.
<PAGE>
Exhibit 1.1
5,500,000 Shares of Class A Common Stock
FTD.COM INC.
UNDERWRITING AGREEMENT
----------------------
[ ], 1999
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
VOLPE BROWN WHELAN & COMPANY, LLC
E*TRADE SECURITIES, INC.
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167
Ladies and Gentlemen:
FTD.COM INC., a corporation organized and existing under the laws of
Delaware (the "Company") proposes, subject to the terms and conditions stated
herein, to issue and sell to the several underwriters named in Schedule I hereto
(the "Underwriters") an aggregate of 5,500,000 shares (the "Firm Shares") of its
Class A Common Stock, par value $.01 per share (the "Class A Common Stock"),
and, for the sole purpose of covering over-allotments in connection with the
sale of the Firm Shares, at the option of the Underwriters, up to an additional
825,000 shares (the "Additional Shares") of Class A Common Stock. The Firm
Shares and any Addi tional Shares purchased by the Underwriters are referred to
herein as the "Shares". The Shares are more fully described in the Registration
Statement referred to below.
<PAGE>
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and may have filed an amendment or
amendments thereto, on Form S-1 (No. 333-78857), for the registra tion of the
Shares under the Securities Act of 1933, as amended (the "Act"). Such
registration statement, including the prospectus, financial statements, exhibits
and all other documents filed as a part thereof, as amended at the time of
effectiveness of the registration statement, including any information deemed to
be a part thereof as of the time of effectiveness pursuant to paragraph (b) of
Rule 430A or Rule 434 of the Rules and Regulations of the Commission under the
Act (the "Regulations"), is herein called the "Registration Statement". Any
registration statement filed pursuant to Rule 462(b) of the Regulations is
herein called the "462(b) Registration State ment", and after such filing the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The prospectus, in the form first filed with the Commission pursuant
to Rule 424(b) of the Regulations or filed as part of the Registration Statement
at the time of effectiveness if no Rule 424(b) or Rule 434 filing is required,
is herein called the "Prospectus". The term "preliminary prospec tus" as used
herein means a preliminary prospectus as described in Rule 430 of the
Regulations. The Commission has not issued a stop order suspending the effective
ness of the Registration Statement, preventing or suspending the use of any
prelimi nary prospectus, the Prospectus, the Registration Statement or any
amendment or supplement thereto, refusing to permit the effectiveness of the
Registration State ment, nor, to the Company's knowledge, has the Commission
instituted or threatened to institute any proceedings with respect to a stop
order.
(b) At the respective time of the effectiveness of the Registra tion
Statement or any 462(b) Registration Statement or the effectiveness of any post-
effective amendment to the Registration Statement, when the Prospectus is first
filed with the Commission pursuant to Rule 424(b) or Rule 434 of the
Regulations, when any supplement to or amendment of the Prospectus is filed with
the Commission and at the Closing Date and the Additional Closing Date, if any
(as hereinafter respec tively defined), the Registration Statement and the
Prospectus and any amendments thereof and supplements thereto (including any
prospectus wrapper) complied or will comply in all material respects with the
applicable provisions of the Act and the Regulations and does not or will not
contain an untrue statement of a material fact and does not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in light of the circumstances
under which they were made, not misleading, and the Prospectus, any
2
<PAGE>
preliminary prospectus and any supplement thereto or prospectus wrapper prepared
in connection therewith, at their respective times of issuance and at the
Closing Date, complied and will comply in all material respects with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
and such preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the offer and sale of the Directed Shares (as
hereinafter defined). When any related preliminary prospectus was first filed
with the Commission (whether filed as part of the registration statement for the
registration of the Shares or any amendment thereto or pursuant to Rule 424(a)
of the Regulations) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain an
untrue statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the state ments
therein in light of the circumstances under which they were made not mislead
ing. No representation and warranty is made in this subsection (b), however,
with respect to any information contained in or omitted from the Registration
Statement or the Prospectus or any related preliminary prospectus or any
amendment thereof or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter through you as herein stated expressly for use in connection with
the preparation thereof. If Rule 434 is used, the Company will comply with the
requirements of Rule 434.
(c) KPMG LLP, who have certified the financial statements and
supporting schedules included in the Registration Statement, are independent
public accountants as required by the Act and the Regulations.
(d) Subsequent to the respective dates as of which informa tion is
given in the Registration Statement and the Prospectus, except as set forth in
the Registration Statement and the Prospectus, there has been no material
adverse change or any development involving a prospective material adverse
change in the business, prospects, properties, operations, condition (financial
or other) or results of operations of the Company, including but not limited to
relationships with customers and suppliers of the Company, whether or not
arising from transactions in the ordinary course of business, and since the date
of the latest balance sheet presented in the Registration Statement and the
Prospectus, the Company has not incurred or undertaken any liabilities or
obligations, direct or contingent, which are material to the Company, except for
liabilities or obligations which are reflected in the Registra tion Statement
and the Prospectus.
3
<PAGE>
(e) This Agreement and the transactions contemplated herein have been
duly and validly authorized by the Company and this Agreement has been duly and
validly executed and delivered by the Company.
(f) The execution, delivery, and performance of this Agree ment and
the consummation of the transactions contemplated hereby do not and will not (i)
conflict with or result in a breach of any of the terms and provisions of, or
constitute a default (or an event which with notice or lapse of time, or both,
would constitute a default) or Repayment Event (as hereinafter defined) under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to, any agreement, instrument,
franchise, license or permit to which the Company is a party or by which the
Company or its properties or assets may be bound, except for conflicts,
breaches, defaults or Repayment Events that would not have a Material Adverse
Effect or (ii) violate or conflict with any provision of the certificate of
incorporation or by-laws the Company or any judg ment, decree, order, statute,
rule or regulation of any court or any public, govern mental or regulatory
agency or body having jurisdiction over the Company or any of its properties or
assets. For the purposes of this Agreement, the term "Material Adverse Effect"
means a material adverse change in the business, prospects, proper ties,
operations, condition (financial or other) or results of operations of the Com
pany. No consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of their respective subsidiaries or any of their respective properties or
assets is required for the execu tion, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby, including
the issuance, sale and delivery of the Shares to be issued, sold and delivered
by the Company hereunder, except the registration under the Act of the Shares
and such consents, approvals, authorizations, orders, registrations, filings,
qualifications, licenses and permits as may be required under state securities
or Blue Sky laws in connection with the purchase and distribu tion of the Shares
by the Underwriters. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence of
indebtedness of the Company (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company.
(g) All of the outstanding shares of capital stock of the Company are
duly and validly authorized and issued, fully paid and nonassessable, and none
of such shares was issued in violation of or is now subject to any preemp tive
or similar rights. All of the outstanding shares of Class B Common Stock, par
value $.01 per share, of the Company (the "Class B Common Stock") is owned by
4
<PAGE>
Florists' Transworld Delivery, Inc. ("FTD Inc."), free and clear of any liens,
mort gages, pledges, charges, security interests, claims, encumbrances or other
defects in title whatsoever except for the pledge of such Class B Common Stock
pursuant to the credit agreement of FTD Inc. as described in the Registration
Statement. The Shares have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued, delivered and paid for
in accordance with this Agreement, will be duly and validly issued and
outstanding, fully paid and nonassessable, will not have been issued in
violation of or be subject to any preemptive or similar rights and no holder of
Shares will be subject to personal liability by reason of being such a holder.
The Company had, at March 31, 1999, after giving effect to (i) the formation of
the Company and the initial contribution of certain assets by FTD Inc. and the
assumption of certain liabilities of FTD Inc. pursuant to the Formation
Agreement, dated as of May 19, 1999, between the Company and FTD Inc., and (ii)
the issuance and sale of 90,000 shares of Series A Cumulative Redeemable
Convertible Preferred Stock, an authorized and outstanding capitalization as set
forth in the Registration Statement and the Prospectus. The authorized capital
stock of the Company, including the Class B Common Stock, the Firm Shares and
the Additional Shares, conforms to the description thereof contained in the
Registration Statement and the Prospectus. Except as disclosed in the
Registration Statement and the Prospectus, there are no outstanding options,
warrants or other rights calling for the issuance of, and no commitments,
obligations, plans or arrangements to issue, any shares of capital stock of the
Company or any security convertible into or exchangeable for capital stock of
the Company. The outstanding stock options relating to the Common Stock have
been duly authorized and validly issued and conform to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(h) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its properties (owned, leased
or licensed) or the nature or conduct of its business makes such qualification
necessary, except for those failures to be so qualified or in good standing
which will not in the aggregate have a Material Adverse Effect. The Company has
all requisite power and authority, and all necessary consents, approvals,
authorizations, orders, registrations, qualifications, licenses and permits
(collectively, "Governmental Licenses") of and from all public, regulatory or
governmental agencies and bodies, to own, lease and operate its properties and
conduct its business as now being conducted and as described in the Registration
Statement and the Prospectus, each such Governmental License is valid and in
full force and effect and no such Governmental License contains a materially
burdensome restriction not adequately disclosed in the
5
<PAGE>
Registration Statement and the Prospectus and the Company has not received any
notice of proceedings relating to the revocation of any such Governmental
Licenses. The Company has no subsidiaries.
(i) The Company is not in violation of its charter or by-laws or in
default (or would be in default with notice or lapse of time, or both) in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, lease, joint venture or other agreement or instrument
to which the Company is a party or by which any of its properties may be bound,
which default or defaults would have in the aggregate a Material Adverse Effect,
or in violation of any law, order, rule, regulation, writ, injunction, judgment
or decree of any court or governmental agency or body, the violation of which
would have in the aggregate a Material Adverse Effect.
(j) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company is a party or to which any property
of the Company is subject or which is pending or, to the knowledge of the
Company, contemplated against the Company which might result in a Material
Adverse Effect or which is required to be disclosed in the Registration
Statement and the Prospectus.
(k) Neither the Company nor any of its directors, officers or
affiliates (as defined in the Regulations) has taken or will take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Class A Common Stock to facilitate
the sale or resale of the Shares.
(l) The financial statements, including the notes thereto, and the
financial data schedules included in the Registration Statement and the
Prospectus present fairly the financial position of the Company as of the dates
indicated and the results of its operations for the periods specified; except as
otherwise stated in the Registration Statement, said financial statements have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis; and the financial data schedules included in the
Registration Statement present fairly the information required to be stated
therein; and the selected financial data and the summary financial information
included in the Registration Statement and the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with that
of the financial statements included in the Registration Statement and the
Prospectus.
6
<PAGE>
(m) The Company has filed all federal, state, local and foreign tax
returns that have been required to be filed as of the date hereof and has paid
all material taxes shown as due thereon and all assessments received by them or
any of them to the extent that such taxes have become due and are not being
contested in good faith. There is no material tax deficiency that has been or
might reasonably be expected to be asserted or, to the Company's knowledge,
threatened against the Company.
(n) The Company has good and marketable title to all personal
property owned by it, in each case free and clear of all liens, encumbrances and
defects except such as are described or referred to in the Prospectus or such as
do not materially affect the value of such property and do not interfere with
the use made or proposed to be made of such property by the Company. Any real
property and buildings held under lease occupied by the Company are held under
valid, existing and enforceable leases with such exceptions as are not material
and do not interfere with the use made or proposed to be made of such property
and buildings by the Company.
(o) The Company owns or possesses valid and enforceable licenses or
other rights to use all inventions, patents, patent applications, trademarks,
service marks, trade names, trade dress, copyrights, technology, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) proprietary techniques
(including processes and substances) and other intellectual property rights
necessary to conduct, in all material respects, the business now conducted or
presently contemplated to be conducted by the Company, as described in the
Registration Statement and the Prospectus ("Intellectual Property"). FTD Inc.
and the Company have taken all reasonable steps to protect, maintain and
safeguard the Intellectual Property for which improper or unauthorized
disclosure would impair its value or validity, and made appropriate filings and
registrations in connection with the foregoing. Other than as described in the
Registration Statement and the Prospectus: (i) to the Company's knowledge, there
are no third parties who have any rights in the Intellectual Property that could
preclude the Company from conducting, in all material respects, its business as
currently conducted or as presently contemplated to be conducted as described in
the Registration Statement and the Prospectus; (ii) there are no pending or, to
the Company's knowledge, threatened actions, suits, proceedings, investigations
or claims by others challenging the rights in the Intellectual Property of the
Company or (if the Intellectual Property is licensed) the licensor thereof in
any Intellectual Property owned or licensed to the Company; (iii) the Company
has not and (if the Intellectual Property is licensed) to the Company's
7
<PAGE>
knowledge, the licensor thereof has not infringed, or received any notice of
infringement of or conflict with, any rights of others with respect to the
Intellectual Property except for infringements or conflicts which, if determined
adversely to the Company or the licensor, as the case may be, would not,
individually or in the aggregate, have a Material Adverse Effect; and (iv) there
is, to the knowledge of the Company, no dispute between the Company or any
licensor with respect to any Intellectual Property. True and correct copies of
all material licenses and other material agreements between the Company and any
third party relating to the Intellectual Property, and all amendments and
supplements thereto, have been provided to the Underwriters.
(p) No relationship, direct or indirect, exists between or among the
Company or any of its affiliates, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries,
on the other hand, that is required by the Act to be described in the
Registration Statement and the Prospectus that is not so described.
(q) The Shares have been approved for quotation on the Nasdaq
National Market, subject only to official notice of issuance.
(r) Except as described in the Prospectus, no holder of securities of
the Company has any rights to the registration of securities of the Company
because of the filing of the Registration Statement or otherwise in connection
with the sale of the Shares contemplated hereby.
(s) The Company is not, and upon consummation of the transactions
contemplated hereby will not be, subject to registration as an "investment
company" under the Investment Company Act of 1940.
(t) There are no existing or, to the knowledge of the Company,
threatened labor disputes with any employees of the Company or FTD Inc. that
would have a Material Adverse Effect.
(u) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), except
where such noncompliance would not have a Material Adverse Effect, (ii) has
received all permits, licenses or other approvals required of it under
applicable Environmental Laws to conduct its respective business, except where
such failure to obtain permits, licenses or other approvals will not have a
Material Adverse Effect
8
<PAGE>
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance, failure to comply with the
terms and conditions of such permits, licenses or approvals will not have a
Material Adverse Effect.
(v) Each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Securities Act of 1974, as amended ("ERISA"),
that is maintained, administered or contributed to by the Company for employees
or former employees of the Company has been maintained in compliance with its
respective terms and the requirements of any applicable statutes, order, rules
and regulations, including but not limited to ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). No prohibited transaction, within the
meaning of Section 406 of ERISA or Section 4975 of the Code, that would have a
Material Adverse Effect has occurred with respect to any such plan, excluding
transactions effected pursuant to a statutory or administrative exemption. For
each such plan that is subject to the funding rules of Section 412 of the Code
or Section 302 of ERISA, no "accumulated funding deficiency", as defined in
Section 412 of the Code, has been incurred, whether or not waived, and the fair
market value of the assets of each such plan (excluding for these purposes
accrued but unpaid contributions) exceeded the present value of all benefits
accrued under such plan determined using reasonable actuarial assumptions.
