<PAGE>
As filed with the Securities and Exchange Commission on June 24, 1999
Registration No. 333-78857
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------
ftd.com inc.
(Exact Name of Registrant as Specified in Its Charter)
-----------------
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Maximum
Aggregate Amount Of
Title Of Each Class Of Securities Offering Price Registration
To Be Registered (1) Fee (2)
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<S> <C> <C>
Class A common stock (par value $.01 per share)......................... $94,875,000 $26,376
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
(2) $25,020 of this amount has been paid. The fee with respect to the
additional $4,875,000 being registered hereby is $1,356, which amount is
being paid herewith.
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 JUNE 24, 1999
PROSPECTUS
5,500,000 Shares
[LOGO]
ftd.com inc.
Class A Common Stock
-------------
There currently is no public market for the Class A common stock of ftd.com. We
anticipate that the initial public offering price 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 8 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.
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<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
-------------
Internet Distribution Offered by
E*TRADE Securities, Inc.
The date of this prospectus is , 1999.
<PAGE>
[Description of pictures and captions to come.]
------------------
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.
Competitive Strengths
We believe that we will be able to significantly grow our business by
utilizing the following competitive advantages:
. Highly recognized brand name. The FTD brand and Mercury Man logo are
among the most recognized consumer brands in America.
. Commercially attractive URL. www.ftd.com is an advantageous URL because
of the strength and simplicity of the FTD brand name.
. 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.
. Customer service and quality control. We provide trained customer support
at our call center and through online services. Our ongoing quality
control efforts include randomly placing test orders with our fulfilling
florists and monitoring customer feedback to ensure customer
satisfaction.
. Relationships with other popular consumer brands. A variety of our
products incorporate other popular consumer brands, such as The Walt
Disney Company's Winnie The Pooh(R), M&M/Mars, Inc.'s M&M's(R)
characters, Hickory Farms(R) and Vermont Teddy Bears(R).
3
<PAGE>
. Existing online presence. We have established an online advertising
presence with high-traffic Web sites, such as Yahoo!, the Go Network(TM),
Netscape Netcenter, MSN.com and others. This presence allows us to
stimulate brand awareness and drive traffic to our Web site.
. Multi-functional interactive e-commerce platform. Our Web site allows us
to store and analyze customer, sales and Web site activity and
incorporates product search and e-mail reminder services.
Business Strategy
Our objective is to be the leading marketer of flowers and specialty gifts
on the Internet. We intend to pursue this objective by employing the following
strategies:
. Build brand awareness, increase our customer base and increase their
purchasing frequency. We plan to achieve this objective by significantly
expanding our online and traditional advertising, direct
marketing/affinity and retention marketing efforts.
. Enhance our customers' shopping experience. We plan to continue to invest
in technologies that offer customers the most convenient, user-friendly
and secure shopping experience possible.
. Promote our Web site to telephone customers. We intend to encourage
consumers who currently purchase flowers and specialty gifts over the
telephone to make their future purchases through our Web site. We believe
that our Web site provides a superior shopping experience and is a better
medium to retain and market to our customer base.
. Expand our product offerings. We will seek to expand our product
offerings to 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:
[Chart depicting ownership structure of ftd.com prior to this offering,
illustrating that 100% of FTDI is owned by FTD Corporation and that 97% of
ftd.com is owned by FTDI with the remaining 3% owned by Buena Vista Internet
Group and DBV Investments.]
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>
In addition to the Internet and toll-free telephone businesses conducted by
ftd.com, FTDI and its subsidiaries operate transaction processing businesses,
which include the Mercury Network(R) and the FTD Clearinghouse. The Mercury
Network is a proprietary telecommunications network that links us, FTDI and
approximately 80% of the FTD florists in the U.S. and Canada, and is used to
transmit orders and send messages. The FTD Clearinghouse provides billing and
collection services to FTD florists, for which FTDI retains a percentage of the
sales price of orders it clears. FTDI's operations also include the FTD
Marketplace(R), a wholesale supplier of hardgoods to retail florists in the
U.S. and Canada. FTD Marketplace products include both FTD-branded and non-
branded floral arrangement containers and products, packaging and promotional
products and a wide variety of other floral-related supplies.
In connection with the December 1994 acquisition, FTDI and FTD Association
entered into a Mutual Support Agreement and a Trademark License Agreement.
These agreements govern some aspects of the relationship between FTDI and FTD
Association. The material provisions of these agreements provide:
. existing and future FTD florists with the exclusive right to use the FTD
logo and other FTD trademarks in connection with the operation of a
retail florist shop;
. access to the Mercury Network, the FTD Clearinghouse, the FTD Marketplace
and FTDI's other services and products for all FTD florists in good
standing;
. order origination fees, representing a percentage of the order value,
paid by FTDI to FTD Association for every floral order cleared through
the FTD Clearinghouse;
. billing and collection by FTDI on behalf of FTD Association of the
monthly fee that is charged by FTD Association to FTD florists; and
. the rights of FTDI and FTD Association to each designate representatives
to serve on the other's board of directors, including subsidiaries of
FTDI, which means that FTD Association has the right to designate members
of our board of directors, see "Certain Transactions--Rights to Designate
Directors."
------------------
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 5,500,000 shares
by ftd.com...................
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 EFTD
Market symbol................
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>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Nine months ended
Year ended June 30, March 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(dollars in thousands, except per order
data)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Total revenues............... $ 18,541 $ 26,255 $ 30,663 $ 19,082 $ 31,183
Gross profit................. 3,110 3,972 4,339 2,281 6,664
Gross profit (%)............. 16.8% 15.1% 14.2% 12.0% 21.4%
Marketing and promotion
expenses.................... $ 4,188 $ 4,864 $ 5,995 $ 3,614 $ 7,797
Loss from operations......... (5,284) (5,705) (6,315) (4,454) (5,755)
Net loss..................... $ (3,306) $ (3,583) $ (3,895) $ (2,774) $ (3,532)
Pro forma basic and diluted
net loss per share.......... $ (.08) $ (.09) $ (.10) $ (.07) $ (.09)
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
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.
7
<PAGE>
RISK FACTORS
An investment in the Class A common stock involves a high degree of risk.
You should consider carefully the following information about these risks
before buying shares of Class A common stock. The risks described below are
not the only ones facing our company. Additional risks may impair our business
operations. If any of the following risks occur, our business, results of
operations or financial condition could be adversely affected. In that case,
the trading price of our Class A common stock could decline, and you may lose
all or part of your investment. You should also refer to the other information
contained in this prospectus, including our financial statements and the notes
to those statements.
Risks Related to Our Business
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 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.
8
<PAGE>
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. There is intense
competition for placement of advertising on these Web sites, and we may have
to pay significant fees to establish or maintain a presence on these Web sites
in the future. We may be unable to enter into relationships with these sites
on commercially reasonable terms or at all.
Further, many Web sites that we may approach to establish an advertising
presence or who we already have a relationship with may also provide
advertising services for other marketers of flowers and specialty gifts. As a
result, these sites may be reluctant to enter into or maintain relationships
with us. Our business, results of operations and financial condition could be
adversely affected if we do not develop and secure sufficient online
advertising or secure an appropriate presence on commercially reasonable terms
or if these activities do not effectively attract users to our Web site and
lead to a substantial amount of sales.
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
9
<PAGE>
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. 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.
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.
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 , 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. These restrictions may prevent us from competing efficiently in various
extensions to our existing business.
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.
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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.
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. 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. 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.
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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. 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.
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 have caused from time to time in the past,
and in the future could cause, interruptions in our services. Any damage or
failure that interrupts or delays our operations may dissatisfy our customers
and could adversely affect our business, results of operations and financial
condition.
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 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.
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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. FTDI has pursued and applied for the registration of trademarks and
service marks used in FTDI's and our businesses in the U.S. and various
foreign countries. Effective Internet domain name, copyright, service mark,
trademark and trade secret protection may not be available in every country in
which our products and services are made available online. The steps taken by
us, FTDI and other third parties to protect our intellectual property rights
may not be adequate, and third parties may infringe or misappropriate the
intellectual property and similar proprietary rights used in our business,
which could have an adverse effect on our business, results of operations and
financial condition.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the intellectual property rights we use. The resolution of any
infringement claims may result in lengthy and costly litigation. Moreover,
resolution of a claim may require us to obtain a license to use those
intellectual property rights or possibly to cease using those rights
altogether. Any of those events could have a material adverse effect on our
business, results of operations and financial condition.
Risks associated with potential acquisitions and investments may adversely
affect your investment.
Although we have no present understanding or agreement relating to any
acquisition or investment, we may acquire or make investments in complementary
businesses, products, services or technologies. We cannot assure you that we
will be able to identify suitable acquisition or investment candidates. Even
if we do identify suitable candidates, we cannot assure you that we will be
able to make these acquisitions or investments on commercially acceptable
terms. If we buy a business, we could have difficulty in assimilating the
personnel, operations, products, services or technologies of that business
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses, adversely affect
the prevailing market price of our Class A common stock and adversely affect
our business, results of operations and financial condition. Furthermore, we
may incur debt or issue equity securities to pay for any future acquisitions.