(w) The Company maintains a system of internal accounting controls
that, taken as a whole, is sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(x) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, without limitation,
insurance coverage real and personal property owned or leased by it against
theft, damage, destruction, acts of vandalism and all other material risks
customarily insured against, all of which insurance is in full force and effect.
The Company has no reason to believe that it will not be able to renew existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its respective
business.
9
<PAGE>
(y) The Company has reviewed its operations and that of FTD Inc. and
any other third parties with which the Company has a material relationship to
evaluate the extent to which the business or operations of the Company will be
affected by Year 2000 issues. As a result of such review, the Company has no
reason to believe, and does not believe, that Year 2000 issues will have a
Material Adverse Effect. The term "Year 2000 issues," as used herein, means any
significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission or
other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000.
(z) Each of the Intercompany Services Agreement, the Trademark
Licensing Agreement, the Intercompany Indemnification Agreement, the Tax Sharing
Agreement, as amended by the First Amendment to Tax Sharing Agreement, the
Florists' Online Hosting Agreement and the Commission Agreement (each as defined
in the Prospectus) has been duly authorized, executed and delivered by the
Company, FTD Inc. and FTD Corporation, as the case may be, and constitutes the
binding agreement of the Company, FTD Inc. and FTD Corporation, as the case may
be, and is enforceable against the Company, FTD Inc. and FTD Corporation, as the
case may be, in accordance with its terms, except as the enforcement thereof may
be limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(aa) There are no contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
2. Purchase, Sale and Delivery of the Shares.
------------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $[ ], the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
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(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP ("Underwriters' Counsel"), 919 Third Avenue, New York, New York 10022,
or at such other place as shall be agreed upon by you and the Company, at 9:00
A.M. on the third or fourth Business Day (as permitted under Rule 15c6-1 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (unless
postponed in accordance with the provisions of Section 9 hereof) following the
date of the effectiveness of the Registration Statement (or, if the Company has
elected to rely upon Rule 430A of the Regulations, the third or fourth Business
Day (as permitted under Rule 15c6-1 under the Exchange Act) after the
determination of the initial public offering price of the Shares), or such other
time not later than ten Business Days after such date as shall be agreed upon by
you and the Company (such time and date of payment and delivery being herein
called the "Closing Date"). As used herein, the term "Business Day" means any
day other than a day on which banks are permitted or required to be closed in
New York City. Payment shall be made to the Company by wire transfer in same day
funds, against delivery to you at the offices of Underwriters' Counsel, or such
other location as may be mutually acceptable, for the respective accounts of the
Underwriters of certificates for the Shares to be purchased by them.
Certificates for the Shares shall be registered in such name or names and in
such authorized denominations as you may request in writing at least two full
Business Days prior to the Closing Date. The Company will permit you to examine
and package such certificates for delivery at least one full Business Day prior
to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase up to 825,000 Additional Shares at the same purchase price
per share to be paid by the Underwriters to the Company for the Firm Shares as
set forth in this Section 2, for the sole purpose of covering over-allotments in
the sale of Firm Shares by the Underwriters. This option may be exercised at
any time, or from time to time, in whole or in part, on or before the thirtieth
day following the date of the Prospectus, by written notice by you to the
Company. Such notice shall set forth the aggregate number of Additional Shares
as to which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date and
time being herein sometimes referred to as the "Additional Closing Date");
provided, however, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full Business Day after the date on
which the option shall have been exercised nor later than the fifth full
Business Day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Additional Shares shall be registered
in such name or names and in such authorized denominations as you
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may request in writing at least two full Business Days prior to the Additional
Closing Date. The Company will permit you to examine and package such
certificates for delivery at least one full Business Day prior to the Additional
Closing Date.
The number of Additional Shares to be sold to each Underwriter shall be the
number which bears the same ratio to the aggregate number of Additional Shares
being purchased as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number increased as set forth in
Section 9 hereof) bears to 5,500,000, subject, however, to such adjustments to
eliminate any fractional shares as you in your sole discretion shall make.
Payment of the purchase price for the Additional Shares shall be made to
the Company by wire transfer in same day funds at the offices of Underwriters'
Counsel, 919 Third Avenue, New York, New York 10022, or such other location as
may be mutually acceptable, upon delivery of the certificates for the Additional
Shares to you for the respective accounts of the Underwriters.
3. Offering.
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(a) Upon your authorization of the release of the Firm Shares, the
Underwriters propose to offer the Shares for sale to the public upon the terms
set forth in the Prospectus.
(b) The Company and the Underwriters hereby agree that up to 7.5
percent of the Firm Shares to be purchased by the Underwriters (the "Directed
Shares") shall be reserved for sale by the Underwriters to certain eligible
employees of and certain persons designated by the Company ("the Directed Shares
Purchasers"), as part of the distribution of the Shares by the Underwriters
subject to the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. and all
other applicable laws, rules and regulations, provided, however, that under no
circumstances will Bear, Stearns & Co. Inc. ("Bear Stearns") or any other
Underwriter be liable to the Company or to any of the Directed Shares Purchasers
for any action taken or omitted in good faith in connection with transactions
effected with regard to the Directed Shares Purchasers. To the extent that such
Directed Shares are not orally confirmed for purchase by such persons by the end
of the first day after the date of this Agreement, such Directed Shares will be
offered to the public as part of the offering contemplated hereby.
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4. Covenants of the Company. The Company covenants and agrees with the
Underwriters that:
(a) If the Registration Statement has not yet been declared effective,
the Company will use its best efforts to cause the Registration Statement and
any amendments thereto to become effective as promptly as possible, and if Rule
430A is used or the filing of the Prospectus is otherwise required under Rule
424(b) or Rule 434, the Company will file the Prospectus (properly completed if
Rule 430A has been used) pursuant to Rule 424(b) or Rule 434 within the
prescribed time period and will provide evidence satisfactory to you of such
timely filing. If the Company elects to rely on Rule 434, the Company will
prepare and file a term sheet that complies with the requirements of Rule 434.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement or the Prospectus
or for any additional information, (iii) of the mailing or the delivery to the
Commission for filing of any amendment of or supplement to the Registration
Statement or the Prospectus, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of the initiation, or the threatening, of any
proceedings therefor, (v) of the receipt of any comments from the Commission,
and (vi) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for that purpose. If the
Commission shall propose or enter a stop order at any time, the Company will
make every reasonable effort to prevent the issuance of any such stop order and,
if issued, to obtain the lifting of such order as soon as possible. The Company
will not file any amendment to the Registration Statement, make any filing under
Rule 462(b) of the Regulations, or any amendment of or supplement to the
Prospectus (including the prospectus required to be filed pursuant to Rule
424(b)or Rule 434 of the Regulations) that differs from the prospectus on file
at the time of the effectiveness of the Registration Statement before or after
the effective date of the Registration Statement to which you shall reasonably
object in writing after being timely furnished in advance a copy thereof.
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act any event shall have occurred as a result
of which the Prospectus as then amended or supplemented would, in the judgment
of the Underwriters or the Company, include an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the
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statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the Act or
the Regulations, the Company will notify you promptly and prepare and file with
the Commission an appropriate amendment or supplement (in form and substance
satisfactory to you) which will correct such statement or omission and will use
its best efforts to have any amendment to the Registration Statement declared
effective as soon as possible.
(c) The Company will promptly deliver to you four signed copies of the
Registration Statement, including exhibits and all amendments thereto, and the
Company will promptly deliver to each of the Underwriters such number of copies
of any preliminary prospectus, the Prospectus, the Registration Statement, and
all amendments of and supplements to such documents, if any, as you may
reasonably request.
(d) The Company will endeavor in good faith, in cooperation with you,
at or prior to the time of effectiveness of the Registration Statement, to
qualify the Shares for offering and sale under the securities laws relating to
the offering or sale of the Shares of such jurisdictions as you may designate
and to maintain such qualification in effect for so long as required for the
distribution thereof; except that in no event shall the Company be obligated in
connection therewith to qualify as a foreign corporation or to execute a general
consent to service of process.
(e) The Company will make generally available (within the meaning of
Section 11(a) of the Act) to its security holders and to you as soon as
practicable, but not later than 45 days after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earning statement (in form complying with the provisions of
Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement.
(f) During the period of 180 days from the date of the Prospectus, the
Company will not directly or indirectly, without the prior written consent of
Bear Stearns, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge, or otherwise dispose of or encumber or otherwise create or maintain
a "put equivalent position" (within the meaning of Rule 16a-1(h) of the Rules
and Regulations of the Commission under the Exchange Act) in, any Class A Common
Stock (or any securities convertible into, exercisable for or exchangeable for
Class A Common Stock, including, without limitation, shares of the Company's
Class B Common Stock, par value $.01 per share), and the Company will obtain the
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undertaking of FTD Inc. and each of the Company's officers and directors as have
been heretofore designated by you and listed on Schedule II attached hereto not
to engage in any of the aforementioned transactions on their own behalf, other
than the Company's sale of Shares hereunder and the Company's issuance of Common
Stock upon the exercise of stock options as may be outstanding from time to
time. The Company agrees not to waive any undertaking obtained pursuant to this
paragraph.
(g) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders; and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or any
national securities exchange.
(h) The Company will apply the proceeds from the sale of the Shares as
set forth under "Use of Proceeds" in the Prospectus and report such use of
proceeds as may be required pursuant to Rule 463 of the Regulations.
(i) The Company will use its best efforts to cause the Shares to
quoted on the Nasdaq National Market and to maintain such quotation so long as
any of the Shares are outstanding.
(j) The Company hereby agrees that it will ensure that the Directed
Shares are restricted as required by the National Association of Securities
Dealers, Inc. or the National Association of Securities Dealers, Inc. rules from
sale, transfer, assignment, pledge or hypothecation for a period of three (3)
months following the Closing Date. The Underwriters will notify the Company as
to which persons will need to be so restricted. At the request of the
Underwriters, the Company will direct the transfer agent to place a stop
transfer restriction upon such securities for such a period of time. Should the
Company release, or seek to release, from such restrictions any of the Directed
Shares, the Company agrees to reimburse the Underwriters for any reasonable
expenses (including, without limitation, legal expenses) they incur in
connection with such release.
(k) The Company will use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to or after the Closing Date or any Additional Closing Date, as
the case may be, and to satisfy all conditions precedent to the delivery of the
Shares.
5. Payment of Expenses. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance
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<PAGE>
of the obligations of the Company hereunder, including those in connection with
(i) preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), duplicating, filing and distributing the
underwriting documents (including this Agreement and the Agreement Among
Underwriters) and all other documents related to the public offering of the
Shares (including those supplied to the Underwriters in quantities as
hereinabove stated), (ii) the issuance, transfer and delivery of the Shares to
the Underwriters, including any transfer or other taxes payable thereon, (iii)
the qualification of the Shares under state or foreign securities or Blue Sky
laws, including the costs of printing and mailing a preliminary and final "Blue
Sky Survey" and the fees of counsel for the Underwriters and such counsel's
disbursements in relation thereto, (iv) quotation of the Shares on the Nasdaq
National Market, (v) filing fees of the Commission and the National Association
of Securities Dealers, Inc., (vi) the cost of printing certificates representing
the Shares, (vii) the cost and charges of any transfer agent or registrar, and
(viii) all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, in connection with matters
related to the Directed Shares which are designated by the Company for sale to
certain employees of and certain persons designated by the Company.
6. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company and FTD Corporation herein contained, as of the date
hereof and as of the Closing Date (for purposes of this Section 6 "Closing Date"
shall refer to the Closing Date for the Firm Shares and any Additional Closing
Date, if different, for the Additional Shares), to the absence from any
certificates, opinions, written statements or letters furnished to you or to
Underwriters' Counsel pursuant to this Section 6 of any misstatement or
omission, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement, including any Rule 462(b) Registration
Statement, shall have become effective and all necessary approvals of the Nasdaq
National Market shall have been received not later than 5:30 P.M., New York
time, on the date of this Agreement, or at such later time and date as shall
have been consented to in writing by you; if the Company shall have elected to
rely upon Rule 430A or Rule 434 of the Regulations, the Prospectus shall have
been filed with the Commission in a timely fashion in accordance with Section
4(a) hereof; and at or prior to the Closing Date, no stop order suspending the
effectiveness of the
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Registration Statement or any post-effective amendment thereof shall have been
issued and no proceedings therefor shall have been initiated or threatened by
the Commission.
(b) At the Closing Date you shall have received a letter from Jones,
Day, Reavis & Pogue, special counsel for the Company dated the Closing Date,
addressed to the Underwriters and in form and substance satisfactory to
Underwriters' Counsel, that contains the following opinions:
(i) The company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware. The Company is qualified to do business and is in good
standing under the laws of the State of Illinois.
(ii) The Company has the authorized capital stock as set forth in
the first sentence under the caption "Description of Capital Stock" in
the Prospectus and the authorized capital stock of the Company,
including the Shares, conforms in all material respects as to legal
matters to the description thereof set forth under that caption. All
of the shares of capital stock of the Company issued and outstanding
immediately prior to the sale of the Firm Shares have been duly
authorized and validly issued, are fully paid and nonassessable and
have not been issued in violation of any preemptive right granted
under the DGCL, or the Company's certificate of incorporation or by-
laws or, to such counsel's knowledge, based upon such counsel's review
of the Company's minute books, its certificate of incorporation and
by-laws and the agreements and instruments filed as exhibits to the
Registration Statement, any contractual preemptive or other
contractual right to subscribe for or purchase such shares from the
Company.
(iii) Based solely on such counsel's review of the Company's
minute books and stock ledger and assuming that the Company has taken
the actions with respect to its capital stock authorized by the
minutes set forth in those minute books and has taken no action
inconsistent therewith or action other than authorized by such
minutes, except as disclosed in the Prospectus, all of the issued and
outstanding shares of Class B Common Stock are owned of record by FTD
Inc. and are not subject to any adverse claim (as
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defined in Section 8-302 of the New York Uniform Commercial Code).
(iv) The Firm Shares have been duly authorized and, when issued,
delivered and paid for in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable and the issuance
of such Firm Shares will not be subject to any preemptive right
granted under the DGCL or the Company's certificate of incorporation
or by-laws or, to such counsel's knowledge, based upon such counsel's
review of the Company's minute books and its certificate of
incorporation and by-laws and the agreements and instruments filed as
exhibits to the Registration Statement, any contractual preemptive or
other contractual right to subscribe for or purchase shares of capital
stock from the Company.
(v) Such counsel has been advised by the Commission that the
Registration Statement has become effective under the Act and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement under the Act has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission. Such counsel has been advised by the
staff of The Nasdaq Stock Market, Inc. that the Shares are approved
for quotation on the Nasdaq National Market.
(vi) This Agreement has been duly authorized by all necessary
corporate action by the Company and has been duly executed and
delivered by the Company.
(vii) The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby will not (A) result in the violation by the Company of any
statute or any rule, order or regulation having the force of law or of
any court or governmental agency or body having jurisdiction over the
Company or any of its properties or assets, in each case known to such
counsel, (B) conflict with or result in a default by the Company under
its certificate of incorporation or by-laws, or (C) constitute a
violation of or default under the terms of any agreement or instrument
filed as an exhibit to the Registration Statement; and except for the
registration of the Shares under the Act and such consents, approvals,
authorizations, registration or qualifications as may be required
under the Exchange Act and
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applicable state securities or Blue Sky laws governing the purchase
and distribution of the Shares by the Underwriters, no consent,
approval, authorization or order of, or filing or registration with,
any court or governmental agency or body is required for the
execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated
hereby.
(viii) The Company is not, and upon consummation of the
transactions contemplated by this Agreement, will not be, an
"investment company" within the meaning of that term under the
Investment Company Act of 1940, as amended, and the rules and
regulations of the Commission thereunder.
(ix) The statements in the Prospectus under the caption
"Description of Capital Stock," and in Item 15 of Part II of the
Registration Statement insofar as they purport to summarize the
provisions of documents or matters of law referred to therein or
constitute legal conclusions are accurate in all material respects.
(x) The form of certificate evidencing the Class A Common Stock
has been approved by all necessary corporate action of the Company and
complies as to form with the requirements of the DGCL.
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(xi) Each of the Intercompany Services Agreement, the Trademark
Licensing Agreement, the Tax Sharing Agreement, the Florists' Online
Hosting Agreement and the Commission Agreement have been duly
authorized executed and delivered by the Company and FTD Corporation,
as the case may be and each of the Intercompany Services Agreement,
the Trademark Licensing Agreement, the Tax Sharing Agreement, the
Florists' Online Hosting Agreement and the Commission Agreement is a
valid and binding obligation of each of the Company and FTD
Corporation, as the case may be, enforceable against each of the
Company and FTD Corporation, as the case may be, in accordance with
its terms except to the extent that enforcement 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 at law or in equity.)
In rendering such opinion, such counsel may rely as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel.
In addition, such letter shall also contain a statement that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus. From time to time, in connection therewith, such counsel has had
discussions with certain officers, directors and employees of the Company, FTD
Corporation and FTD Inc., representatives of KPMG LLP, the independent
accountants who examined certain of the financial statements of the Company
included in the Registration Statement, the Representatives and counsel to the
Underwriters concerning the information contained in the Registration Statement
and the Prospectus and the proposed responses to various items in Form S-1.
Based thereupon, such counsel is of the view that the Registration Statement
(other than the financial statements and other financial data included therein,
and except for the information referred to under the caption "Experts" as having
been included in the Registration Statement and the Prospetus on the authority
of KPMG LLP as experts, as to which such counsel is not called upon to express a
view) at the time the Registration Statement became effective under the Act
complied, and the Prospectus
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(with the foregoing exceptions) as of its date complied, as to form in all
material respects with the requirements of the Act and the Regulations.
In addition, such letter shall also contain a statement that such counsel
has not independently verified and is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the information
contained in the Registration Statement or the Prospectus except to the extent
of the opinion expressed above in the first sentence of clause (ii) and in
clause (ix). Based solely on the participation and discussions described above
in the immediately preceding paragraph, however, no facts have come to such
counsel's attention that cause such counsel to believe that the Registration
Statement (except for the financial statements and other financial data included
therein, and except for the information referred to under the caption "Experts"
as having been included in the Registration Statement and the Prospectus on the
authority if KPMG as experts, as to which such counsel is not called upon to
express a view), at the time it became effective contained any untrue statement
of material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
that the Prospectus (with the foregoing exceptions) as of its date contained, or
on the date hereof contains, any untrue statement of a material fact or as of
its date omitted, or on the date hereof omits, to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(c) At the Closing Date, you shall have received the opinion of Bruce
A. Tassan, Esq., counsel for the Company and FTD Inc., dated the Closing Date,
addressed to the Underwriters and in form and substance satisfactory to the
Underwriters' Counsel, to the effect that:
(i) FTD Inc. is identified in the records of the United States
Patent and Trademark Office ("PTO") as the sole owner of record of
each of the trademark registrations and applications listed in
Schedule A in such opinion (herein called the "Trademarks"). To such
counsel's knowledge, there are no asserted or unasserted claims of any
persons relating to the scope or ownership of any of the Trademarks,
there are no liens which have been filed against any of the
Trademarks, there are no material defects of form in the preparation
or filing of the Trademarks, Trademark applications are being
diligently prosecuted, and none of the Trademarks has been finally
rejected or abandoned. Further, nothing has come to such counsel's
attention that leads such counsel to believe that the
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Trademark applications will not eventuate in registered Trademarks, or
that any Trademark registrations issued, or to be issued in respect of
any such Trademark applications, will not be valid or will not afford
FTD Inc. reasonable trademark protection relative to the subject
matter thereof.
(ii) To such counsel's knowledge and limited to the United
States, the Company owns or possesses valid and enforceable licenses
or other rights to use all Intellectual Property, including but not
limited to, licenses from FTD Inc.
(iii) To such counsel's knowledge and limited to the United
States, except as set forth on an exhibit to such counsel's opinion
and other than as described in the Registration Statement and the
Prospectus (A) there are no third parties who have any rights in the
Intellectual Property that could preclude the Company from conducting
its business as currently conducted or as presently contemplated to be
conducted as described in the Registration Statement and the
Prospectus; (B) there are no pending or threatened actions, suits,
proceedings, investigations or claims by others challenging the rights
of the Company or, if the Intellectual Property is licensed to the
Company, in respect of any third party licensor; (C) the Company has
not and, to the extent any Intellectual Property is licensed to the
Company, no third party licensor has, infringed, or received any
notice of infringement of or conflict with, any rights of others with
respect to the Intellectual Property; and (D) there is no dispute
between the Company or any third party licensor, including but not
limited to, FTD Inc. with respect to any Intellectual Property.
In rendering such opinion, such counsel may rely as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to Underwriters' Counsel.
(d) All proceedings taken in connection with the sale of the Firm
Shares and the Additional Shares as herein contemplated shall be satisfactory in
form and substance to you and to Underwriters' Counsel, and the Underwriters
shall have received from said Underwriters' Counsel a favorable opinion, dated
as of the Closing Date with respect to the issuance and sale of the Shares, the
Registration
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Statement and the Prospectus and such other related matters as you may
reasonably require, and the Company shall have furnished to Underwriters'
Counsel such documents as they request for the purpose of enabling them to pass
upon such matters.
(e) At the Closing Date you shall have received a certificate of the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
Closing Date, to the effect that (i) the condition set forth in subsection (a)
of this Section 6 has been satisfied, (ii) as of the date hereof and as of the
Closing Date the representations and warranties of the Company set forth in
Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of
the Company to be performed hereunder on or prior thereto have been duly
performed and (iv) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or interference with its business or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding,
and there has not been any material adverse change, or any development involving
a material adverse change, in the business prospects, properties, operations,
condition (financial or otherwise), or results of operations of the Company,
except in each case as described in or contemplated by the Prospectus.
(f) At the time this Agreement is executed and at the Closing Date,
you shall have received a letter from KPMG LLP, independent public accountants
for the Company, dated, respectively, as of the date of this Agreement and as of
the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to you, stating that: (i) they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
Regulations and stating that the answer to Item 10 of the Registration Statement
is correct insofar as it relates to them; (ii) in their opinion, the financial
statements of the Company included in the Registration Statement and the
Prospectus and covered by their opinion therein comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable published rules and regulations of the Commission thereunder; (iii)
on the basis of procedures consisting of a reading of the latest available
unaudited interim financial statements of the Company a reading of the minutes
of meetings and consents of the stockholders and the board of directors of the
Company and the committees of such board subsequent to June 30, 1998, inquiries
of officers and other employees of the Company who have responsibility for
financial and accounting matters of the Company with respect to transactions and
events subsequent to June 30, 1998, a review of interim financial information in
accordance with the standards established by the American Institute of Certified
Public Accountants in Statement of Auditing Standards No. 71, Interim
23
<PAGE>
Financial Information with respect to the nine-month period ended March 31, 1999
and other specified procedures and inquiries to a date not more than five days
prior to the date of such letter, nothing has come to their attention that would
cause them to believe that: (A) the unaudited financial statements of the
Company presented in the Registration Statement and the Prospectus do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and, if applicable, the Exchange Act and the applicable published
rules and regulations of the Commission thereunder or that such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration Statement
and the Prospectus; (B) with respect to the period subsequent to March 31, 1999,
there were, as of the date of the most recent available monthly financial
statements of the Company, if any, and as of a specified date not more than five
days prior to the date of such letter, any changes in the capital stock or long-
term indebtedness of the Company or any decrease in the net current assets or
stockholders' equity of the Company, in each case as compared with the amounts
shown in the most recent balance sheet presented in the Registration Statement
and the Prospectus, except for changes or decreases which the Registration
Statement and the Prospectus disclose have occurred or may occur or which are
set forth in such letter or (C) that during the period from April 1, 1999 to the
date of the most recent available monthly financial statements of the Company,
if any, and to a specified date not more than five days prior to the date of
such letter, there was any decrease, as compared with the corresponding period
in the prior fiscal year, in total revenues, or total or per share net income,
except for decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur or which are set forth in such letter; and
(iv) they have compared specific dollar amounts, numbers of shares, percentages
of revenues and earnings, and other financial information pertaining to the
Company set forth in the Registration Statement and the Prospectus, which have
been specified by you prior to the date of this Agreement, to the extent that
such amounts, numbers, percentages, and information may be derived from the
general accounting and financial records of the Company or from schedules
furnished by the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries, and other appropriate procedures specified by
you set forth in such letter, and found them to be in agreement.
(g) Prior to the Closing Date, the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.
24
<PAGE>
(h) At the Closing Date, the Shares shall have been approved for
quotation on the Nasdaq National Market.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to you or to Underwriters'
Counsel pursuant to this Section 6 shall not be in all material respects
reasonably satisfactory in form and substance to you and to Underwriters'
Counsel, all obligations of the Underwriters hereunder may be canceled by you
at, or at any time prior to, the Closing Date, and the obligations of the
Underwriters to purchase the Additional Shares may be canceled by you at, or at
any time prior to, the Additional Closing Date. Notice of such cancellation
shall be given to the Company in writing, or by telephone, facsimile, telex or
telegraph, confirmed in writing.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any and all losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to reasonable attorneys' fees and any and
all reasonable expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and subject to subsection (d) of this Section 7, any and all amounts
paid in settlement of any claim or litigation), joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, liabilities, claims, damages or expenses (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; or (ii) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper material
distributed in connection with the reservation and sale of the Directed Shares
to eligible employees and certain persons designated by the Company or the
omission or alleged omission therefrom of a material fact necessary to make the
statements therein, when considered in conjunction with the Prospectus or
preliminary prospectus, not misleading; provided, however, that the Company will
not be liable in any such case to the extent but only to the extent that any
such loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue
25
<PAGE>
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company relating to any
Underwriter through you expressly for use therein. This indemnity agreement will
be in addition to any liability which the Company may otherwise have including
under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each of the directors of the Company (including
any person who, with his or her consent, is named in the Registration Statement
as about to become, and does become, a director of the Company), each of the
officers of the Company who shall have signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
not limited to reasonable attorneys' fees and any and all reasonable expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and, subject to
subsection (d) of this Section 7, any and all amounts paid in settlement of any
claim or litigation), joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
or any related preliminary prospectus or the Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company relating to
any Underwriter through you expressly for use therein; provided, however, that
in no case shall any Underwriter be liable or responsible for any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder. This indemnity will be in addition to any liability
which any Underwriter may otherwise have including under this Agreement. The
Company acknowledges that the statements set forth in the last sentence of last
paragraph of the cover page and in the last sentence of the fourth paragraph,
the twelfth paragraph, the fifteenth paragraph and the sixteenth paragraph under
the caption "Underwriting" in the Prospectus constitute the only information
furnished in writing by or on behalf of any Underwriter expressly for use in the
Registration Statement or in any
26
<PAGE>
amendment thereof, any related preliminary prospectus or the Prospectus or in
any amendment thereof or supplement thereto, as the case may be.
(c) In connection with the offer and sale of the Directed Shares, the
Company agrees, promptly upon a request in writing, to indemnify and hold
harmless the Underwriters from and against any and all losses, liabilities,
claims, damages and reasonable expenses incurred by them as a result of the
failure of the Directed Shares Purchasers to pay for and accept delivery of the
Directed Shares which, by the end of the day following the date of this
Agreement, were subject to a properly confirmed agreement to purchase such
Directed Shares.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement of such action
(but the failure so to notify an indemnifying party shall not relieve it from
any liability which it may have under this Section 7). In case any such action
is brought against any indemnified party, and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent it may elect by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by one of the indemnifying
parties in connection with the defense of such action, (ii) the indemnifying
parties shall not have employed counsel to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party or parties shall have been advised by counsel that
there may be defenses available to it or them which are different from or
additional to those available to one or all of the indemnifying parties (in
which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties.
In no event shall the indemnifying party or parties be liable for fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. The indemnifying
party shall indemnify and hold harmless the
27
<PAGE>
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if (A) the
settlement is entered into more than 20 Business Days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party), (B) such indemnifying party shall
have received notice of the terms of such settlement at least 20 Business Days
prior to such settlement being entered into and (C) such indemnifying party
shall not have reimbursed such indemnified party in accordance with such request
prior to the date of such settlement. Notwithstanding the immediately preceding
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel (in any case where such fees and expenses are at the expense of the
indemnifying party), an indemnifying party shall not be liable for any
settlement of the nature contemplated by this Section 7(d) effected without its
consent if such indemnifying party (i) reimburses such indemnified party in
accordance with such request to the extent that it considers such request to be
reasonable and (ii) provides written notice to the indemnified party
substantiating the unpaid balance as unreasonable, in each case prior to the
date of such settlement.