The issuance of additional equity securities could be dilutive to our existing
stockholders.
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 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
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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.
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 contractual right to approve various actions submitted to our
board of directors. These actions are: amendments to our certificate of
incorporation or bylaws; increases or decreases in the number of our directors;
issuance or sales of our securities; a merger, consolidation or other
significant business combination transaction involving us; the repurchase,
exchange or redemption 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."
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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 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 more than 20% of the voting power of our common stock is
acquired by a person or group.
In the event more than 20% of the voting power of our common stock is
acquired by a single person or, other than from affiliates 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 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
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Sharing Agreement, as amended, for so long as ftd.com is included in FTD
Corporation's consolidated group, FTD Corporation will have sole authority to
respond to and conduct all tax proceedings (including tax audits) relating to
us, to file all income tax returns on our behalf and to determine the amount of
our liability to (or entitlement to payment from) FTD Corporation.
Notwithstanding the Tax Sharing Agreement, as amended, federal law provides
that each member of a consolidated group is liable for the group's entire tax
obligation. As a result, if FTD Corporation or other members of its
consolidated group fail to make any federal income tax payments required by
law, we would be liable for the shortfall. Similar principles apply for state
income tax purposes in many states. See "Certain Transactions--Income Taxes."
For so long as FTDI continues to own at least 80% of the voting power or
value of ftd.com's capital stock, we also will be jointly and severally liable,
together with all other members of FTD Corporation's "control group," for
pension funding, termination and excise taxes and for other pension-related
matters in the event FTD Corporation fails to fully satisfy its legally
required pension obligations. Because the Class B common stock held by FTDI is
entitled to ten votes per share, we expect that FTDI will retain at least an
80% voting interest for the foreseeable future. We believe that none of these
liabilities were outstanding as of 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.
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.
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
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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 stockholders.
Risks Related to the Internet
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.
The Federal Trade Commission has proposed regulations regarding the
collection and use of personal identifying information obtained from
individuals when accessing Web sites, with particular emphasis on access by
minors. These regulations may include requirements that we establish procedures
to disclose and notify users of privacy and security policies, obtain consent
from users for collection and use of information and provide users with the
ability to access, correct 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
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penetration of our network security or other misappropriation of our users'
personal information could subject us to liability. We may be liable for claims
based on unauthorized purchases with credit card information, impersonation or
other similar fraud claims. Claims could also be based on other misuses of
personal information, such as for unauthorized marketing purposes. These claims
could result in litigation and financial liability. Security breaches also
could damage our reputation and expose us to a risk of loss or litigation and
possible liability. We rely on licensed encryption and authentication
technology to effect secure transmission of confidential information, including
credit card numbers. It is possible that advances in computer capabilities, new
discoveries or other developments could result in a compromise or breach of the
technology used by us to protect customer transaction data.
We may incur substantial expense to protect against and remedy security
breaches and their consequences. A party that is able to circumvent our
security systems could steal proprietary information or cause interruptions in
our operations. Our insurance policies' limits may not be adequate to reimburse
us for losses caused by security breaches. We cannot guarantee that our
security measures will prevent security breaches.
Our insurance policies may not provide adequate coverage for 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
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
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placed on the current telecommunications infrastructure, telephone carriers
have requested the FCC to regulate Internet service providers and impose access
fees on those providers. If the FCC imposes access fees, the costs of using the
Internet could increase dramatically. This could result in the reduced use of
the Internet as a medium for commerce, which could adversely affect our
business operations.
We may incur liability for information displayed on and communicated through
our Web sites.
We provide links to Web sites operated by other businesses and we may be
subjected to claims for defamation, negligence, copyright or trademark
infringement or based on other theories relating to the information we publish
on our Web site. These types of claims have been brought, sometimes
successfully, against Internet companies as well as print publications in the
past. Based on links we provide to other Web sites, we could also be subjected
to claims based upon online content we do not control that is accessible from
our Web site.
Our inability to secure and protect our Internet domain name may adversely
affect our business operation.
The ftd.com Internet domain name is our brand on the Internet. The
acquisition and maintenance of Internet domain names generally is regulated by
governmental agencies and their designees. Until recently, Network Solutions,
Inc. was the exclusive registrar for the ".com," ".net" and ".org" generic top-
level Internet domains in the U.S. In April 1999, however, the Internet
Corporation for Assigned Names and Numbers, or ICANN, a new global non-profit
corporation formed to oversee a set of the Internet's core technical management
functions, opened the market for registering Internet domain names to an
initial group of five companies. Network Solutions, Inc. still maintains the
registry containing all the registrations in the generic top-level Internet
domains. The market for registering these Internet domain names in the U.S. and
in foreign countries is expected to undergo further changes in the near future.
We expect the requirements for registering Internet domain names also to be
affected. The relationship between regulations governing Internet domain names
and laws protecting trademarks and similar proprietary rights is unclear. We
may be unable to prevent third parties from acquiring Internet domain names
that are similar to, infringe upon or otherwise decrease the value of our
Internet domain name, the trademarks and other intellectual property rights
used by us and we may need to protect our rights through litigation. If we are
unable to adequately protect our Internet domain name, our trademarks and other
intellectual property rights or incur substantial costs in doing so, it could
have an adverse effect on our business, results of operations and financial
condition.
Changing technology could adversely affect the operation of our Web site.
The Internet, online commerce and online advertising markets are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions and changing customer
preferences. Our future success will depend on our ability to adapt to rapidly
changing technologies and address our customers' changing preferences, however,
we may experience difficulties that delay or prevent our being able to do so.
Risks Associated with this Offering
The price for our Class A common stock is likely to be highly volatile.
The market price of our Class A common stock is likely to be highly volatile
as the stock market in general, and the market for Internet-related and
technology companies in particular, has been highly volatile. Investors may not
be able to resell their shares of our Class A common stock following periods of
volatility because the market reacts adversely to volatility. The trading
prices of many technology and Internet-related companies' stocks reached
historical highs within the last 52 weeks and reflect relative valuations that
are substantially above historical levels. During the same period, these
companies' stocks also have recorded lows well below historical highs. We
cannot assure you that our stock will trade at the same levels of other
Internet stocks or that we can sustain our Class A common stock's trading
price.
19
<PAGE>
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,
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.
20
<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."
21
<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.
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<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.
23
<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 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)
--------------------------------------------
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>
24
<PAGE>
SELECTED FINANCIAL DATA
ftd.com was formed in May 1999 to own and operate the Internet and telephone
flower and specialty gift business of FTDI. The telephone business was
previously operated by FTD Direct Access, Inc., a wholly owned subsidiary of
Florists' Transworld Delivery Association, which was acquired by FTD
Corporation on December 18, 1994. FTD Direct Access, Inc. continued to operate
this business as a wholly owned subsidiary of FTDI until May 31, 1995 when FTD
Direct Access, Inc. was dissolved and the results of its operations and its
financial position were subsequently accounted for as the consumer floral order
business unit of FTDI.
The following table sets forth selected historical data of FTD Direct
Access, Inc., the Predecessor Company, until its May 31, 1995 dissolution date
and for FTDI's consumer floral order business unit for the period June 1, 1995
to March 31, 1999. Although ftd.com was not formed as a subsidiary until May
1999, the financial statements present the operations of the businesses owned
and operated by ftd.com as if it had been a separate entity since June 1, 1995.
The statement of operations presented below for the years ended June 30,
1994 and 1995 and the selected balance sheet data as of June 30, 1994, 1995 and
1996 are derived from unaudited financial statements not included in this
prospectus. The statement of operations presented below for the years ended
June 30, 1996, 1997 and 1998 and the balance sheet data as of June 30, 1997 and
1998 are derived from our audited financial statements included elsewhere in
this prospectus. Interim data for the nine months ended March 31, 1998 and 1999
are unaudited, but include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of that data. Results for the nine months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for any other
interim period or for the year as a whole. The selected financial data is
qualified by reference to, and should be read in conjunction with, our
financial statements and the notes to those statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessor Company
------------------------ Nine months ended March
Year ended June 30, 31,
--------------------------------------------------------------- ------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(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
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations.... (2,502) (2,037) (5,284) (5,705) (6,315) (4,454) (5,755)
Interest expense........ 263 245 226 267 177 170 131
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before income
taxes.................. (2,765) (2,282) (5,510) (5,972) (6,492) (4,624) (5,886)
Income tax benefit...... 1,106 913 2,204 2,389 2,597 1,850 2,354
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss................ $ (1,659) $ (1,369) $ (3,306) $ (3,583) $ (3,895) $ (2,774) $ (3,532)
=========== =========== =========== =========== =========== =========== ===========
Pro forma basic and
diluted net loss per
share.................. -- -- $ (.08) $ (.09) $ (.10) $ (.07) $ (0.9)
=========== =========== =========== =========== =========== =========== ===========
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
=========== =========== =========== =========== =========== =========== ===========
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.
25
<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.
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
26
<PAGE>
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 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
27
<PAGE>
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.
Order revenues and service fees, net of discounts, increased by $9.4
million, or 49%, to $28.5 million for the nine months ended March 31, 1999 from
$19.1 million for the nine months ended March 31, 1998. The increase from the
corresponding period of the prior year was primarily the result of an increase
of Internet order volume as well as an increase in order value and service
fees. During the nine months ended March 31, 1999, 51% of our order revenues
and service fees were generated by telephone orders and 49% through the
Internet compared to 71% by telephone and 29% through the Internet during the
nine months ended March 31, 1998.
Commission revenue was $2.6 million for the nine months ended March 31,
1999. We did not generate any commission revenue during the nine months ended
March 31, 1998. The increase from the corresponding period of the prior year
was the result of the commencement in July 1998 of an incentive program to
gather orders for FTDI. Commission revenue was 8.3% of total revenues for the
nine months ended March 31, 1999.
Other revenues increased by $57,000 to $67,000 for the nine months ended
March 31, 1999 from $10,000 for the nine months ended March 31, 1998. Other
revenues were less than 1% of total revenues for the nine months ended March
31, 1999 and 1998, respectively.
Cost of fulfillment and processing services increased by $7.7 million, or
46%, to $24.5 million for the nine months ended March 31, 1999 from $16.8
million for the nine months ended March 31, 1998. This was the result of
increased order volume, which was primarily attributable to the increase in
Internet sales discussed above. In addition, we realized cost reductions that
resulted from improvements in order processing operations. As a percentage of
total revenues, cost of fulfillment and processing services decreased to 79%
for the nine months ended March 31, 1999 from 88% for the nine months ended
March 31, 1998. This decrease was principally due to the increase in commission
revenue in the nine months ended March 31, 1999.
Marketing and promotion expenses increased by $4.2 million, or 117%, to $7.8
million for the nine months ended March 31, 1999 from $3.6 million for the nine
months ended March 31, 1998. The increase was primarily due to an increase in
Internet advertising, promotion and customer acquisition marketing.
Technology development expenses increased by $423,000, or 42%, to $1.4
million for the nine months ended March 31, 1999 from $1.0 million for the nine
months ended March 31, 1998. The increase was primarily due to costs related to
Web site maintenance and enhancements required to handle the increased volume
on our site as well as to improve the speed of order processing.
General and administrative expenses increased by $1.1 million, or 52%, to
$3.2 million for the nine months ended March 31, 1999 from $2.1 million for the
nine months ended March 31, 1998. The increase was primarily due to our
increased expenses required to handle the growth in Internet sales.
Year ended June 30, 1998 compared to year ended June 30, 1997.
Total revenues increased by $4.4 million, or 17%, to $30.7 million for the
year ended June 30, 1998 from $26.3 million for the year ended June 30, 1997.
The increase in total revenues was attributable to a significant increase in
the number of orders and was partially offset by a decline in average order
value.
28
<PAGE>
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.
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.
29
<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.
30
<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.
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
31
<PAGE>
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 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.
32
<PAGE>
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.
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.
33
<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. and The Vermont Teddy Bear
Company 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.
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.
34
<PAGE>
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) and Hickory Farms(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 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.
35
<PAGE>
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.
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 $36.99 to $89.99
NFL(TM) gift baskets
</TABLE>
FTD branded products. Each year, FTD designs floral and specialty gift
products for significant occasions, such as birthdays and anniversaries, and
major holidays, including the most popular floral holidays of Valentine's Day,
Easter, Mother's Day, Thanksgiving and Christmas. We typically offer
approximately 15 products in this category at any one time. Utilizing
professional floral designers, FTD begins developing new products well in
advance of their expected release dates and conducts extensive testing with
florists and consumers to help ensure the success of these new products.
FTD licensed products. FTD also seeks to enter into licensing arrangements
with other popular consumer brands with the goal of developing new and
innovative products. In this regard, FTDI has developed relationships with
companies that have well recognized brand names, such as The Walt Disney
Company, M&M/Mars, Inc., Hickory Farms, Inc. and The Vermont Teddy Bear
Company. 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 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.
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<PAGE>
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.
. 1-800-SEND-FTD 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.
Online advertising. We believe that we are one of the floral and specialty
gift industries' leaders in establishing a substantial online advertising
presence. We currently maintain a significant advertising presence on several
high-traffic Web sites, including Yahoo!, the Go NetworkTM, Netscape Netcenter,
MSN.com, Disney.com, InfoSpace, Excite, Hotbot, Infoseek and Lycos. We intend
to continue to seek new opportunities to expand this presence within top-tier
portal sites and highly trafficked content sites.
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.
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<PAGE>
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 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
38
<PAGE>
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 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.
39
<PAGE>
Legal Proceedings
We are not involved in any legal proceeding that management believes would
adversely affect our business, results of operations or financial condition.
Facilities
Our principal offices are located at 3113 Woodcreek Drive, Downers Grove,
Illinois 60515, and have historically been shared with FTDI, which owns the
property. Following this offering, we expect to continue to use a portion of
this property under a space-sharing arrangement with FTDI. As we expand, we
expect that suitable additional space will be available on commercially
reasonable terms, although no assurance can be made in this regard. We do not
own any real estate.
40
<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 June , 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.
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.
41
<PAGE>
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
Prior to or immediately following the closing of this offering, we plan to
add to our board of directors two independent directors who are not affiliated
with ftd.com, FTDI, FTD Corporation or any other party that has a right to
designate a member or members of our board of directors.
Board Committees
Prior to or immediately following the closing of this offering, our board of
directors will establish an audit committee and a compensation committee. The
audit committee will be responsible for reviewing our audited financial
statements and accounting practices, and considering and recommending the
employment of, and approving the fee arrangements with, independent accountants
for both audit functions and for advisory and other consulting services. The
compensation committee will review and approve the compensation and benefits
for our key executive officers, administer our employee benefit plans and make
recommendations to our board of directors regarding those matters.
Director Compensation
Directors who are not employees or affiliates of ftd.com, FTDI or FTD
Corporation are paid for each board or committee meeting attended and
are entitled to reimbursement for all reasonable out-of-pocket expenses
incurred in connection with their attendance at those meetings.
Compensation Committee Interlocks and Insider Participation
Historically, all compensation decisions relating to our executive officers
have been made by the full board of directors of FTDI. Following the closing of
this offering, the compensation committee will make all compensation decisions
regarding our executive officers. No interlocking relationship exists between
the
42
<PAGE>
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.
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 $1,856 in
flexible dollars for use in connection with FTD Corporation's benefit
plans.
FTD Corporation Option Grants in Last Fiscal Year
The following information sets forth information concerning grants of
options to purchase shares of Class A common stock of FTD Corporation to the
named executive officers during our fiscal year ended June 30, 1998.
FTD Corporation Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential
Realizable Value
at Assumed Annual
Number of % of Total Rates of Stock
Securities Options Price Appreciation
Underlying Granted to for Option Term
Options Employees Exercise ------------------
Granted in Fiscal Price Expiration 5% 10%
Name (#) Year ($/sh) Date ($)(3) ($)(3)
- ---- ---------- ---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Soenen....... 10,000(1) 4.8% 7.75 10/28/07 $162,889 $ 247,585
Frederick K. Johnson.... 50,000(2) 24.2% 7.75 10/28/07 814,447 1,237,923
50,000(2) 24.2% 15.00 10/28/07
</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 0/10,000 0/13,750
Frederick K. Johnson.... 0 0 0/100,000 0/137,500
</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 shares of our Class A common stock at the initial
public offering price exercise price of $ per share 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 Mr. Chapman will
be granted options to purchase shares of our Class A common stock at an
exercise price of $ per share as of the close of the offering. See "--
Stock Option Grants as of the Offering."
Equity Incentive Plan
The following description of our 1999 Equity Incentive Plan is a summary and
is qualified in its entirety by reference to the text of the 1999 Equity
Incentive Plan, which will be filed as an exhibit to the registration statement
of which this prospectus is a part.
On , 1999, our board of directors unanimously approved and adopted the
ftd.com inc. 1999 Equity Incentive Plan, subject to the approval of FTDI, our
sole stockholder 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
shares of our Class A common stock, plus any shares relating to awards that
expire, are
44
<PAGE>
forfeited or are transferred, surrendered or relinquished upon the payment of
any option price or upon satisfaction of any withholding amount. These shares
may be shares of original issuance or treasury shares or a combination thereof.