8. Contribution. In order to provide for contribution in circumstances in
which the indemnification provided for in Section 7 hereof is for any reason
held to be unavailable from any indemnifying party or is insufficient to hold
harmless a party indemnified thereunder, the Company and the Underwriters shall
contribute to the aggregate losses, claims, damages, liabilities and expenses of
the nature contemplated by such indemnification provision (including any
reasonable investigation, legal and other expenses incurred in connection with,
and, subject to the last sentence of this Section 8, any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company any contribution received by the Company from persons,
other than the Underwriters, who may also be liable for contribution, including
persons who control the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, officers of the Company who signed the
Registration Statement and directors of the Company (including any person who,
with his or her consent, is named in the Registration Statement as about to
become, and does become, a director of the Company)) as incurred to which the
Company and one or more of the Underwriters may be subject, in such proportions
as is appropriate to reflect the relative benefits received by the Company and
the Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
28
<PAGE>
only the relative benefits referred to above but also the relative fault of the
Company and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Underwriters shall be deemed to be in the same proportion
as (x) the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company and (y) the
underwriting discounts and commissions received by the Underwriters,
respectively, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and of the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission or any
violation of the nature referred to in Section 7(a)(ii). The Company and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) in no
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, and (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Notwithstanding
the provisions of this Section 8 and the preceding sentence, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of this
Section 8, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company (including any person
who, with his or her consent, is named in the Registration Statement as about to
become, and does become, a director of the Company) shall have the same rights
to contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 8. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for
29
<PAGE>
contribution may be made against another party or parties, notify each party or
parties from whom contribution may be sought, but the omission to so notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have under this Section 8 or
otherwise. No party shall be liable for contribution with respect to any action
or claim settled without its written consent; provided, however, that such
consent was not unreasonably withheld.
9. Default by an Underwriter.
-------------------------
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Shares or Additional Shares hereunder, and if the
Firm Shares or Additional Shares with respect to which such default relates do
not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, as the case may be, the Firm Shares or Additional Shares
to which the default relates shall be purchased by the non-defaulting
Underwriters in proportion to the respective proportions which the numbers of
Firm Shares set forth opposite their respective names in Schedule I hereto bear
to the aggregate number of Firm Shares set forth opposite the names of the non-
defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
total number of Firm Shares or Additional Shares, as the case may be, you may in
your discretion arrange for yourself or for another party or parties (including
any non-defaulting Underwriter or Underwriters who so agree) to purchase such
Firm Shares or Additional Shares, as the case may be, to which such default
relates on the terms contained herein. In the event that within 5 calendar days
after such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 9, this Agreement or, in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company (except in each case as provided in Section
5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their liability, if
any, to the other Underwriters and the Company for damages occasioned by its or
their default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which
such default relates are to be purchased by the non-defaulting Underwriters, or
are to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date, as
the
30
<PAGE>
case may be for a period, not exceeding five Business Days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus or in any other documents and arrangements, and the Company
agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' Counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Additional Shares, as the case may be.
10. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5
hereof, the indemnity agreements contained in Section 7 hereof and the
contribution agreements contained in Section 8 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof or by or on behalf
of the Company, any of its officers and directors (including any person who,
with his or her consent, is named in the Registration Statement as about to
become, and does become, a director of the Company) or any controlling person
thereof, and shall survive delivery of and payment for the Shares to and by the
Underwriters. The representations contained in Section 1 and the agreements
contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of
this Agreement, including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective, upon the later of (i) such
time as you and the Company shall have received notification of the
effectiveness of the Registration Statement and (ii) the execution of this
Agreement. If either the initial public offering price or the purchase price per
Share has not been agreed upon prior to 5:00 P.M., New York time, on the fifth
full Business Day after the Registration Statement shall have become effective,
this Agreement shall thereupon terminate without liability to the Company or the
Underwriters except as herein expressly provided. Until this Agreement becomes
effective as aforesaid, it may be terminated by the Company by notifying you or
by you notifying the Company. Notwithstanding the foregoing, the provisions of
this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in
full force and effect.
(b) You shall have the right to terminate this Agreement at any time
prior to the Closing Date or the obligations of the Underwriters to purchase
31
<PAGE>
the Additional Shares at any time prior to the Additional Closing Date, as the
case may be, if (i) any domestic or international event or act or occurrence has
materially disrupted, or in your opinion will in the immediate future materially
disrupt, the market for the Company's securities or securities in general; (ii)
if trading on the New York Stock Exchange or the Nasdaq National Market shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required, on
the New York Stock Exchange or the Nasdaq National Market by the New York Stock
Exchange or the Nasdaq National Market or by order of the Commission or any
other governmental authority having jurisdiction; or (iii) if a banking
moratorium has been declared by a state or federal authority or if any new
restriction materially adversely affecting the distribution of the Firm Shares
or the Additional Shares, as the case may be, shall have become effective; or
(iv) (A) if the United States becomes engaged in hostilities or there is an
escalation of hostilities involving the United States or there is a declaration
of a national emergency or war by the United States or (B) if there shall have
been such change in political, financial or economic conditions if the effect of
any such event in (A) or (B) as in your judgment makes it impracticable or
inadvisable to proceed with the offering, sale and delivery of the Firm Shares
or the Additional Shares, as the case may be, on the terms contemplated by the
Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be by
telephone, facsimile, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all out-
of-pocket expenses (including the fees and expenses of their counsel), incurred
by the Underwriters in connection herewith.
12. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, sent by facsimile, telex or telegraph
and confirmed in writing by letter, to such Underwriter c/o Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 10167, Attention: Scott A. Singer,
Managing Director, fax no. (212) 272-4041; if sent to the Company, shall be
mailed, delivered,
32
<PAGE>
or sent by facsimile, telex or telegraph and confirmed in a letter to the
Company, 3113 Woodcreek Drive, Downers Grove, Illinois 60515, Attention: Michael
J. Soenen, President and Chief Executive Officer, fax no. (630) 724-6019.
13. Parties. This Agreement shall insure solely to the benefit of, and
shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Sections 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision contained herein.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without regard to
principles of conflicts of law.
15. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.
33
<PAGE>
If the foregoing correctly sets forth the understanding between you and the
Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
FTD.COM INC.
By: ________________________________
Name:
Title:
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
VOLPE BROWN WHELAN & COMPANY, LLC
E*TRADE SECURITIES INC.
By: BEAR, STEARNS & CO. INC.
By: ___________________________
Name:
Title:
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
34
<PAGE>
SCHEDULE I
Number of Firm Shares
Name of Underwriter to be Purchased
- ------------------- ---------------------
Bear, Stearns & Co. Inc. . . . . . .
Thomas Weisel Partners LLC . . . . .
Volpe Brown Whelan & Company, LLC . .
E*TRADE Securities, Inc. . . . . . .
Total. . . . . ._________
5,500,000
---------
35
<PAGE>
SCHEDULE II
Richard C. Perry
Michael J. Soenen
Peter K. Poli
Frederick K. Johnson
Brian G. Chapman
Habib Y. Gorgi
Veronica K. Ho
Gary K. Silberberg
Florists' Transworld Delivery, Inc., a Michigan corporation
36
<PAGE>
Exhibit 4.1
[Specimen of Class A Common Stock Certificate]
CLASS A COMMON STOCK CLASS A COMMON STOCK
Number Shares
- ------ ------
FTD.COM INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE CUSIP 30265F 10 3
EITHER IN CHICAGO, IL OR NEW YORK, NY
SEE REVERSE FOR CERTAIN DEFINITIONS AND
RESTRICTIONS ON TRANSFERS
THIS CERTIFIES THAT _______________________________ is the owner of FULLY
PAID AND NONASSESSABLE SHARES OF CLASS A COMMON STOCK OF THE PAR VALUE OF $.01
EACH OF FTD.COM INC. (hereinafter and on the back hereof called the
"Corporation"), transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to all of the provisions of the
Certificate of Incorporation and Bylaws of the Corporation and the amendments
from time to time made thereto, copies of which are on file at the principal
office of the Corporation, to all of which the holder of this Certificate by
acceptance hereof assents. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile signatures of the Corporation's duly authorized
officers.
Dated:
President Secretary
Countersigned and Registered:
Harris Trust and Savings Bank
(CHICAGO)
TRANSFER AGENT AND REGISTRAR
By
Authorized Signature
<PAGE>
[Reverse of Certificate]
The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such powers, preferences and/or
rights. Any such statement request should be addressed to the Secretary of
FTD.COM INC., 3113 Woodcreek Drive, Downers Grove, Illinois 60515 or to the
Transfer Agent named on the face of this Certificate.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-______Custodian______
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with right
of survivorship and not as tenants Under Uniform Gifts to Minors
in common Act _________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE________
_____________________________________________________________________________
Please print or typewrite name and address of Assignee
Shares of the Class A Common Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint ___________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated
-----------------
X
----------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
--------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO SEC RULE 17Ad-15.
<PAGE>
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
, 1999, is by and between ftd.com inc., a Delaware corporation (the
"Company"), and Florists' Transworld Delivery, Inc., a Michigan corporation
("FTDI").
RECITALS:
WHEREAS, the Company has consummated an initial public offering of its
Class A Common Stock;
WHEREAS, pursuant to the Stock Subscription Agreement, the Company has
issued to FTDI shares of Class B Common Stock representing Registrable Shares;
WHEREAS, the Company has agreed to provide to FTDI certain
registration rights with respect to such Registrable Shares; and
WHEREAS, the Company and FTDI are entering into this Agreement to set
forth the terms and conditions applicable to the grant and exercise of such
registration rights;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, FTDI and the Company do hereby agree as follows:
AGREEMENTS:
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Section 1. Definitions.
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For the purposes of this Agreement the following terms shall have
the following meanings:
"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 shares of such 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.
"Exchange Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, as the same may be amended
from time to time.
"Form S-3" means a Registration Statement on Form S-3 as
promulgated by the SEC or any successor form that is substantially similar
thereto.
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"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.
"Person" shall mean any individual, corporation, partnership,
trust, joint stock company, business trust, unincorporated association, joint
venture or other entity of any nature whatsoever.
"Permitted Interruption" is defined in Section 8(a) hereof.
"Prospectus" means the Prospectus included in any Registration
Statement, as amended or supplemented by any Prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Shares covered by
such Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments and all material incorporated by
reference in such Prospectus.
"Registrable Shares" means: (i) shares of Common Stock now or
hereafter issued by the Company to FTDI (including without limitation any shares
of Class A Common Stock issued upon conversion of the Class B Common Stock),
(ii) shares of Class B Common Stock issued as, or upon the conversion or
exercise of other securities issued as, a dividend or other distribution with
respect to or in replacement of other Registrable Shares and (iii) any equity
securities of the Company issued or issuable with respect to the securities
referred to in clauses (i) and (ii) by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, a Person
will be deemed to be a holder of Registrable Shares whenever such Person has the
unqualified right to acquire such Registrable Shares (by conversion or
otherwise, but disregarding any legal restrictions upon the exercise of such
right), whether or not such acquisition has actually been effected. As to any
particular Registrable Shares, once issued such Registrable Shares shall cease
to be Registrable Shares when (a) a Registration Statement with respect to the
sale of such Registrable Shares shall have become effective under the Securities
Act and such Registrable Shares 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 or (d) they shall have
ceased to be outstanding.
"Registration Request" is defined in Section 2(a) hereof.
"Registration Statement" means any appropriate Registration
Statement of the Company in a registration that covers the sale of any of the
Registrable Shares pursuant to the provisions of Sections 2, 3 or 4 of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, as the same may be amended from
time to time.
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"Stock Subscription Agreement" shall mean the Common Stock
Subscription Agreement dated as of May 19, 1999 between FTDI and the Company.
Section 2. Demand Registration
(a) Registration Request. Subject to the provisions of Section 11, at any
time and from time to time after the initial date that is 180 days after the
date hereof, upon the written request to the Company (a "Registration Request")
from FTDI that the Company effect the registration under the Securities Act of
all or part of the Registrable Shares owned by FTDI, the Company will use its
best efforts to effect the registration under the Securities Act of such
Registrable Shares within 30 days after the giving of written notice of such
Registration Request; provided, however, that the Registrable Shares covered by
any such Registration Request shall have a reasonably anticipated aggregate
price to the public of at least $3,000,000; provided further, that if, prior to
the effective date of such registration, circumstances arise that would, after
such date, constitute a Permitted Interruption, the Company shall be entitled to
delay the Registration for a period not to exceed the Permitted Interruption.
The Company will give FTDI not less than ten days prior written notice of its
intention to comply with the provisions of this Section 2(a) and, in reasonable
detail, the date and circumstances relating thereto. No other securities of the
Company except Registrable Shares held by FTDI shall be included in a
registration under this Section 2(a).
(b) Priority in Demand Registration. In a registration pursuant to this
Section 2 involving an underwritten offering, if the managing underwriter of
such underwritten offering shall inform the Company and FTDI by letter of its
belief that the amount of Registrable Shares 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
that it is so advised should be included in such offering. In such event, the
Company will include in such registration prior to the inclusion of any
securities that are not Registrable Shares the maximum number of Registrable
Shares that in the opinion of such underwriters can be included in such
offering.
(c) Registration Statement Form. Registrations under this Section 2 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 Registrable Shares
being registered in accordance with the intended method or methods of
disposition specified in the Registration Request. The Company agrees to include
in any such Registration Statement all information that, in the opinion of
counsel to the underwriters and the Company, is required to be included.
(d) Effective Registration Statement. A registration requested pursuant to
this Section 2 shall not be deemed to have been effected (i) unless a
Registration Statement with respect thereto has become effective and FTDI has
sold at least seventy-five percent (75%) of the Registrable Shares 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 FTDI and has not thereafter become effective.
(e) Limitations on Demand Registrations. Notwithstanding anything in this
Section 2 to the contrary, in no event will (i) the Company be required to
effect more than one registration
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pursuant to Section 2(a) within any 360-day period or (ii) FTDI be entitled to
more than five registrations pursuant to Section 2(a), unless in the case of
clauses (ii) above, FTDI agrees to pay all of the costs and expenses of each
such additional registration (unless either (x) a registration so requested is
not effected for a reason not attributable to FTDI or (y) the amount of
Registrable Shares sought to be included by FTDI in such registration is reduced
by more than 25% pursuant to the provisions of Section 2(b)).
(f) Withdrawn Request. FTDI may withdraw a request for registration under
this Section 2 at any time prior to the effective date of the Registration
Statement related to such registration, provided that if it elects to remain
liable for all expenses incurred in conjunction therewith then such withdrawn
Registration Statement shall not be considered to be a demand registration for
the purposes of Section 2(e).
Section 3. Incidental Registration.