Notwithstanding anything else in the plan to the contrary and subject to
adjustment as provided under the plan, (1) the aggregate number of shares of
our Class A common stock actually issued or transferred by ftd.com upon the
exercise of incentive stock options, which meet the requirements of Section 422
of the Internal Revenue Code, will not exceed shares of our Class A common
stock; (2) no plan participant will be granted option rights and appreciation
rights for more than an aggregate of shares of our Class A common stock
during any five-year period under the plan; and (3) the number of shares of our
Class A common stock issued as restricted shares will not in the aggregate
exceed shares of our Class A common stock. In no event will any plan
participant in any calendar year receive an award of performance shares or
performance units having an aggregate maximum value as of their respective
dates of grant in excess of $ .
Directors, officers, consultants and other employees of ftd.com, FTDI or FTD
Corporation and their subsidiaries may be selected by our board of directors to
receive awards under the plan.
Option rights. Option rights may be granted under the plan that will entitle
the plan participant to purchase shares of Class A common stock at a price that
may not be less than the market value per share on the date of grant. Each
grant of option rights will be evidenced by an agreement between ftd.com and
the plan participant containing terms and provisions that are consistent with
the plan and approved by our board of directors.
Each grant of option rights will specify whether the option price is payable
(1) in cash or by check acceptable to ftd.com; (2) by the tender to ftd.com of
shares of Class A common stock owned by the plan participant for at least six
months having a value at the time of exercise equal to the option price; (3) by
delivery of irrevocable instructions to a financial institution or broker to
deliver promptly to ftd.com sale or loan proceeds with respect to the shares
sufficient to pay the total option price; or (4) by any combination of those
payment methods.
On or after the date of grant of any option rights, our board of directors
may provide for the automatic grant of reload option rights to a plan
participant upon the exercise of option rights, including reload option rights,
using shares of Class A common stock or other consideration specified in the
plan. Reload option rights are additional option rights granted automatically
to a plan participant upon the exercise of option rights. Reload option rights
will cover up to the number of shares of our Class A common stock, deferred
shares, stock payments, option rights or performance shares or the number of
shares of our Class A common stock having a value equal to the value of any
performance units surrendered to ftd.com upon any such exercise in payment of
the option price or to meet any withholding obligations. Reload option rights
may have an option price that is less than the applicable market value per
share at the time the reload option right is granted and will be on the other
terms specified by our board of directors, which may be the same as or
different from those of the original option rights.
Option rights granted under the plan may be options that are intended to
qualify as incentive stock options, options that are not intended to so qualify
or combinations of these alternatives.
Our board of directors may, on or after the date of grant of any option
rights, other than the grant of an incentive stock option, provide for the
payment of dividend equivalents to the plan participant on a current, deferred
or contingent basis or may provide that any of those equivalents be credited
against the option price.
No option right will be exercisable more than ten years from the date of
grant. Each grant will specify the period of continuous service with ftd.com,
FTDI or FTD Corporation or any subsidiary or other conditions, including the
achievement of management objectives, that must be satisfied before the option
rights will
45
<PAGE>
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.
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.
46
<PAGE>
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.
Deferred shares. A grant of deferred shares constitutes an agreement by
ftd.com to deliver shares of our Class A common stock to the plan participant
in the future in consideration of the performance of services and subject to
the fulfillment of the conditions, if any, as our board of directors may
specify during the deferral period, which is a period equal to . Our
board of directors may provide for a shorter deferral period in the case of a
change in the control of ftd.com or other event. During the deferral period,
the plan participant has no rights of ownership in the deferred shares, no
right to vote those shares and, except as provided under the plan, no right to
transfer any rights under the award. However, our board of directors may, at or
after the date of grant, authorize the payment of dividend equivalents on those
shares on a current, deferred or contingent basis, in either cash or in
additional shares of Class A common stock. Awards of deferred shares may be
made without additional consideration or in consideration of a payment by the
plan participant that is at or less than the market value per share at the date
of grant. However, any grant of deferred shares made for consideration paid at
the time of grant, including the foregoing of compensation owed by ftd.com to a
plan participant, will not be counted for purposes of the limit on the
allowable number of deferred shares.
Each grant of deferred shares will be evidenced by an agreement between
ftd.com and the plan participant containing terms and provisions that are
consistent with the plan and approved by our board of directors.
Stock payments. A stock payment is an agreement by us to (1) deliver shares
of our Class A common stock to the plan participant as payment or (2) permit a
plan participant to exercise an election or other right to receive or purchase
shares of our Class A common stock instead of, or in addition to, all or any
portion of the compensation that would otherwise become payable to a plan
participant in the form of cash. A stock payment may consist of the transfer by
ftd.com to a plan participant of shares of our Class A common stock as
additional compensation for services to ftd.com, without other payment for the
stock payment. The number of shares to be issued pursuant to stock payments
will be determined by our board of directors, and may be based upon criteria
determined to be appropriate by our board of directors on the date that stock
payment is granted or on any later date.
Prior to the receipt of shares of Class A common stock in satisfaction of a
stock payment, a plan participant will not have any rights of ownership in
those shares, will not have any right to vote those shares and, except as
otherwise provided by the plan, will not have any right to transfer any rights
under his or her award. At or after the date of grant, our board of directors
may, however, authorize the payment of dividend equivalents with respect to the
stock payment on a current, deferred or contingent basis, in either cash or
shares of Class A common stock.
Each stock payment will be evidenced by an agreement executed between
ftd.com and the plan participant containing terms and provisions that are
consistent with the plan and approved by our board of directors.
47
<PAGE>
Performance shares and performance units. A performance share is a
bookkeeping unit that records the equivalent of one share of our Class A common
stock and a performance unit is a bookkeeping unit that records the equivalent
of $ . Any grant of performance shares or performance units will specify
management objectives that, if achieved during a specified performance period,
will result in payment or early payment of the award. Each grant may specify in
respect of those specified management objectives a minimum acceptable level of
achievement and a formula for determining the number of performance shares or
performance units that will be earned if performance is at or above the minimum
level, but falls short of full achievement of the specified management
objectives. Each grant of performance shares or performance units must specify
that, before the performance shares or performance units are deemed earned and
paid, ftd.com or a committee of outside directors must certify that the
management objectives have been satisfied.
In addition, any grant of performance shares or performance units may
specify that the amount payable with respect thereto may not exceed a maximum
specified by our board of directors at the date of grant. To the extent earned,
the performance shares and performance units will be paid to the plan
participant at the time and in the manner determined by our board of directors
in cash, shares of our Class A common stock or any combination thereof. The
grant may provide for the payment of dividend equivalents thereon in cash or in
shares of our Class A common stock on a current, deferred or contingent basis.
Each grant of performance shares or performance units will be evidenced by
an agreement between ftd.com and the plan participant containing terms and
provisions that are consistent with the plan and approved by our board of
directors.
Management objectives. The plan requires that our board of directors
establish "management objectives" for purposes of performance shares and
performance units. When so determined by our board of directors, option rights,
appreciation rights, restricted shares and dividend credits may also specify
management objectives. Management objectives may be described in terms of
either company-wide objectives or objectives that are related to the
performance of the individual plan participant or the subsidiary, division,
department, region or function within the company in which the plan participant
is employed. Management objectives may be made relative to the performance of
other corporations. Management objectives applicable to any award to a plan
participant who is, or is determined by our board of directors likely to
become, a "covered employee" within the meaning of Section 162(m) of the
Internal Revenue Code will be limited to specified levels of, or growth in, the
following criteria: market value; book value; earnings per share; market share;
operating profit; net income; cash flow; return on capital; return on assets;
return on equity; margins; product volume growth; earnings, including earnings
before interest, taxes, depreciation and other non-cash items; debt/capital
ratio; costs or expenses; net assets; revenues; total return to shareholders;
and customer satisfaction.
Except where a modification would result in an award to a "covered employee"
no longer qualifying as performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code, the plan administrator may modify
those management objectives or the related minimum acceptable level of
achievement, in whole or in part, as the plan administrator deems appropriate
and equitable in the light of various events and circumstances, such as changes
in ftd.com business, operations, corporate structure or capital structure.
Transferability. Except as otherwise determined by our board of directors
but subject to the provisions of the plan, no option right, appreciation right
or other derivative security granted under the plan is transferable by a plan
participant other than by will or the laws of descent and distribution. Except
as otherwise determined by our board of directors, option rights and
appreciation rights are exercisable during the plan participant's lifetime only
by the plan participant or the plan participant's guardian or legal
representative. Notwithstanding the foregoing, but subject to prior board
authorization, option rights (other than incentive stock options), appreciation
rights and other awards granted under the plan may be transferred by a plan
participant, without payment of consideration therefor, to some members of such
plan participant's immediate family (or trusts for the benefit of, or entities
consisting solely of, members of such immediate family), provided that no such
transfer will be effective unless (1) the plan participant has provided us with
reasonable notice thereof, (2) the
48
<PAGE>
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 carried out only by a committee of the board, or subcommittee thereof,
consisting of not less than two "outside directors," as defined under Section
162(m), in a manner consistent with the rules governing performance-based
compensation under Section 162(m). Our board of directors is authorized to
interpret the plan and related agreements and other documents.
Amendments. Our board of directors may amend the plan from time to time in
whole or in part without further approval by our stockholders except where
stockholder approval is otherwise required by applicable law or the rules of
the principal exchange or automated quotation system on which the shares of
Class A common stock are then trading.
Federal income tax consequences. The following is a brief summary of some of
the federal income tax consequences of various transactions under the plan
based on federal income tax laws in effect on May , 1999. This summary is not
intended to be complete and does not describe state or local tax consequences.
Section 162(m) considerations. Section 162(m) of the Internal Revenue Code
disallows a publicly held corporation's deduction for compensation in excess of
$1.0 million per taxable year paid to the corporation's chief executive officer
and other four most highly compensated executives unless various exceptions are
satisfied. One of these exceptions allows for the deduction of performance-
based compensation in excess of $1.0 million where a number of criteria are
satisfied. These criteria include (1) payment only on satisfaction of one or
more pre-established, non-discretionary, objective performance goals; (2)
awards being granted at the discretion of a compensation committee comprised of
two or more "outside directors," as defined under Section 162(m); (3)
stockholder approval after disclosure of material terms; and (4) payment of
awards only after certification by the compensation committee that material
terms were satisfied.
49
<PAGE>
Under the plan, awards of performance shares and performance units generally
are intended to qualify, and awards of option rights, appreciation rights and
restricted shares may be intended to qualify, as performance-based compensation
under Section 162(m).
Non-qualified stock options. In general, (1) no income will be recognized by
a plan participant at the time a non-qualified option right is granted; (2) at
the time of exercise of a non-qualified option right, ordinary income will be
recognized by the plan participant in an amount equal to the difference between
the option price paid for the shares and the fair market value of the shares,
if unrestricted, on the date of exercise; and (3) at the time of sale of shares
acquired pursuant to the exercise of a non-qualified option right, appreciation
(or depreciation) in value of the shares after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Incentive stock options. No income generally will be recognized by a plan
participant upon the grant or exercise of an incentive stock option. If shares
of Class A common stock are issued to the plan participant pursuant to the
exercise of an incentive stock option, and if no disqualifying disposition of
those shares is made by that plan participant within two years after the date
of grant or within one year after the transfer of those shares to the plan
participant, then upon sale of those shares, any amount realized in excess of
the option price generally will be taxed to the plan participant as a long-term
capital gain and any loss sustained will be a long-term capital loss.
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
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<PAGE>
previously taxable to the plan participant), and the capital gains/loss holding
period for those shares will also commence on such date.
Performance shares and performance units. No income generally will be
recognized upon the grant of performance shares or performance units. Upon
payment in respect of the earn-out of performance shares or performance units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any unrestricted shares of Class A common stock received.
Tax consequences to the company for which services are provided. To the
extent that a plan participant recognizes ordinary income in the circumstances
described above, ftd.com or the company for which the plan participant performs
services will be entitled to a corresponding deduction provided that, among
other things, the income meets the test of reasonableness, is an ordinary and
necessary business expense, is not an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code and is not disallowed by
the $1.0 million limitation on some executive compensation under Section 162(m)
of the Internal Revenue Code.
Plan benefits. The types of awards that may be granted in the future under
the plan are subject to the discretion of our board of directors and,
therefore, cannot be determined. It is not possible to determine all amounts
that may be awarded in the future under the plan.
Stock Option Grants as of the Offering
Effective as of the close of this offering, our board of directors has made
the following stock option grants to our executive officers under our 1999
Equity Incentive Plan:
Grants to Purchase Shares of Class A Common Stock of ftd.com
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for
Options Employees or Base Option Term
Granted in Fiscal Price Expiration -----------------------
Name (#)(1) Year ($/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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<PAGE>
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 May 31, 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
Perry Acquisition Partners, L.P. (2).... 0 0 0 0 7,458,862 48.6% 60.2%
Bain Capital, Inc. (3).................. 0 0 0 0 2,679,616 17.5 21.6
Directors and Executive Officers:
Richard C. Perry (2).................... 0 0 0 0 50,000 * *
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.
(2) 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, Perry Acquisition Partners
52
<PAGE>
may be deemed to be able to exercise control over ftd.com. Richard C. Perry
is the managing member of the sole general partner of Perry Acquisition
Partners. He 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.
(3) 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.
(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.
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, (1) we will pay
our proportionate share of FTD Corporation's tax liability computed as if we
were filing a separate return and (2) any tax loss benefits attributable to us
will be refunded to us by FTD Corporation.
Historical Relationships
As a subsidiary of FTDI, we receive various services from FTDI, including
technical, human resources, accounting, administrative, legal and other
services. Prior to the closing of this offering, our financial statements have
reflected allocations for these services rendered by FTDI to us. We believe
such allocations have been made on a reasonable and consistent basis; however,
they are not necessarily indicative of, nor is it practicable for us to
estimate, the level of expenses that would have otherwise been incurred had we
operated as a separate, stand-alone company.
53
<PAGE>
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 terms of these agreements are no less favorable
to us than those that could have been obtained from an unaffiliated third
party. So long as (1) FTD Corporation beneficially owns 25% or more of the
voting power of the common stock of ftd.com, and no other person owns a greater
percentage, or (2) directors, officers or affiliates of FTD Corporation or its
subsidiaries constitute a majority of our board of directors, any amendments to
the Intercompany Agreements must be approved by a majority of our board of
directors, which majority must include at least one-half of our independent
directors. For example, if we have only two independent directors, the majority
must include at least one of those independent directors.
Trademark License Agreement. We have the non-exclusive right to use FTDI's
trademarks in connection with the sale of flowers and specialty gifts to
consumers on the Internet and telephone. We pay FTDI a royalty equal to one
percent of our order revenues and service fees, net of discounts 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 FTDI) 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 may enter into the prohibited business. If we do deliver to FTDI
an offer to acquire the prohibited business, then FTDI, within 90 days of
receipt of our offer, must accept our offer or provide us with the terms of the
best bona fide third party offer it has received to acquire or license the
prohibited business. Within 30 days following receipt of the terms of the third
party offer, we must either offer to acquire the prohibited business on the
terms described in the third party offer, or permit FTDI to proceed with the
sale of the prohibited business to the third party offeror. These obligations
will terminate (1) six months after the trademark license terminates if FTDI
terminates the license after the acquisition by a third party of 35% or more of
the voting control of ftd.com with no other person owning a greater percentage,
(2) one year after the trademark license terminates if FTDI terminates the
license as a result of an acquisition of 20% or more of the voting control of
ftd.com, (3) two years after the trademark license terminates if we terminate
due to material
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breach by FTDI or its bankruptcy, dissolution or insolvency, or (4) when the
trademark license terminates for any other reason.
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 may enter into
the prohibited business. If FTDI does deliver to us an offer to acquire the
prohibited business, then we, within 90 days of receipt of FTDI's offer, must
accept FTDI's offer or provide FTDI with the terms of the best bona fide third
party offer we have received to acquire or license the prohibited business.
Within 30 days following receipt of the terms of the third party offer, FTDI
must either offer to acquire the prohibited business on the terms described in
the third party offer, or permit us to proceed with the sale of the prohibited
business to the third party offeror. These obligations will terminate two years
after termination of the trademark license if FTDI terminates the trademark
license due to our material breach 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."
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 , 2000.
Commission Agreement. We receive at least a $5.00 commission on every order
that we clear through the FTD Clearinghouse pursuant to a Commission Agreement
with FTDI. If FTDI agrees to pay a similarly situated third party a more
economically advantageous commission fee, FTDI must adjust our commission to
reflect the more favorable terms. This type of commission structure has been
adopted by the market over the
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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 contractual right to
designate six members of the board of directors of each subsidiary of FTDI,
including us, and Bain Capital has the contractual right to designate two
members of the board of directors of each subsidiary of FTDI, including us.
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. The actions that the
directors appointed by the Bain Capital entities have the contractual right to
approve are: amendments to our certificate of incorporation or bylaws;
increases or decreases in the number of our directors; issuances or sales of
our securities; a merger, consolidation or other significant business
combination transaction involving us; the repurchase, exchange or redemption 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.
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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 share of Class A common stock and Class B common stock. We may not
subdivide or combine shares of Class A common stock or Class B common stock
without at the same time proportionally subdividing or combining shares of the
other class.