(a) Right to Include Registrable Shares. 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), 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 FTDI. Upon the written request (which request shall
specify the total amount of Registrable Shares intended to be disposed of by
FTDI) of FTDI 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 Registrable Shares held that 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 Registrable Shares, the Company may, at its election, give
written notice of such determination to FTDI and (x) in the case of a
determination not to register, shall be relieved of the obligation to register
such Registrable Shares in connection with such registration, without prejudice,
however, subject to any right FTDI may have to request that such registration be
effected as a registration under Section 2(a) and (y) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Shares of FTDI for the same period as the delay in registration of
such other securities. No registration effected under this Section 3(a) shall
relieve the Company of any obligation to effect a registration upon a
Registration Request under Section 2(a).
(b) Priority in Incidental Registration. In a registration pursuant to
this Section 3 (and not involving a Registration Request) involving an
underwritten offering, if the managing underwriter of such underwritten offering
shall inform the Company and FTDI by letter of its belief that the amount of
Registrable Shares 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 that it is so advised
should be included in such offering. In such event: (i) 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: (A) first,
the securities the Company proposes to sell, (B) second, the Registrable Shares
requested to be included in such registration that in the opinion of such
underwriters can be sold and (C) third,
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other securities requested to be included in such registration; and (ii) 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: (A) first, the Registrable Shares requested to be included in such
registration that in such opinion of such underwriters can be sold and (B)
second, other securities requested to be included in such registration.
Section 4. Form S-3 Registration.
In case the Company shall receive from FTDI a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by FTDI, then the Company will:
(a) Registration. As soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of Registrable
Securities as are specified in such request, provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 4:
(i) if Form S-3 is not available for such offering by FTDI;
(ii) if FTDI, together with any other holders of securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public of less than $1,000,000; or
(iii) notwithstanding Section 8(a), if the Company shall furnish
to FTDI a certificate signed by the President or Chief Executive Officer of the
Company stating that it would be seriously detrimental to the Company and its
stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
Registration Statement no more than once during any twelve month period for a
period of not more than 120 days after receipt of the request of FTDI under this
Section 4 or such earlier time as such a certificate could no longer be given in
good faith.
(b) Not Demand Registration. Form S-3 registrations shall not be deemed to
be demand registrations as described in Section 2 above.
(c) Number of Registrations. Notwithstanding anything to the contrary
herein, the Company is obligated to effect only one registration on Form S-3
within any 360-day period pursuant to this Section 4.
(d) Withdrawn Request. FTDI may withdraw its request for registration
under this Section 4 at any time prior to the effective date of the Registration
Statement related to such registration, provided that if it elects to remain
liable for all expenses incurred in conjunction therewith then such withdrawn
Registration Statement shall not be considered to be a Form S-3 registration for
the purposes of this Section 4.
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Section 5. Registration Procedures.
In connection with the Company's obligations pursuant to Sections
2, 3 and 4 hereof, the Company will use its best efforts to effect such
registration and the Company will promptly:
(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 (i) 180 days following the date on which such Registration Statement is
declared effective or (ii) 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
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 FTDI and the managing underwriter, if any, 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
FTDI;
(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 FTDI 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 FTDI 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 that would subject it to general
service of process in any such jurisdiction;
(e) notify FTDI 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
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becoming known that 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 5
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 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 cause the Registrable Shares covered by the
applicable Registration Statement to be registered with or approved by such
other Governmental Authorities as may be necessary to enable FTDI or the
underwriters, if any, to consummate the disposition of such Registrable Shares;
(i) cause all Registrable Shares covered by the Registration Statement to
be listed on each securities exchange or automated quotation system, if any, on
which any securities of the same class as the Registrable Shares are then listed
if requested by the managing underwriters, if any, or FTDI and entitled
hereunder to be so listed;
(j) 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);
(k) as soon as practicable prior to the filing of any document that is to
be incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement) provide copies of such
document to counsel to FTDI 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 FTDI or the underwriters, if any, may reasonably request;
and
(l) provide and cause to be maintained a transfer agent and registrar for
all Registrable Shares covered by such Registration Statement from and after a
date not later than the effective date of such Registration Statement.
The Company may require FTDI to furnish to the Company such
information regarding FTDI 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.
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FTDI agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(e) (ii), (iii), (iv),
(v) or (vi) hereof, it will forthwith discontinue disposition pursuant to such
Registration Statement of any Registrable Shares 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
5(a)) and, if so directed by the Company, will deliver to the Company (at the
Company's expense, except as otherwise provided in Section 2(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. FTDI
agrees to furnish the Company with a signed counterpart, addressed to the
Company and the underwriters, if any, of an opinion of counsel for FTDI 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.
Section 6. Underwritten Offerings.
(a) Demand Underwritten Offerings. In any underwritten offering pursuant
to a registration requested under Section 2, the Company will use its best
efforts to enter into an underwriting agreement for such offering with the
underwriters selected by FTDI, such agreement and underwriters to be reasonably
satisfactory in form and substance to the Company, FTDI and the underwriters and
to contain such representations and warranties by the Company and such other
terms as are generally prevailing in agreements of that type. FTDI shall be a
party to such underwriting agreement and may, at its 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 FTDI and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to FTDI's 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 FTDI 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 Registrable Shares being sold by FTDI 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 3 and such shares of Common Stock are to be distributed
by or through one or more underwriters, FTDI shall be a party to the
underwriting agreement between the Company and such underwriters and may, at its
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 FTDI and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to FTDI's 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 FTDI to and for the
benefit of such underwriters shall also be made to and for the benefit of the
Company
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with due regard to the amount of Registrable Shares being sold by FTDI and the
nature of such representations, warranties and agreements and the underwriting.
Section 7. 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 FTDI, 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 FTDI's and the
underwriters' respective outside counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
Section 8. Limitations, Conditions and Qualifications to Obligations under
Registration Covenants.
The obligations of the Company to use its best efforts to cause
Registrable Shares 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 FTDI to make sales
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 (i) 15 days
after the cessation of the circumstances requiring such postponement or
suspension as described below or (ii) 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 (i) of Section 5(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 that the Company
has a bona fide business purpose for preserving as confidential (each a
"Permitted Interruption"). If the Company shall so delay the filing of a
Registration Statement, it shall, as promptly as possible, notify FTDI of such
determination, and FTDI 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 ten 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 Registrable Shares
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 Registrable Shares seeking
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registration would be free to sell all of such Registrable Shares 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 FTDI,
which FTDI acknowledges, 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 connection with any registration pursuant hereto unless such audit
is requested by the underwriters with respect to such registration.
Section 9. Expenses.
Except as otherwise provided in Section 2(e), the Company will pay all
reasonable out-of-pocket costs and expenses incurred in connection with each
registration of Registrable Shares pursuant to this Agreement, including,
without limitation, the reasonable fees and disbursements of a single firm of
outside counsel retained by FTDI, 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, Inc. or the NASD, 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 FTDI). The Company shall, in any event in all cases, pay its
internal expenses (including, without 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.
Section 10. Participation in Underwritten Registrations.
FTDI may not participate in any underwritten registration hereunder
unless FTDI (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 Regulation M 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.
Section 11. Rule 144.
The Company hereby covenants that it 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 and will take such
further action as FTDI may reasonably request to the extent required from time
to time to enable FTDI to sell Registrable Shares under Rule 144 under the
Securities Act.
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Section 12. Holdback Agreements.
(a) FTDI 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 180 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 180-day period beginning on the effective date of any Registration
Statement in which FTDI is participating in connection with an underwritten
public offering of Registrable Shares if and to the extent reasonably requested
in writing (with reasonable prior notice) by the managing underwriter of the
underwritten public offering.
Section 13. Indemnification.
(a) Indemnification by the Company. In connection with any registration
pursuant hereto in which Registrable Shares are to be disposed of, the Company
shall indemnify and hold harmless, to the full extent permitted by law, FTDI
and, when applicable, its officers, directors, stockholders, partners, agents
and employees and each Person who controls FTDI (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 FTDI
furnished in writing to the Company by FTDI expressly for use therein or (ii)
are caused by FTDI's failure to deliver a copy of the current Prospectus
simultaneously with or prior to such sale after the Company has furnished FTDI
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 FTDI is required to discontinue sales under
Section 5(e) (and after FTDI has received the notice contemplated by Section
5(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 FTDI, and shall enter into
an indemnification agreement with such Persons containing such terms, if
requested.
(b) Indemnification by FTDI. In connection with each Registration
Statement effected pursuant hereto in which Registrable Shares are to be
disposed of, FTDI shall indemnify and hold harmless, to the full extent
permitted by law, the Company and its respective directors, officers,
stockholders, partners, agents and employees and each Person who controls the
Company (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
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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 FTDI and is contained in any
information furnished in writing by FTDI to the Company expressly for inclusion
in such Registration Statement or Prospectus. In no event shall the liability of
FTDI hereunder be greater in amount than the dollar amount of the proceeds
actually received by FTDI 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 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 FTDI for such contribution and
indemnification exceed, in the aggregate, the dollar amount of the proceeds
received by FTDI upon the sale of securities giving rise to such indemnification
and contribution obligation.
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Section 14. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to FTDI in this Agreement.
(b) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
(c) Waivers and Amendments. This Agreement may be amended or
modified in whole or in part only by a writing that makes reference to this
Agreement and is executed by FTDI and the Company. The obligations of any party
hereunder may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the party
claimed to have given the waiver; provided, however, that any waiver by any
party of any violation of, breach of, or default under any provision of this
Agreement or any other agreement provided for herein 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 agreement provided for herein.
(d) Entire Agreement. This Agreement, the Stock Subscription
Agreement and the other agreements and instruments expressly provided for herein
and therein, together set forth the entire understanding of the parties hereto
and supersede in their entirety all prior contracts, agreements, arrangements,
communications, discussions, representations and warranties, whether oral or
written, among the parties.
(e) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the internal substantive laws of
the State of Delaware without giving effect to the principles of conflicts of
law thereof.
(g) Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent, postage prepaid, by registered, certified or express mail or
reputable overnight courier service and shall be deemed given when so delivered
by hand, or if mailed, three days after mailing (one business day in the case of
express mail or overnight courier service), as follows:
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i. if to the Company,
ftd.com inc.
3113 Woodcreek Drive
Downers Grove, IL 60515
Attention: President
ii. if to FTDI,
Florists' Transworld Delivery, Inc.
3113 Woodcreek Drive
Downers Grove, IL 60515
Attention: President
(h) 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.
(i) Successors and Assigns. Subject to the provisions of this clause
(i), this Agreement shall be binding upon and shall inure to the benefit of, and
shall be binding upon, the successors and permitted assigns of FTDI.
Notwithstanding anything herein to the contrary, the registration rights of FTDI
under Section 2 hereof shall inure to the benefit of and be binding upon its
successors and assigns; provided, however that (a) no party may be assigned any
of the foregoing rights until the Company is given written notice by FTDI at the
time of such assignment stating the name and address of the assignee and
identifying the securities of the Company as to which the particular rights in
question are being assigned; and (b) any such assignee shall receive such
assigned rights subject to al the terms and conditions of this Agreement.
Notwithstanding anything to the contrary contained herein, no assignment of
rights hereunder shall increase the obligations of the Company hereunder and, in
any event, the Company shall not be obligated to effect more than one
registration pursuant to Section 2 in any 12-month period.
(j) Third Parties. This Agreement is for the sole benefit of the
parties hereto and, except as provided in Section 13, nothing expressed or
implied in this Agreement is intended, or shall be construed, to confer upon or
give any Person or entity other than the parties hereto any rights or remedies
under or by reason of this Agreement.
(k) 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.
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IN WITNESS WHEREOF, the parties have duly executed, or have caused
their duly authorized officer or representative to execute, this Agreement as of
the date first above written.
ftd.com inc., a Delaware corporation
By: ______________________________________________
Its:______________________________________________
Florists' Transworld Delivery, Inc., a Michigan
corporation
By: ______________________________________________
Its:______________________________________________
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EXHIBIT 5.1
[Letterhead of Jones, Day, Reavis & Pogue]
July 9, 1999
FTD.COM INC.
3113 Woodcreek Drive
Downers Grove, Illinois 60515
Re: Initial Public Offering of 6,325,000 Shares of Class A Common Stock
-------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to FTD.COM INC., a Delaware
corporation (the "Company"), in connection with the possible issuance and sale
by the Company of up to 6,325,000 shares of Class A Common Stock, par value $.01
per share, of the Company (the "Class A Common Stock") in accordance with an
Underwriting Agreement (the "Underwriting Agreement") among the Company and the
Underwriters to be listed in Schedule I thereto (the "Underwriters"), including
additional shares of Class A Common Stock that may be issued and sold by the
Company pursuant to an over-allotment option granted to the Underwriters (such
shares are collectively referred to herein as the "Shares").
We have examined such documents, records and matters of law as we have
deemed necessary for the purposes of this opinion. In rendering this opinion, we
have assumed that the signatures on all documents examined by us are genuine and
that the person who affixed such signature to such documents had authority to do
so.
Based on the foregoing and the following assumptions, in our opinion,
when issued and sold to the Underwriters pursuant to the Underwriting Agreement
against payment of consideration therefor as provided therein, the Shares will
be duly authorized, validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, we have assumed that (i) at time
of sale of the Shares to the Underwriters pursuant to the Underwriting
Agreement, the Company's existing Certificate of Incorporation and Bylaws will
be in full force and effect, without modification, and (ii) prior to the
issuance and sale of the Shares to the Underwriters pursuant to the Underwriting
Agreement, resolutions authorizing the Company to issue and sell the Shares to
the Underwriters pursuant to the Underwriting Agreement will have been duly
adopted by the Company's Board of
<PAGE>
FTD.COM INC.
July 9, 1999
Page 2
Directors and will be in full force and effect at all times during which the
Shares are sold by the Company.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement on Form S-1 (No. 333-78857), as amended through Amendment
No. 3 dated the date hereof, filed by the Company to effect registration of the
Shares under the Securities Act of 1933 and to the reference to our Firm under
the caption "Legal Matters" in the Prospectus constituting a part of that
Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE>
Exhibit 10.3
FORM OF TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement (this "Agreement") is being entered into
as of the __ day of June, 1999 and is entered into by and between Florists'
Transworld Delivery, Inc. ("FTDI" or "Licensor"), a Michigan corporation, and
ftd.com inc. ("ftd.com" or "Licensee"), a Delaware corporation.
RECITALS
A. Licensor is the owner of all right, title and interest in and to the
trademarks, service marks, trade names, copyrights, trade dress and other
intellectual property set forth in Exhibit A;
B. Licensee previously operated as part of Licensor's corporate organization
and Licensee's operations have been transferred to a separate corporate
entity;
C. Licensee has been and is engaged in the business of offering consumers the
opportunity to place floral and specialty gift orders directly with it
through its toll free telephone number (1-800-SEND-FTD) and its Web site
(www.ftd.com) and desires to continue to use the Licensed Intellectual
Property (as defined below) in furtherance of such activities; and
D. Licensor is willing to permit such continued use of the Licensed
Intellectual Property under the terms and conditions set forth in this
Agreement.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS
1.1 "Content" means any text, graphics, photographs, video, audio and/or
other data, files or information on Licensee's Internet Site.
1.2 "ftd.com Affiliate" means a Person directly or indirectly controlled
by, controlling or under common control with ftd.com, other than FTDI or any
FTDI Affiliate.
1.3 "ftd.com Non-Compete Period" means that period beginning on the
Effective Date and ending
(a) two years after termination of this Agreement if this Agreement is
terminated by FTDI pursuant to Section 3.2; and
(b) on termination of this Agreement if this Agreement is terminated for
any other reason, including without limitation by ftd.com pursuant to
Section 3.3.
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1.4 "ftd.com Prohibited Business" means a business or component of a
business that is engaged in any significant respect in any business currently
conducted by FTDI or an FTDI Affiliate.
1.5 "FTDI Affiliate" means a Person directly or indirectly controlled by,
controlling or under common control with FTDI, other than ftd.com or any ftd.com
Affiliate.
1.6 "FTDI Non-Compete Period" means that period beginning on the Effective
Date and ending
(a) six months after termination of this Agreement, if this Agreement
is terminated by FTDI pursuant to Section 3.4 and a Person, other than FTDI or
an FTDI Affiliate, directly or beneficially owns 35% or more of the voting power
represented by the voting securities of ftd.com and neither FTDI nor an FTDI
Affiliate directly or beneficially owns a greater percentage of such voting
power;
(b) one year after termination of this Agreement, if this Agreement is
terminated by FTDI pursuant to Section 3.4 and a Person, other than FTDI or an
FTDI Affiliate, directly or beneficially owns 20% or more of the voting power
represented by the voting securities of ftd.com;
(c) two years after termination of this Agreement, if this Agreement
is terminated by ftd.com pursuant to Section 3.3; and
(d) on termination of this Agreement if this Agreement is terminated
for any other reason, including without limitation by FTDI pursuant to Section
3.2.
1.7 "FTDI Prohibited Business" means a business, or component of a
business, that is engaged in any significant respect in the direct sale or
marketing of (a) floral and specialty gifts or (b) products that bear or
incorporate the Licensed Intellectual Property directly to consumers; provided,
however, notwithstanding any provision herein to the contrary, in the event
ftd.com elects to terminate or not to renew the Florists Online Hosting
Agreement, dated as of the date hereof, between FTDI and ftd.com (the "FOL
Agreement"), nothing in this Agreement shall be deemed to limit in any way the
right of FTDI (x) perform the services of the type contemplated by the FOL
Agreement, (y) acquire such services from others or (z) enter into other
agreements covering functions currently performed by ftd.com under the FOL
Agreement.
1.8 "Intellectual Property Rights" means all inventions, discoveries,
patents, trademarks, service marks, trade names, copyrights, moral rights,
jingles, know-how, software, shop rights, licenses (to the extent
sublicensable), developments, research data, designs, technology, trade secrets,
test procedures, processes, route lists, computer programs, computer discs,
computer tapes, literature, reports and other confidential information,
intellectual and similar intangible property rights, whether or not registrable
(or otherwise subject to legally enforceable restrictions or protections against
unauthorized third party usage), and any and all applications for, registrations
of and extensions, divisions, renewals and reissuance of, any of the foregoing,
and rights therein, including without limitation (a) rights under any royalty or
licensing agreements and (b) programming and programming rights, whether on
film, tape or any other medium.
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1.9 "Internet Site" means the location on the Internet's World Wide Web
known as www.ftd.com.
1.10 "Licensed Intellectual Property" means the registered and unregistered
trademarks, service marks, trade names, copyrights, trade dress and other
intellectual property owned and used by Licensor as of the Effective Date and
identified in Exhibit A.
1.11 "Media" means on the World Wide Web, through Licensee's Telephone
Number, catalogs and direct-mail pieces and for promotional purposes in or
through any other means of communication.
1.12 "Order Revenues" means the revenues and service fees of Licensee and
its subsidiaries derived from all sales of goods and services under the Licensed
Intellectual Property, including sales from Licensee's Internet Site and
Telephone Number that are identified by or branded with the Licensed
Intellectual Property. Order Revenues do not include any applicable discounts or
returns.
1.13 "Person" means any natural person, legal entity or other organized
group of persons or entities. (All pronouns whether personal or impersonal,
which refer to Person include natural persons and other Persons.)
1.14 "Post-Acquisition Period" means the nine-month period following the
date of the acquisition of a business that (a) is acquired by FTDI or an FTDI
Affiliate and engages in an FTDI Prohibited Business or (b) is acquired by
ftd.com or an ftd.com Affiliate and engages in an ftd.com Prohibited Business.
1.15 "Telephone Number" means the toll-free telephone number 1-800-SEND-
FTD.
2. LICENSE
2.1 Except as otherwise provided in this Agreement, Licensor hereby grants
to Licensee, during the Term (as defined in Section 3.1) of this Agreement and
subject to the terms and conditions contained herein, a non-exclusive,
nontransferable, irrevocable worldwide license to use the Licensed Intellectual
Property in conjunction with Licensee's marketing or sale of products and
services in the floral and specialty gift business on its Internet Site and
through its Telephone Number, within the Media solely for direct sales to
consumers. Nothing in this Agreement grants Licensee ownership or other rights
in or to the Licensed Intellectual Property, except in accordance with and to
the extent of this license, and Licensee shall not sublicense the Licensed
Intellectual Property to any third party or Person without the prior written
consent of Licensor, which shall not be unreasonably withheld. Except as
provided in this Agreement, this Section 2.1 shall not be construed to prohibit
the use of any Licensed Intellectual Property by Licensor, its divisions,
business units, affiliates, subsidiaries and licensees.
2.2 Licensor shall have the right to demand the withdrawal of any Content
that includes images of products that compete with the specified Licensor's
products or services, from Licensee's Internet Site and from any of Licensee's
advertising or other materials that in Licensor's reasonable opinion conflicts
with, interferes with or is detrimental to Licensor's
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<PAGE>
reputation or business as currently conducted or that will subject Licensor to
unfavorable regulatory action or liability for any reason, violate any law or
infringe the rights of any Person; provided, however, Licensor must give
Licensee prior written notice of its intentions to demand such withdrawal and
will allow Licensee a reasonable time to remedy the offensive situation. Upon
written notice from Licensor to withdraw any such Content, Licensee shall, in
its discretion, either (a) cease using any such Content on its Internet Site or
(b) remove the Licensed Intellectual Property from its Internet Site, in either
case as soon as commercially and technically feasible, but in any event within
five business days after Licensor's written notice. If Licensee cannot cease
using such Content or remove such Licensed Intellectual Property, as the case
may be, within five business days after the date of Licensor's written notice,
Licensee will so notify Licensor detailing why the cessation or removal cannot
be effected within five business days and stating when the cessation or removal
will be effected, subject to the terms of the preceding sentence, and, in such
event, Licensee shall cease using such Content or remove such Licensed
Intellectual Property within 20 business days after the date of such written
notice.
2.3 Licensor agrees that it will not unreasonably withhold approval of
Licensee's reasonable requests to develop and market new products that
incorporate the Licensed Intellectual Property.
3. TERM AND TERMINATION
3.1 This Agreement shall begin on the date hereof (the "Effective Date")
and shall continue for a period of ninety-nine years in full force and effect
and thereafter shall be automatically renewed for like periods of ninety-nine
years unless and until it is terminated in accordance with this Article 3 (the
"Term").
3.2 Licensor will have the right (but not the obligation) to terminate
this Agreement and the license(s) and rights granted to Licensee hereunder if:
(a) Licensee materially breaches any of its obligations arising under
Section 2.2 or Section 4.2(a).
(b) Licensee is in material breach of any of its obligations, other
than those obligations arising under Section 2.2 or Section 4.2(a), or
representations hereunder, including all obligations arising under the non-
compete provisions of Section 9, which breach is not cured within 20 days of
receipt of written notice from Licensor of such breach; provided, however, that
Licensor will not have a right to terminate this Agreement based on a breach by
Licensee of Section 8.2(iii), Section 8.2(iv) or the last sentence of Section
13.2 unless such breach arises out of the gross negligence or willful misconduct
of Licensee and the conduct constituting the breach has not ceased within such
20-day period;
(c) Licensee is the subject of a voluntary petition in bankruptcy or
any voluntary proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within 90 days of filing, or becomes the subject of any involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within 90 days of filing;
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<PAGE>
(d) Licensee involuntarily dissolves or is dissolved; or
(e) Licensee is judicially adjudicated insolvent or generally is
unable to pay its debts as they mature or makes an assignment for the benefit of
its creditors.
3.3 Licensee shall have the right (but not the obligation) to terminate
this Agreement and the rights granted to Licensor hereunder if:
(a) Licensor is in material breach of any of its obligations or
representations hereunder, including all obligations arising under the
non-compete provisions of Section 9, which breach is not cured within 20 days of
receipt of written notice from Licensee of such breach;
(b) Licensor is the subject of a voluntary petition in bankruptcy or
any voluntary proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within 90 days of filing, or becomes the subject of any involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within 90 days of filing;
(c) Licensor involuntarily dissolves or is dissolved; or
(d) Licensor is judicially adjudicated insolvent or generally is
unable to pay its debts as they mature or makes an assignment for the benefit of
its creditors.
3.4 Licensor shall have the right (but not the obligation) to terminate
this Agreement and the rights granted to Licensee hereunder, upon 90 days
written notice to Licensee, following the acquisition of the direct or
beneficial ownership of at least 20% (the "Threshold") of the voting power
represented by the voting securities of Licensee, any successor thereto or any
Permitted Assignee (as defined in Section 13.1 of this Agreement) by any Person
or "group" within the meaning of Sections 13(d)(3) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or any
successor provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding, voting or disposing of securities within the
meaning of Rule 13d-5(b)(1) under the Exchange Act or any successor provision
thereof (a "group") other than FTD Corporation ("FTDC"), Licensor or an FTDI
Affiliate. For purposes of this Agreement, (i) the term "beneficial ownership"
shall have the meaning set forth in Rule 13d-3 of the Exchange Act or any
successor provision thereof, (ii) the term "voting securities" means the Class A
Common Stock, par value $.01 per share, and Class B Common Stock, par value $.01
per share, of Licensee and any other securities issued by Licensee having the
power to vote generally in the election of directors of Licensee and (iii) the
term "control" means the power, whether or not exercised, to direct the
management and policies of an entity, directly or indirectly, whether through
the ownership of voting securities, by control or otherwise. For purposes of
this Section 3.4, an acquisition shall not include (A) the acquisition by a
Person of voting securities of Licensee pursuant to an involuntary disposition
by FTDC through foreclosure or similar event or (B) the acquisition by a Person
of voting securities of Licensee pursuant to a dividend intended to be on a
tax-free basis (a "Tax-Free Spin-Off") under the Internal Revenue Code of 1986,
as amended from time to time, but shall include a subsequent acquisition of
voting securities pursuant to a disposition by the Person that acquired the
voting
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<PAGE>
securities in such involuntary disposition or such Tax-Free Spin-Off. In the
event any Person acquires beneficial ownership of voting power in excess of the
Threshold as a result of a transaction described in the immediately preceding
sentence, the Threshold with respect to such Person shall be adjusted to an
amount equal to the percentage of beneficial ownership held by such Person
immediately following such transaction.
3.5 In relation to trademarks comprising the Licensed Intellectual
Property, in the event Licensee abandons its license to use any or all of the
Licensed Intellectual Property (each, an "Abandoned Mark"), Licensor shall have
the right (but not the obligation) to terminate this Agreement, or any portion
of this Agreement that applies to the Abandoned Mark, and the rights granted
hereunder to Licensee in connection with and solely to the extent related to the
license of such Abandoned Mark upon 90 days written notice to Licensee and any
license in the Abandoned Mark shall revert to Licensor. One year of continuous
non-use by the Licensee of an Abandoned Mark shall constitute abandonment for
purposes of this Agreement.
3.6 A party may exercise its right to terminate pursuant to this Article 3
by sending appropriate written notice in accordance with Section 13.5 to the
other party. No exercise by a party of its rights under this Article 3 will
limit its remedies by reason of the other party's default, the party's rights to
exercise any other rights under this Article 3, or any of that party's other
rights.
4. INTELLECTUAL PROPERTY
4.1 The parties acknowledge that the Licensed Intellectual Property is
owned or controlled by Licensor and that all use by Licensee of the Licensed
Intellectual Property will inure to Licensor's benefit and that Licensee shall
not at any time acquire any rights in the Licensed Intellectual Property other
than such rights as are granted hereunder. Nothing contained herein shall
constitute an assignment of the Licensed Intellectual Property or grant to
Licensee any right, title or interest therein, except as specifically set forth
herein. In relation to trademarks comprising the Licensed Intellectual Property,
Licensee shall maintain Licensor's quality standards as notified by Licensor
from time to time in writing with respect to its use of the Licensed
Intellectual Property, and otherwise use the Licensed Intellectual Property
subject to any reasonable restrictions or requirements disclosed to Licensee in
writing.
4.2 (a) Licensee recognizes the validity of the Licensed Intellectual
Property and any registrations therefor, and acknowledges Licensor as the owner
of all rights, title and interest in and to the Licensed Intellectual Property
listed on Exhibit A and any registrations therefor other than such rights as are
granted hereunder. Licensee will not contest, nor assist any other party in
contesting, Licensor's ownership of the Licensed Intellectual Property or any
registrations of Licensor for such Licensed Intellectual Property, and will not
contest the validity thereof. Except for the Licensed Intellectual Property,
Licensee agrees not to use at any time any other trademarks, names, designs,
trade dress or other intellectual property confusingly similar to the Licensed
Intellectual Property. These obligations shall survive the expiration or earlier
termination of this Agreement for any reason. Except for the Licensed
Intellectual Property, Licensee shall not file any application in any country to
register a mark that is the same as or confusingly similar to any of the
Licensed Intellectual Property or any other mark of Licensor that has been
disclosed to Licensee in writing, that has been publicly used by Licensor or
that Licensor has filed an application for its registration with the U.S. Patent
and Trademark Office.
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If any application for registration is filed in any country by Licensee in
contravention of this paragraph 4.2(a), Licensor shall have the right to take
appropriate action against Licensee, including seeking injunctive relief and
terminating this Agreement.