Conversion. Each share of Class B common stock is convertible, at the option
of the holder, into one share of Class A common stock at any time prior to a
tax-free spin-off of ftd.com to the stockholders of FTD Corporation, any entity
that owns 100% of FTD Corporation's common stock or any successor to FTD
Corporation by merger or consolidation. Following a tax-free spin-off, if any
occurs, shares of Class B common stock will no longer be convertible into
shares of Class A common stock at the option of the holder.
Any shares of Class B common stock transferred to a person other than FTD
Corporation, FTDI, any of their subsidiaries or successors or a strategic
partner prior to a tax-free spin-off automatically will be converted into
shares of Class A common stock (on a one-for-one basis) upon any such transfer.
A "strategic partner"
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means any entity or group of affiliated entities that acquires Class B common
stock constituting, in the aggregate, at least 10% of the number of shares of
all classes of common stock outstanding and that, in the good faith
determination of a majority of our disinterested directors, as determined prior
to the acquisition of the Class B common stock by that entity or group, is
considered to be a strategic alliance in the best interests of our business and
our stockholders. Shares of Class B common stock distributed to the
stockholders of FTD Corporation pursuant to a transaction intended to qualify
as a tax-free spin-off will not convert into shares of Class A common stock in
connection with that transaction. Following a tax-free spin-off, shares of
Class B common stock will be transferable as Class B common stock, subject to
applicable laws. Shares of Class B common stock automatically will convert into
shares of Class A common stock on the fifth anniversary of the tax-free spin-
off, unless prior to the tax-free spin-off, FTD Corporation or FTDI delivers to
us an opinion of counsel reasonably satisfactory to us to the effect that the
automatic conversion could preclude FTD Corporation or FTDI from obtaining a
favorable ruling from the Internal Revenue Service that the distribution of
FTDI's Class B common stock to the stockholders of FTD Corporation would be a
tax-free spin-off. If we receive that opinion, we will submit approval of such
conversion to a vote of the holders of the common stock as soon as practicable
after the fifth anniversary of the tax-free spin-off, unless FTD Corporation or
FTDI delivers to us an opinion of counsel reasonably satisfactory to us prior
to the fifth anniversary that the vote could adversely affect the tax-free
status of the spin-off. Approval of the conversion will require the affirmative
vote of the holders of a majority of the shares of both the Class A common
stock and Class B common stock present and voting, voting together as a single
class, with each share of Class B common stock entitled to only one vote for
that purpose. We cannot assure you that the conversion will in fact be
consummated. The requirement to submit the conversion to a vote of the holders
of common stock is intended to ensure that the desired tax treatment of the
tax-free spin-off is preserved if the Internal Revenue Service were to
challenge the automatic conversion as violating the requirement that FTDI own
80% of the voting power of ftd.com's common stock immediately before the spin-
off distribution. We believe that FTDI has no current plans with respect to a
tax-free spin-off of ftd.com.
All shares of the Class B common stock automatically will convert into Class
A common stock if a tax-free spin-off has not occurred and the number of
outstanding shares of Class B common stock beneficially owned by FTDI falls
below 20% of the aggregate number of outstanding shares of all classes of
common stock. This mechanism will prevent FTDI from decreasing its economic
interest in ftd.com to less than 20% while still retaining control of more than
50% of the voting power of our common stock. All conversions will be effected
on a share-for-share basis.
Other rights. In the event of any merger or consolidation of ftd.com with or
into another company in connection with which our shares of common stock are
converted into or exchangeable for shares of stock, other securities or
property (including cash) of the other company, all holders of Class A common
stock and Class B common stock will be entitled to receive the same kind and
amount of shares of stock and other securities and property (including cash) of
the other company.
On liquidation, dissolution or winding up of ftd.com, after payment in full
of the amounts required to be paid to holders of our preferred stock, if any,
all holders of Class A common stock and Class B common stock are entitled to
share ratably in any of our assets available for distribution to holders of
shares of common stock.
No shares of Class A common stock or Class B common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock.
Upon the closing of this offering, all the outstanding shares of Class A
common stock and Class B common stock will be validly issued, fully paid and
nonassessable.
Preferred Stock
Our Board of Directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one or more
classes or
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series, and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series of the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock, impeding or
delaying a possible takeover and adversely affecting the voting and other
rights of the holders of common stock.
Stock Options
Effective as of the close of this offering, (1) options to purchase a total
of shares of Class A common stock will be outstanding, none of which will
be vested; and (2) up to 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."
Anti-Takeover Effects of Various Provisions of Delaware Law and Our Certificate
of Incorporation and Bylaws
Upon the closing of this offering, ftd.com will be subject to the provisions
of Section 203 of the Delaware General Corporation Law. Subject to specific
exceptions, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
. the transaction in which such stockholder became an "interested
stockholder" is approved by the Board of Directors prior to the date the
"interested stockholder" attained that status;
. upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding those shares owned by persons
who are directors and also officers); or
. on or subsequent to the date, the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
"Business combinations" include mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." Subject to
various exceptions, an "interested stockholder" is a person who, together with
his or her affiliates and associates, owns, or within three years did own, 15%
or more of the corporation's voting stock. The restrictions in this statute
would not apply to a "business combination" with FTDI or any of its
subsidiaries; however, they could prohibit or delay the accomplishment of
mergers or other takeover or change-in-control attempts with respect to ftd.com
and, therefore, may discourage attempts to acquire ftd.com.
In addition, various provisions of our certificate of incorporation and
bylaws, which are summarized in the following paragraphs, may be deemed to have
an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
Cumulative voting. Our certificate of incorporation expressly denies
stockholders the right to cumulate votes in the election of directors.
Stockholder action; special meeting of stockholders. Our certificate of
incorporation eliminates the ability of stockholders to act by written consent.
It further provides that special meetings of our stockholders may be called
only by the Chairman of the Board of Directors or a majority of the Board of
Directors.
Advance notice requirements for stockholder proposals and director
nominations. Our Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate
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candidates for election as directors at an annual meeting of stockholders, must
provide timely notice of that proposal or nomination in writing. To be timely,
a stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 60 days nor more than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders. However, in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice
by the stockholder in order to be timely must be received not later than the
close of business on the tenth day following the date on which notice of the
date of the annual meeting was mailed to stockholders or made public, whichever
first occurs. In the case of a special meeting of stockholders called for the
purpose of electing directors, notice by the stockholder in order to be timely
must be received not later than the close of business on the tenth day
following the day on which notice of the date of the special meeting was mailed
or public disclosure of the date of the special meeting was made, whichever
first occurs. Our Bylaws also specify 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.
Prior to the closing of this offering, we intend to obtain directors' and
officers' insurance providing indemnification for our directors, officers and
certain employees for certain liabilities. We believe that these
indemnification provisions and insurance are necessary to attract and retain
qualified directors and executive officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers pursuant
to these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought. We
are unaware of any threatened litigation that may result in claims for
indemnification.
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Authorized but unissued shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval. We may use these additional shares for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of ftd.com by means of a
proxy contest, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority in interest of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws,
unless a corporation's certificate of incorporation or bylaws, as the case may
be, requires a greater percentage. Following the offering, FTDI, on its own, as
the beneficial owner of approximately 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 Corporation, 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 common stock) for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
. the average weekly trading volume of the Class A common stock on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. A person
who is not our affiliate at any time during the 90 days preceding a sale and
who has beneficially owned shares for at least two years, including the holding
period of any prior owner other than an affiliate, would be entitled to sell
shares immediately following this offering under Rule 144(k) without regard to
the volume limitations, manner-of-sale provisions or notice requirements of
Rule 144.
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Registration Rights
Prior to the closing of this offering, we will enter into an agreement with
FTDI 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 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.
64
<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 and Volpe
Brown Whelan & Company, LLC, has severally agreed to purchase from us the
aggregate number of shares of Class A common stock set forth opposite its name
below:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Thomas Weisel Partners LLC..................................
Volpe Brown Whelan & Company, LLC...........................
---------
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.
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 With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Public offering price..........................
Underwriting discounts and commissions payable
by us.........................................
Proceeds, before expenses, to us...............
</TABLE>
65
<PAGE>
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 represent % 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 under the
Securities Act or will contribute to payments that the underwriters may be
required to make in respect of those liabilities.
Lock-up Agreements
FTD Corporation, 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
66
<PAGE>
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.
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 other persons associated with us (including FTD florists) who express an
interest in purchasing shares of Class A common stock in the offering. The
number of shares available for sale to the general public in the offering will
be reduced to the extent those persons purchase these reserved shares.
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.
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.
67
<PAGE>
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
filed public offerings of equity securities, of which have been
completed, and has acted as a syndicate member in an additional public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with ftd.com or any of its officers, directors or
controlling persons, except with respect to its contractual relationship with
ftd.com pursuant to the underwriting agreement entered into in connection with
this offering.