(b) Licensee shall furnish Licensor in writing for review by Licensor
prior to publication proofs of all materials and products bearing any Licensed
Intellectual Property (including, without limitation, advertising and publicity
materials). Licensee will not authorize full scale production of any such
material or product until after obtaining Licensor's approval in each instance,
which approval will not be unreasonably withheld. If Licensor objects to any
portion of such materials or products, such objection will be stated and
forwarded in writing to Licensee (or by oral communication confirmed in writing
promptly thereafter) within ten (10) business days of Licensor's receipt of such
materials or products, and Licensee agrees to revise such materials or products
accordingly. If Licensor fails to respond within ten (10) business days of
receipt of such materials or products, Licensee will cease use of such materials
or products unless and until Licensor notifies Licensee that such materials or
products may be used. Any material changes in such material or product shall
also be subject to Licensor's prior approval, which approval will not be
unreasonably withheld. Approval by Licensor shall not relieve Licensee of any of
its warranties or obligations under this Agreement and all materials and
products that bear any Licensed Intellectual Property shall strictly conform
with the samples and proofs approved by Licensor. Samples, materials and
products to be approved by Licensor shall be submitted to the person designated
in writing by Licensor.
4.3 In the event that Licensee learns of any infringement, threatened
infringement or passing off of the Licensed Intellectual Property, or that any
Person claims or alleges that such Licensed Intellectual Property is liable to
cause deception or confusion to the public, then Licensee shall promptly notify
Licensor in writing of the particulars thereof. Licensor, at its option, shall
then have the sole right to determine whether or not any action shall be taken.
4.4 Upon the expiration or termination of this Agreement, Licensee shall
cease all use of the Licensed Intellectual Property, as soon as commercially and
technically practicable, and shall remove or erase the Licensed Intellectual
Property from the Internet Site, and from any advertising and promotional
materials used in connection therewith, as soon as commercially and technically
practicable, but in no event shall any such material remain on the Internet Site
more than 30 days after termination of this Agreement by Licensor or Licensee,
as the case may be, or expiration of this Agreement, as applicable, and at
Licensor's request, Licensee shall certify in writing to Licensor such removal
or erasure.
4.5 Licensee shall cause the trademark notice "(R)" or "(TM)" and/or the
legend: "[Trademark] is a trademark of [Licensor/third party owner (as the case
may be)] and is used under license" and/or such other legend as reasonably
requested in writing by Licensor from time to time, to appear in conjunction
with promotional materials and on the Internet Site.
5. OWNERSHIP
As between Licensor and Licensee, irrespective of any termination of this
Agreement howsoever caused, Licensor is or shall be the exclusive owner of and
shall retain all right, title and interest to the Licensed Intellectual Property
set forth in Exhibit A except for such rights granted hereunder.
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6. COMPENSATION
6.1 In consideration of the rights herein granted, Licensee will pay
Licensor on a quarterly basis a licensing fee equal to one percent (1%) of
Licensee's Order Revenues during the Term.
6.2 Licensee will pay Licensor for any direct third party costs incurred
by Licensor to enforce Licensee's Intellectual Property Rights for use in the
Media.
7. ACCOUNTINGS
7.1 Licensee will compute Order Revenues as of each September 30, December
31, March 31 and June 30 for the prior three (3) months. Within 90 days after
the fourth quarterly period and within 60 days after each of the first three (3)
quarterly periods concerned, Licensee will deliver to Licensor a statement
covering Order Revenues for the period due to Licensor and will pay Licensor the
licensing fee as computed in accordance with Article 6. Acceptance by Licensor
of any statement or payment shall not preclude Licensor from challenging the
accuracy thereof.
7.2 Licensee will maintain accurate books and records that report the
recognition of Order Revenues. Licensor may, at its own expenses, examine and
copy those books and records, as provided in this paragraph. Licensor may make
such an examination for a particular statement within three years after the date
when Licensee sends Licensor the statement concerned. Licensor may make such
examination only during Licensee's usual business hours, and at the place where
Licensee keeps its books and records. Licensor will be required to notify
Licensee at least ten (10) days before the date of planned examination. If an
examination has not been completed within two months from commencement, Licensee
at any time may require Licensor to terminate such examination on seven days
notice to Licensor, provided that Licensee has cooperated with Licensor in the
examination of such books and records.
8. WARRANTIES; REPRESENTATIONS
8.1 Licensor represents and warrants that:
(i) it has full power and authority to enter into and fully perform this
Agreement;
(ii) it owns the Licensed Intellectual Property and has sufficient right
and authority to grant to Licensee all licenses and rights granted
by Licensor hereunder;
(iii) to Licensor's knowledge, the Licensed Intellectual Property and the
use thereof as permitted pursuant to this Agreement does not and
will not violate any law or infringe upon or violate any rights of
any Person;
(iv) the execution, delivery and performance by Licensor of this
Agreement will not conflict with, result in a breach or termination
of, or constitute a default under any lease, agreement, commitment
or other instrument to which Licensor is a party; and
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(v) this Agreement constitutes the valid and binding obligations of
Licensor enforceable against it in accordance with its terms.
8.2 Licensee represents and warrants that:
(i) it has full power and authority to enter into and fully perform this
Agreement;
(ii) this Agreement constitutes the valid and binding obligations of
Licensee enforceable against it in accordance with its terms;
(iii) the Internet Site and any content developed or furnished by Licensee
hereunder in connection with its Internet Site and the use thereof,
to Licensee's knowledge, will not infringe upon or violate any
rights of any Person; and
(iv) Licensee will use its best efforts to ensure that its Internet Site
will be advertised, transmitted and licensed in compliance with all
applicable federal, state, local and foreign laws and in a manner
that will not reflect adversely on Licensor.
9. NON-COMPETITION OBLIGATIONS
9.1 During the FTDI Non-Compete Period, FTDI will not, and will not permit
any FTDI Affiliate to, engage in any FTDI Prohibited Business; provided,
however, in the event FTDI complies with its obligations under Section 9.4, for
a period not to exceed the Post-Acquisition Period, FTDI or an FTDI Affiliate
may engage in the acquired business related to such Post-Acquisition Period.
9.2 During the ftd.com Non-Compete Period ftd.com shall not, and shall not
permit any ftd.com Affiliate to, engage in any ftd.com Prohibited Business;
provided, however, in the event ftd.com complies with its obligations under
Section 9.5, for a period not to exceed the Post-Acquisition Period, ftd.com or
an ftd.com Affiliate may engage in the acquired business related to such Post-
Acquisition Period.
9.3 Nothing contained herein shall be construed so as to preclude (a)
ftd.com from promoting its businesses through means other than in the Media,
including, without limitation, direct mail, online advertising and offline
advertising, or (b) FTDI from promoting its businesses in the Media or catalogs,
including, without limitation, direct mail, online advertising and offline
advertising.
9.4 First Offer/First Refusal of FTDI Prohibited Business to ftd.com.
(a) No later than the twentieth (20th) day following the acquisition
of an FTDI Prohibited Business by FTDI or an FTDI Affiliate from a third party,
FTDI and ftd.com will engage in the following procedures:
(b) FTDI will notify ftd.com in writing of its acquisition of an FTDI
Prohibited Business (an "FTDI First Offer Notice"), which notice will describe
the business in sufficient detail to permit ftd.com to make an informed decision
about whether to acquire or license that business. Upon ftd.com's written
request, FTDI will promptly provide ftd.com with
9
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such additional information as ftd.com reasonably requests regarding the
business, pursuant to the terms of an appropriate confidentiality agreement
between the parties.
(c) Within 90 days of the receipt of an FTDI First Offer Notice,
ftd.com may deliver to FTDI an offer to acquire or license the business
described in the FTDI First Offer Notice (an "ftd.com First Offer Proposal").
Such offer shall set forth all of the material terms and conditions pursuant to
which ftd.com proposes to acquire or license the business.
(d) If ftd.com does not deliver an ftd.com First Offer Proposal, then
FTDI or the FTDI Affiliate, as the case may be, prior to the conclusion of the
Post-Acquisition Period, shall cease operating or dispose of the FTDI Prohibited
Business.
(e) If ftd.com delivers an ftd.com First Offer Proposal, then, within
90 days of receipt of the ftd.com First Offer Proposal, FTDI shall notify
ftd.com of (a) its intention to accept such offer or (b) its intention to accept
a bona fide superior offer, together with a description of the material terms of
such offer, it has received from a third party to acquire or license the
business (an "FTDI Third Party Offer").
(f) Within 30 days following receipt of an FTDI Third Party Offer (the
"FTDI Matching Period"), ftd.com may notify FTDI of its offer to acquire the
business on the terms described in the FTDI Third Party Offer (a "FTDI Matching
Notice").
(g) If ftd.com delivers a Matching Notice or FTDI accepts any other
ftd.com offer to acquire or license such business, then ftd.com and FTDI shall
act in good faith to complete definitive documentation of the acquisition or
licensing transaction within 30 days thereafter.
(h) If ftd.com does not deliver a Matching Notice, then FTDI may
consummate the transaction described in the FTDI Third Party Offer; provided
such transaction is consummated within 60 days following the expiration of the
Matching Period.
9.5 First Offer/First Refusal of ftd.com Prohibited Business to FTDI.
(a) No later than the twentieth (20th) day following the acquisition
of an ftd.com Prohibited Business by ftd.com or any ftd.com Affiliate from a
third party, FTDI and ftd.com will engage in the following procedures:
(b) ftd.com will notify FTDI in writing of its acquisition of an
ftd.com Prohibited Business (an "ftd.com First Offer Notice"), which notice
shall describe the business in sufficient detail to permit FTDI to make an
informed decision about whether to acquire or license that business. Upon FTDI's
written request, ftd.com will promptly provide FTDI with such additional
information as FTDI reasonably requests regarding the business, pursuant to the
terms of an appropriate confidentiality agreement between the parties.
(c) Within 90 days of the ftd.com First Offer Notice, FTDI may deliver
to ftd.com an offer to acquire or license the business described in the ftd.com
First Offer Notice (an "FTDI First Offer Proposal"). Such offer shall set forth
all of the material terms and conditions pursuant to which FTDI proposes to
acquire or license the business.
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(d) If FTDI does not deliver an FTDI First Offer Proposal, then
ftd.com or the ftd.com Affiliate, as the case may be, prior to the conclusion of
the Post-Acquisition Period, shall cease operating or dispose of the ftd.com
Prohibited Business.
(e) If FTDI delivers an FTDI First Offer Proposal, then, within 90
days of the FTDI First Offer Proposal, ftd.com shall notify FTDI of (a) its
intention to accept such offer or (b) its intention to accept a bona fide
superior offer, together with a description of the material terms of such offer,
it has received from a third party to acquire or license the business (an
"ftd.com Third Party Offer").
(f) Within 30 days following an ftd.com Third Party Offer (the
"ftd.com Matching Period"), FTDI may notify ftd.com of its offer to acquire the
business on the terms described in the ftd.com Third Party Offer (a "ftd.com
Matching Notice").
(g) If FTDI delivers a Matching Notice or FTDI accepts any other
ftd.com offer to acquire or license such business, then FTDI and ftd.com shall
complete definitive documentation of the acquisition or licensing transaction
within 30 days thereafter.
(h) If FTDI does not deliver a Matching Notice, then ftd.com may
consummate the transaction described in the ftd.com Third Party Offer; provided
such transaction is consummated within 60 days following the expiration of the
Matching Period.
9.6 FTDI and ftd.com agree not to disclose to any third party other than
its legal counsel and financial advisers any information delivered pursuant to
this Section 9, including, without limitation, the terms of any notice delivered
hereunder, without the prior written consent of the other party.
10. MUTUAL SUPPORT AGREEMENT
The license granted by Licensor to Licensee under this Agreement is subject
to the terms and restrictions imposed by the Mutual Support Agreement, dated as
of December 19, 1994, between Licensor and FTD Association, an Ohio nonprofit
corporation, as supplemented, to the same extent those terms and restrictions
remain in full force and effect.
11. DISPUTE RESOLUTION
11.1 In the event that any party to this Agreement has any claim, right or
cause of action against any other party to this Agreement, which the parties
shall be unable to settle by agreement between themselves, such claim, right or
cause of action, to the extent that the relief sought by such party is for
monetary damages or awards, shall be determined by arbitration in accordance
with the provisions of this Section 11.
11.2 The party or parties requesting arbitration shall serve upon the other
or others a demand therefor, in writing, specifying the matter to be submitted
to arbitration, and nominating a competent disinterested person to act as an
arbitrator. Within 30 days after receipt of such written demand and nomination,
the other party or parties shall, in writing, nominate a competent disinterested
person, and the two (2) arbitrators so designated shall, within 15 days
thereafter,
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<PAGE>
select a third arbitrator. The three (3) arbitrators shall give immediate
written notice of such selection to the parties and shall fix in said notice a
time and place of the meeting of the arbitrators which shall be as soon as
conveniently possible (but in no event later than 30 days after the appointment
of the third arbitrator), at which time and place the parties to the controversy
shall appear and be heard with respect to the right, claim or cause of action.
11.3 In case the notified party or parties shall fail to make a selection
upon notice within the time period specified, the party asserting such claim
shall appoint an arbitrator on behalf of the notified party. In the event that
the first two (2) arbitrators selected shall fail to agree upon a third
arbitrator within 15 days after their selection, then such arbitrator may, upon
application made by either of the parties to the controversy, be appointed by
any judge of any United States court of record having jurisdiction in the State
of Illinois.
11.4 Each party shall present such testimony, examinations and
investigations in accordance with such procedures and regulations as may be
determined by the arbitrators and shall also recommend to the arbitrators a
monetary award to be adopted by the arbitrators as the complete disposition of
such claim, right or cause of action. After hearing the parties in regard to the
matter in dispute, the arbitrators shall adopt as their determination with
respect to such claim, right or cause of action, within 45 days of the
completion of the examination, by majority decision signed in writing (together
with a brief written statement of the reasons for adopting such recommendation),
one of the recommendations submitted by the parties to the dispute and shall
grant no other relief or remedy. The decision of said arbitrators, absent fraud,
duress or manifest error, shall be final and binding upon the parties to such
controversy and may be enforced in any court of competent jurisdiction.
11.5 The expense and cost of such arbitration shall be borne by the party
or parties whose recommendation was not adopted by the arbitrators. Each party
shall pay the fees and expenses of its own counsel.
11.6 Notwithstanding any other provisions of this Section 11, in the event
that a party against whom any claim, right or cause of action is asserted
commences, or has commenced against it, bankruptcy, insolvency or similar
proceedings, the party or parties asserting such claim, right or cause of action
shall have no obligations under this Section 11 and may assert such claim, right
or cause of action in the manner and forum it deems appropriate, subject to
applicable laws. No determination or decision by the arbitrators pursuant to
this Section 11 shall limit or restrict the ability of any party hereto to
obtain or seek in any appropriate forum, any relief or remedy that is not a
monetary award or money damages.
12. INDEMNIFICATION
12.1 Licensee agrees to indemnify and hold harmless Licensor from any and
all third party allegations and claims directly or indirectly caused by
Licensee's use of the Licensed Intellectual Property outside of the Media or
otherwise in violation of this Agreement.
12.2 Licensor agrees to indemnify and hold harmless Licensee from any and
all third party allegations and claims directly or indirectly arising out of any
claim that Licensee's use of any of the Licensed Intellectual Property approved
in accordance with the provisions of this
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Agreement violates or infringes the rights of any third party or violates or
infringes any right granted by Licensor to such third party.
13. GENERAL
13.1 Neither Licensor nor Licensee may assign this Agreement, or its
respective rights and obligations hereunder, in whole or in part without the
other party's prior written consent. Any attempt to assign this Agreement
without such consent shall be void and of no effect ab initio. Notwithstanding
the immediately preceding sentence, any party may assign this Agreement or all,
but not less than all, of its rights and obligations hereunder to any entity
controlled by it or to any entity that acquires it by purchase of stock or by
merger or otherwise, or by obtaining all or substantially all of its assets (a
"Permitted Assignee"), provided that any such Permitted Assignee, or any
division thereof, thereafter succeeds to all of the rights and is subject to all
of the obligations of the assignor under this Agreement; provided, however, the
provisions of this Section 13.1 shall in no way modify the provisions of
Section 3.4.
13.2 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Illinois applicable to agreements made and to
be performed entirely within such State, without regard to the conflicts of law
principles of such State. Each party shall comply in all respects with all laws
and regulations applicable to its activities under this Agreement.
13.3 Notwithstanding the provisions of Section 11, each party hereto
irrevocably submits to the exclusive jurisdiction of (a) the courts of the State
of Illinois, DuPage County, or (b) the United States District Court for the
Northern District of Illinois, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby
or thereby. Each party agrees to commence any such action, suit or proceeding
either in the United States District Court for the Northern District of Illinois
or if such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the courts of the State of Illinois, DuPage County.
Each party further agrees that service of any process, summons, notice or
documents by U.S. registered mail to such party's respective address set forth
below shall be effective service of process for any action, suit or proceeding
in Illinois with respect to any matters to which it has submitted to
jurisdiction in this Section 13.3. Each party irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby and
thereby in (i) the courts of the State of Illinois, DuPage County, or (ii) the
United States District Court for the Northern District of Illinois, and hereby
and thereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
13.4 If any provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to any Person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforcability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other Persons or circumstances.
13.5 All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or sent, postage
prepaid, by registered, certified
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or express mail or reputable overnight courier service and shall be deemed given
when so delivered by hand, or if mailed, three days after mailing (one business
day in the case of express mail or overnight courier service), as follows:
(i) if to Licensee,
ftd.com inc.
3113 Woodcreek Drive
Downers Grove, IL 60515
Attention: President
Telecopy: 630/724-6019
(ii) if to Licensor,
Florists' Transworld Delivery, Inc.
3113 Woodcreek Drive
Downers Grove, IL 60515
Attention: President
Telecopy: 630-719-6183
13.6 The provisions of Sections 9, 11, 12 and 13 hereof shall survive any
termination of this Agreement.
13.7 The parties to this Agreement are independent contractors. There is
no relationship of partnership, joint venture, employment, franchise or agency
between the parties. No party shall have the power to bind the other or incur
obligations on the other's behalf without the other's prior written consent.
13.8 No failure of any party to exercise or enforce any of its rights
under this Agreement shall act as a waiver of such right.
13.9 This Agreement, along with the Exhibits hereto, contains the entire
agreement and understanding among the parties hereto with respect to the subject
matter hereof and, except as otherwise provided herein, supersedes all prior
agreements and understandings relating to such subject matter. No party shall be
liable or bound to any other party in any manner by any representations,
warranties or covenants relating to such subject matter except as specifically
set forth herein.
13.10 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
13.11 This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto; provided, however, that as long
as (1) FTDC beneficially owns 25% or more of the voting power represented by the
voting securities of Licensee, and no other Person directly or beneficially owns
a greater percentage of such voting power, or (2) directors, officers or
affiliates of FTDC or its subsidiaries constitute a majority of the members of
Licensee's board of directors, no amendment of this Agreement will be valid
unless it has been approved by at least a majority of the members of Licensee's
board of directors, which majority must include at least one-half of the members
of Licensee's board of directors who are
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"independent" directors pursuant to the applicable rules of Nasdaq or any
national stock exchange on which Licensee's equity securities are then traded or
listed.
13.12 This Agreement is for the sole benefit of the parties hereto and
nothing herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto any legal or equitable rights hereunder.
13.13 The headings contained in this Agreement or in any Exhibit hereto
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All Exhibits annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein. Any capitalized terms used in any Exhibit but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
When a reference is made in this Agreement to a Section or an Exhibit, such
reference shall be to a Section of, or an Exhibit to, this Agreement unless
otherwise indicated.
13.14 Each of the parties acknowledges that there is no adequate remedy at
law for failure of the parties to comply with the provisions of this Agreement
and that such failure would cause immediate harm that would not be adequately
compensable in damages, and therefore agree that their agreements contained
herein may be specifically enforced without the requirement of posting a bond or
other security, in addition to all other remedies available to parties hereto
under this Agreement.
[The remainder of this page intentionally is left blank.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
ftd.com inc.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Florists' Transworld Delivery, Inc.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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EXHIBIT A
FTDI Trademarks and Intellectual Property
Licensed Intellectual Property
------------------------------
See attached.
A-1
<PAGE>
Exhibit 10.8
FORM OF COMMISSION AGREEMENT
This Commission Agreement (this "Agreement") is being entered into as of
the ___ day of June, 1999 and is entered into by and between Florists'
Transworld Delivery, Inc., a Michigan corporation ("FTDI"), and ftd.com inc., a
Delaware corporation ("ftd.com").
RECITALS
A. Historically, FTDI was engaged directly in, among other things, the
business of offering consumers the opportunity to place FTD floral and
specialty gift orders directly with FTDI through its toll free
telephone number (1-800-SEND-FTD) and its Web site (www.ftd.com) (the
"Direct Access Business"), and used the FTD Clearinghouse to process
all floral orders and some specialty gift orders received by the
Direct Access Business;
B. Recently, FTDI formed ftd.com as a wholly owned subsidiary of FTDI
and, pursuant to the Formation Agreement, dated as of May 19, 1999,
between FTDI and ftd.com (the "Formation Agreement"), transferred
substantially all of FTDI's assets, rights and interests relating to
the Direct Access Business to ftd.com.
C. In connection with the Direct Access Business and as of the Effective
Date (as defined below), ftd.com desires to use the FTD Clearinghouse
to process floral orders and specialty gift orders (the "Services")
received by the Direct Access Business and FTDI desires to provide
such Services to ftd.com.
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
Section 1. Clearinghouse Commission.
(a) Subject to Section 1(b), as consideration for ftd.com using FTDI's
clearinghouse (the "FTD Clearinghouse") to process ftd.com orders, FTDI agrees
to pay ftd.com each month a $5.00 commission fee (the "ftd.com Per Order
Commission") plus an amount equal to 20% of the order value (excluding amounts
attributable to service or similar fees) (the "ftd.com Sending Order
Commission") for every order that ftd.com clears through the FTD Clearinghouse
during the applicable monthly period; provided, that, in the event FTDI agrees
to pay an unaffiliated third party that (i) does not own a flower shop and who
clears its orders through the FTD Clearinghouse or (ii) clears in excess of
500,000 orders annually through the FTD Clearinghouse a fee or commission with
economic terms that are more beneficial to the recipient of such fee or
commission (a "More Favorable Third Party Commission") than the economic terms
of the ftd.com Per Order Commission or the ftd.com Sending Order Commission,
FTDI agrees to adjust the economic terms of the ftd.com Per Order Commission or
the ftd.com Sending Order Commission, as applicable, so that it is no less
favorable than the More Favorable Third Party Per Order Commission. Such
adjustment shall become effective as of the date such More Favorable Third Party
Commission becomes effective.
<PAGE>
(b) If, after the Effective Date, all third party order originators (i.e.,
a party that originates more orders than such party fulfills) that clear in
excess of 200,000 orders annually through FTDI retain less than 20% of the order
value for such orders (excluding amounts attributable to service or similar fees
or rebates or commissions), then the ftd.com Sending Order Commission will be
adjusted so that it is equal to the economic terms most favorable to any such
third party order originator that clears orders through FTDI (the "Less
Favorable Commission"). Such adjustment shall become effective as of the date
the Less Favorable Commission becomes effective with respect to the applicable
third party order originator.
Section 2. Term.
----
The term of this Agreement will begin on July 1, 1999 (the "Effective
Date") and will continue in full force and effect until June 30, 2002 and shall
be automatically renewed for like periods of three years, unless notice of
election not to renew is given by either party at least one hundred and eighty
(180) days prior to the commencement of any renewal period.
Section 3. Dispute Resolution.
------------------
(a) In the event that any party to this Agreement has any claim, right or
cause of action against any other party to this Agreement, which the parties
shall be unable to settle by agreement between themselves, such claim, right or
cause of action, to the extent that the relief sought by such party is for
monetary damages or awards, shall be determined by arbitration in accordance
with the provisions of this Section 3.
(b) The party or parties requesting arbitration shall serve upon the other
or others a demand therefor, in writing, specifying the matter to be submitted
to arbitration, and nominating a competent disinterested person to act as an
arbitrator. Within 30 days after receipt of such written demand and nomination,
the other party or parties shall, in writing, nominate a competent disinterested
person, and the two (2) arbitrators so designated shall, within 15 days
thereafter, select a third arbitrator. The three (3) arbitrators shall give
immediate written notice of such selection to the parties and shall fix in said
notice a time and place of the meeting of the arbitrators which shall be as soon
as conveniently possible (but in no event later than 30 days after the
appointment of the third arbitrator), at which time and place the parties to the
controversy shall appear and be heard with respect to the right, claim or cause
of action.
(c) In case the notified party or parties shall fail to make a selection
upon notice within the time period specified, the party asserting such claim
shall appoint an arbitrator on behalf of the notified party. In the event that
the first two (2) arbitrators selected shall fail to agree upon a third
arbitrator within 15 days after their selection, then such arbitrator may, upon
application made by either of the parties to the controversy, be appointed by
any judge of any United States court of record having jurisdiction in the State
of Illinois.
(d) Each party shall present such testimony, examinations and
investigations in accordance with such procedures and regulations as may be
determined by the arbitrators and shall also recommend to the arbitrators a
monetary award to be adopted by the arbitrators as the complete disposition of
such claim, right or cause of action. After hearing the parties in regard to the
matter in dispute, the arbitrators shall adopt as their determination with
respect to such claim, right or cause of action, within 45 days of the
completion of the examination, by majority
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decision signed in writing (together with a brief written statement of the
reasons for adopting such recommendation), one of the recommendations submitted
by the parties to the dispute and shall grant no other relief or remedy. The
decision of said arbitrators, absent fraud, duress or manifest error, shall be
final and binding upon the parties to such controversy and may be enforced in
any court of competent jurisdiction.
(e) The expense and cost of such arbitration shall be borne by the party
or parties whose recommendation was not adopted by the arbitrators. Each party
shall pay the fees and expenses of its own counsel.
(f) Notwithstanding any other provisions of this Section 3, in the event
that a party against whom any claim, right or cause of action is asserted
commences, or has commenced against it, bankruptcy, insolvency or similar
proceedings, the party or parties asserting such claim, right or cause of action
shall have no obligations under this Section 3 and may assert such claim, right
or cause of action in the manner and forum it deems appropriate, subject to
applicable laws. No determination or decision by the arbitrators pursuant to
this Section 9 shall limit or restrict the ability of any party hereto to obtain
or seek in any appropriate forum, any relief or remedy that is not a monetary
award or money damages.
Section 4. Miscellaneous.
-------------
(a) Neither party may assign this Agreement, or their respective rights
and obligations hereunder, in whole or in part without the other party's prior
written consent. Any attempt to assign this Agreement without such consent shall
be void and of no effect ab initio. Notwithstanding the immediately preceding
sentence, either party may assign this Agreement or all, but not less than all,
of its rights and obligations hereunder to any entity controlled by it or to any
entity that acquires it by purchase of stock or by merger or otherwise, or by
obtaining all or substantially all of its assets (a "Permitted Assignee"),
provided that any such Permitted Assignee, or any division thereof, thereafter
succeeds to all of the rights and is subject to all of the obligations of the
assignor under this Agreement.
(b) This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Illinois applicable to agreements made and to
be performed entirely within such State, without regard to the conflicts of law
principles of such State. Each party shall comply in all respects with all laws
and regulations applicable to its activities under this Agreement.
(c) Notwithstanding the provisions of Section 3, each party hereto
irrevocably submits to the exclusive jurisdiction of (a) the courts of the State
of Illinois, DuPage County, or (b) the United States District Court for the
Northern District of Illinois, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby
or thereby. Each party agrees to commence any such action, suit or proceeding
either in the United States District Court for the Northern District of Illinois
or if such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the courts of the State of Illinois, DuPage County.
Each party further agrees that service of any process, summons, notice or
documents by U.S. registered mail to such party's respective address set forth
below shall be effective service of process for any action, suit or proceeding
in Illinois with respect to any maters to which it has submitted to jurisdiction
in this Section 4(c). Each party irrevocably
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and unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transactions
contemplated hereby and thereby in (i) the courts of the State of Illinois,
DuPage County, or (ii) the United States District Court for the Northern
District of Illinois, and hereby and thereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
(d) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become effective
when one or more such counterparts have been signed by each of the parties and
delivered to each of the other parties.
(e) This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto; provided, however, that as long
as (1) FTD Corporation ("FTDC") beneficially owns 25% or more of the voting
power represented by the voting securities of ftd.com, and no other Person
directly or beneficially owns a greater percentage of such voting power, or (2)
directors, officers or affiliates of FTDC or its subsidiaries constitute a
majority of the members of ftd.com's board of directors, no amendment of this
Agreement will be valid unless it has been approved by at least a majority of
the members of ftd.com's board of directors, which majority must include at
least one-half of the members of ftd.com's board of directors who are
"independent" directors pursuant to the applicable rules of Nasdaq or any other
exchange on which ftd.com's equity securities are then traded or listed.
(f) This Agreement is for the sole benefit of the parties hereto and
nothing herein expressed or implied shall give or be construed to give to any
person, other than the parties hereto any legal or equitable rights hereunder.
[The remainder of this page intentionally is left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
ftd.com inc.
By:
-----------------------------------------
Name:
Title:
Florists' Transworld Delivery, Inc.
By:
-----------------------------------------
Name:
Title:
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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
July 9, 1999