LEGAL MATTERS
The validity of the shares of Class A common stock offered by this
prospectus will be passed upon for us by Jones, Day, Reavis & Pogue, Chicago,
Illinois. Various legal matters in connection with this offering will be passed
upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. Some partners of Skadden, Arps, Slate, Meagher & Flom LLP have
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 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.
68
<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 third 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>
June 30, March 31,
---------------------- -----------
ASSETS 1997 1998 1999
------ ----------- --------- -----------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Accounts receivable....................... $ 217,898 213,725 48,477
Prepaid expenses.......................... 29,224 19,351 127,178
----------- --------- ----------
Total current assets.................. 247,122 233,076 175,655
Distribution agreements, net of
accumulated amortization of $520,833 at
June 30, 1998 and $1,653,333 at March 31,
1999..................................... -- 1,979,167 1,535,417
----------- --------- ----------
Total assets.......................... $ 247,122 2,212,243 1,711,072
=========== ========= ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
Current liabilities:
Accounts payable.......................... $ 2,066,592 1,871,720 2,501,798
Unearned revenue.......................... -- -- 135,870
Accrued liabilities, including amounts due
to FTDI of $112,000, $289,000, and
$160,000 at June 30, 1997, June 30, 1998,
and March 31, 1999, respectively......... 198,267 491,139 442,172
----------- --------- ----------
Total current liabilities............. 2,264,859 2,362,859 3,079,840
----------- --------- ----------
Stockholder's deficit..................... (2,017,737) (150,616) (1,368,768)
----------- --------- ----------
Total liabilities and stockholder's
deficit.............................. $ 247,122 2,212,243 1,711,072
=========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ftd.com inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended
Years ended June 30, March 31,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
------------ ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Order revenues and
service fees, net of
discounts............ $ 18,489,940 26,230,331 30,423,315 19,072,070 28,519,688
Commissions from FTDI. -- -- -- -- 2,595,710
Other revenues........ 51,191 25,104 239,940 9,924 67,312
------------ ---------- ---------- ---------- ----------
Total revenues...... 18,541,131 26,255,435 30,663,255 19,081,994 31,182,710
Fulfillment and
processing services,
including expenses
from FTDI of
$1,517,027,
$2,150,481 and
$2,520,176 for the
years ended June 30,
1996, 1997, and 1998,
respectively, and
$1,417,012 and
$2,146,604 for the
nine months ended
March 31, 1998 and
1999, respectively... 15,431,163 22,283,726 26,324,568 16,800,747 24,518,905
------------ ---------- ---------- ---------- ----------
Gross profit............ 3,109,968 3,971,709 4,338,687 2,281,247 6,663,805
Operating expenses:
Marketing and
promotion, including
expenses from FTDI of
$1,542,990,
$1,622,056, and
$1,853,945 for the
years ended June 30,
1996, 1997, and 1998,
respectively, and
$1,111,797 and
$2,561,256 for the
nine months ended
March 31, 1998 and
1999, respectively... 4,187,929 4,863,708 5,994,464 3,614,471 7,797,304
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. $ (.08) $ (.09) $ (.10) $ (.07) $ (.09)
============ ========== ========== ========== ==========
Pro forma shares used in
the calculations of
basic and diluted loss
per share.............. 40,920,000 40,920,000 40,920,000 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.
Accounts Receivable
Accounts receivable includes amounts owed from corporate customers for
purchases of floral, specialty gift products, and gift certificates through the
Company's toll free number. The credit risk associated with collection of
accounts receivable is minimal due to the nature of the quality of the customer
base.
Distribution Agreements
FTDI, on behalf of the Company, has entered into distribution agreements
with various vendors, principally related to Internet advertising. The costs of
these agreements are being amortized over their
F-7
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
respective useful lives, which range from one to two years, using the straight-
line method. The Company periodically evaluates whether events and
circumstances that have occurred indicate that the remaining balances of
intangibles may not be recoverable or that the remaining estimated useful lives
may warrant revision. When such factors indicate that intangibles should be
evaluated for possible impairment, the Company uses an estimate of undiscounted
future cash flows to measure whether the intangibles are recoverable, and over
what period. The Company has determined that as of June 30, 1998 there has been
no impairment in the carrying value of the distribution agreements.
Income Taxes
ftd.com inc. is included in the consolidated U.S. income tax return of FTD.
Pursuant to a tax sharing agreement, as amended, effective as of the
consummation of the transaction described in note (6), the provision for income
taxes of ftd.com inc. has been calculated as if the Company were a stand-alone
corporation filing separate tax returns.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Cumulative taxes have been settled through stockholder's deficit.
Revenue and Cost Recognition
Order Revenues and Service Fees
The Company records revenues and costs for fulfillment and processing
services when an order is fulfilled. Generally, when a customer makes a
purchase that will be fulfilled by an FTD florist, the Company receives the
order, charges the customer's credit card, and transmits the order to FTDI.
FTDI then transmits the order to the fulfilling florist. The Company recognizes
100% of the order value as revenue and recognizes associated costs for
fulfillment and processing services. Orders that are not fulfilled by an FTD
florist, such as holiday gift baskets, are fulfilled by a manufacturer or third
party distributor. In addition, the Company receives service fees for
processing all orders. The service fees for orders placed over the Internet
have ranged from $4.95 to $7.99, and the service fees for orders placed over
the telephone have ranged from $8.95 to $9.99. From time to time, discounts are
offered in connection with product promotions or holiday promotions to selected
customer groups. Order revenues and service fees are reported net of discounts.
Commissions
Commissions revenue represents a fee paid to the Company by FTDI for orders
that are cleared through the FTD Clearinghouse. Consistent with industry
practice, commissions revenue is earned pursuant to an arrangement with FTDI
effective as of July 1, 1998 and is recognized when the order is fulfilled.
Unearned Revenue
Unearned revenue relates to gift certificates sold by the Company that the
Company is required to repurchase if the gift certificates are not redeemed by
July 31, 1999. Revenue is only recognized in respect of these certificates upon
redemption.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities in connection with the preparation of
F-8
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires that public companies report certain information about operating
segments in their annual financial statements and in subsequent condensed
financial statements of interim periods issued to shareholders. This statement
also requires that public companies report certain information about their
products and services, the geographic areas in which they operate and their
major customers. The Company has determined that the adoption of this new
standard did not have an effect on the Company's disclosure for all periods
presented because the Company currently operates as one segment.
Marketing and Promotion Costs
Marketing and promotion costs, which principally consist of advertising, are
charged to expense as incurred and include allocations from FTDI of $1,542,990,
$1,622,056, and $1,853,945 in fiscal 1996, 1997, and 1998, respectively.
Effective as of the consummation of the transaction described in note (6), it
is anticipated that FTDI will no longer allocate these marketing and promotion
costs to the Company.
Concentration of Customer and Credit Risks
The Company's customers are comprised of consumers that utilize the Web site
or toll-free number and purchase products. Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist
principally of accounts receivable. As of June 30, 1997 and 1998, there were no
significant concentrations of accounts receivable nor related credit risks.
Concentration of Suppliers
The Company is dependent upon certain significant vendors to supply
products, the floral fulfillment capability and gift product delivery
capability necessary for the successful fulfillment of customer orders. In
addition, the Company utilizes the communication network of FTDI as an
important component of its operation. Although there are a limited number of
suppliers of this type of system, management believes that other suppliers
could provide a similar network on comparable terms. A change in suppliers,
however, could cause a delay in order processing and fulfillment and a possible
reduction in the quality of service, which could affect operating results
adversely.
The Company currently utilizes hardware, software, and services that support
its web site, an important component of its operation, from a third party
vendor under an operating service agreement. Although there are a limited
number of web site service companies, management believes that other companies
could provide acceptable service. The terms of the agreement provides for
variable payments, which are based on the number of completed orders, and an
annual term with renewal options. The cost to the Company for these services is
therefore derived from the volume of order transactions. A change in service
companies, however, could cause a possible reduction in the quality of service,
which could affect operating results adversely.
Fair Value of Financial Instruments
Financial instruments, including accounts receivable, accounts payable, and
accrued liabilities are reflected in the financial statements at carrying or
contract value. Those values were not materially different from their fair
values.
F-9
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Interim Financial Information
The financial statements as of March 31, 1999 and for the nine months ended
March 31, 1998 and 1999, respectively are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial statements for the interim
periods have been included. The results of operations for the nine months ended
March 31, 1999 are not necessarily indicative of the results to be achieved for
the full fiscal year.
(3) Liquidity
Operations for the current and prior years did not generate sufficient cash
flow to satisfy current obligations. FTDI has funded such obligations and has
made a commitment to continue to provide financing to the Company until the
transaction described in note (6) is consummated.
(4) Related Party Transactions
The Company engages in transactions with FTDI in the normal course of its
business. These transactions include purchases of management and administrative
services, network services, facility rental, and intellectual property license
fees, among various other transactions as follows:
FTDI pays the Company commissions for orders that are cleared through the
FTD Clearinghouse. For these orders, FTDI also charges the Company customary
clearing fees. The Company also utilizes FTDI's credit card processing
services. FTDI charges the Company a percentage of the order value to utilize
these credit card processing services. Costs for clearing services and credit
card processing expenses are included in fulfillment and processing services,
and amounted to $1,517,027 in fiscal 1996, $2,150,481 in fiscal 1997,
$2,520,176 in fiscal 1998, and $1,417,012 and $2,146,604 in the nine months
ended March 31, 1998 and 1999, respectively.
The Company uses FTDI's trademarks in connection with the sale of goods and
services through its Web site and toll-free telephone number. The Company
expects to enter into an agreement, effective as of the consummation of the
transaction described in note (6), with FTDI that includes provisions for
royalty payments of 1% of order revenues and service fees, net of discounts, a
99-year term, and termination at FTDI's option in the event that 20% or more of
the Company's ownership is obtained by an organization not affiliated with
FTDI. Consistent with management's decision to allocate various historical
costs and expenses between the Company and FTDI, this royalty expense has been
included in general and administrative expenses. This royalty expense amounted
to $184,899, $262,303, $304,233 in fiscal 1996, 1997 and 1998 respectively, and
$190,721 and $285,197 in the nine months ended March 31, 1998 and 1999,
respectively.
Administration costs for services provided by FTDI to the Company were
determined by identifying all of FTDI's personnel who supported the Company.
Their pay, based on the estimated number of hours of service provided, plus
benefits, was used to calculate these costs.
The Company does not maintain separate physical facilities. It uses space of
FTDI and is charged a market rate estimate. The Company is also charged a pro-
rata share, based on square footage, of the utilities, property taxes, and
other occupancy costs. Internet/telecom usage costs include an allocation of
monthly depreciation for all hardware and software based on usage by the
Company, as well as monthly rates for telecommunications expenses consumed by
the Company.
F-10
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
FTDI also provides the Company with various services, including technical,
human resources, accounting, administrative, legal and other. In consideration
for these services, FTDI has allocated a portion of its overhead costs related
to such services to the Company. The allocations were estimated using
proportional cost allocation methods.
Operating expenses include $3,818,052, $4,161,107 and $4,410,433 in fiscal
1996, 1997 and 1998, respectively, and $2,871,705 and $4,854,277 in the nine
months ended March 31, 1998 and 1999, respectively, in allocated expenses
related to above described administration costs, facilities, occupancy,
internet/telecom usage and overhead costs related to the various services
provided by FTDI. In management's opinion, the methods to identify and allocate
costs to the Company for these services provided by FTDI are reasonable.
Employees of the Company are eligible for various benefits under programs
maintained by FTDI. Any related assets or liabilities are not included in the
Company's financial statements, but rather, are reported as part of
stockholder's deficit.
(5) Income Taxes
Income tax benefit for the years ended June 30, 1996, 1997, and 1998
consists of:
<TABLE>
<CAPTION>
Current Deferred Total
---------- -------- ----------
<S> <C> <C> <C>
Year ended June 30, 1996:
U.S. Federal................................... $1,780,113 $ 0 $1,780,113
State and local................................ 423,679 0 423,679
---------- -------- ----------
$2,203,792 $ 0 $2,203,792
========== ======== ==========
Year ended June 30, 1997:
U.S. Federal................................... 1,929,611 0 1,929,611
State and local................................ 459,261 0 459,261
---------- -------- ----------
$2,388,872 $ 0 $2,388,872
========== ======== ==========
Year ended June 30, 1998:
U.S. Federal................................... 1,951,603 145,844 2,097,447
State and local................................ 464,495 34,712 499,207
---------- -------- ----------
$2,416,098 $180,556 $2,596,654
========== ======== ==========
</TABLE>
Income tax benefit differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to losses before income tax expense as a result
of the net-of-tax effect of state and local income taxes.
Deferred income tax expense for the year ended June 30, 1998 is derived from
the excess amortization of the distribution agreement for financial reporting
purposes over tax reporting in the amount of $451,389.
At June 30, 1998, cumulative taxes since the acquisition of 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.
F-11
<PAGE>
ftd.com inc.
NOTES TO FINANCIAL STATEMENTS--(Concluded)
On May 19, 1999, the Company designated 90,000 shares of preferred stock as
Series A 8% Cumulative Redeemable Convertible Preferred Stock (the "Series A
Preferred Stock"). On May 20, 1999, 30,000 shares of the Series A Preferred
Stock were issued and sold to an investor for consideration of $3,000,000. On
May 25, 1999, 60,000 shares of the Series A 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.
In , 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.
FTDI is a party to a credit agreement that imposes various restrictions on
FTDI and its subsidiaries, including restrictions that limit the incurrence of
additional debt, pay dividends or make other payments or investments,
consummate asset sales, incur liens, merge, consolidate, or dispose of
substantial assets, among other restrictions. In addition, substantially all of
the assets of FTDI and its subsidiaries are pledged as security under the
credit agreement. In connection with the capitalization of the Company, the
credit agreement has been amended to exclude the Company from these terms and
restrictions in exchange for FTDI's pledge of its shares in the Company and
other monetary consideration.
F-12
<PAGE>
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- -------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this
prospectus. Neither ftd.com nor any underwriter has authorized anyone to
provide prospective investors with different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is correct only as of the date of
this prospectus, regardless of the time of the delivery of this prospectus or
any sale of these securities.
No action is being taken in any jurisdiction outside the U.S. to permit a
public offering of the common stock or possession or distribution of this
prospectus in any of these jurisdictions. Persons who come into possession of
this prospectus in jurisdictions outside the U.S. and Canada are required to
inform themselves about and to observe the restrictions of that jurisdiction
related to this offering and the distribution of this prospectus.
-----------------------
TABLE OF CONTENTS
-----------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 22
Dividend Policy........................................................... 22
Capitalization............................................................ 23
Dilution.................................................................. 24
Selected Financial Data................................................... 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 34
Management................................................................ 41
Principal Stockholders.................................................... 52
Transactions with Management and Others................................... 53
Description of Capital Stock.............................................. 58
Shares Eligible for Future Sale........................................... 63
Underwriting.............................................................. 65
Legal Matters............................................................. 68
Experts................................................................... 68
Where You Can Find More Information....................................... 68
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
Internet Distribution Offered by
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.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time may avoid liability by causing his or her dissent to such
actions to be entered in the books containing the minutes of the meetings of
the board of directors at the time such action occurred or immediately after
such absent director receives notice of the unlawful acts.
II-1
<PAGE>
Our Certificate of Incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of
fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to ftd.com or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under the section 174 of the DGCL regarding unlawful dividends and stock
purchases; or
. for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our Bylaws provide that:
. we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
. we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined by
our Board of Directors; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
The indemnification provisions contained in ftd.com's Certificate of
Incorporation and Bylaws are not exclusive of any other rights to which a
person may be entitled by law, agreement, vote of stockholders or disinterested
directors or otherwise. In addition, ftd.com maintains insurance on behalf of
its directors and executive officers insuring them against any liability
asserted against them in their capacities as directors or officers or arising
out of such status.
Item 15. Recent Sales of Unregistered Securities.
Prior to the completion of the offering described herein, ftd.com issued
3,410,000 shares of Class B common stock to Florists' Transworld Delivery, Inc.
in connection with the formation of ftd.com. This transaction is exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof because it was a transaction by an issuer not involving any public
offering in accordance with Rule 152 under the Securities Act.
In May 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 transaction exempt from the registration requirements of the
Securities Act pursuant to Rule 506 of Regulation D.
In May 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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<C> <S>
4.1* Specimen certificate for ftd.com's Class A common stock
4.2+ Stockholders' Agreement, dated as of December 19, 1994, among
Perry Acquisition Partners, L.P. and the Co-Investors named
therein
4.3+ Registration Rights Agreement, dated as of May 20, 1999,
between ftd.com and DBV Investments, L.P.
4.4+ Registration Rights Agreement between FTDI and ftd.com
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>
- ----------
* To be filed by amendment.
+ Previously filed.
(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.
II-3
<PAGE>
(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. 2 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on June 24, 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. 2 to Registration Statement has been signed by the following persons in the
capacities indicated and on the 24th day of June, 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. 2 to Registration Statement on behalf of the above-named
directors, on June 24, 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
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INDEX TO EXHIBITS
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Exhibit Description of Exhibit
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<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. and the Co-Investors named therein
4.3+ Registration Rights Agreement, dated as of May 20, 1999, between
ftd.com and DBV Investments, L.P.
4.4+ Registration Rights Agreement between FTDI and ftd.com
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
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* To be filed by amendment.
+ Previously filed.
<PAGE>
EXHIBIT 23.1
The Board of Directors
ftd.com inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/S/ KPMG LLP
Chicago, Illinois
June 24, 1999
